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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________.
Commission file number 0-20034
BROADWAY & SEYMOUR, INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1522214
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
128 South Tryon Street
Charlotte, North Carolina 28202
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(Address of principal executive (Zip code)
offices)
(704) 372-4281
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
The aggregate market value of voting stock held by non-affiliates of
the registrant as of February 26, 1999 computed by reference to the closing sale
price on such date, was $31,728,006. As of the same date, 9,228,623 shares of
Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1998 Annual Report (the "Annual Report"), filed as
an Exhibit hereto, and the Notice of Annual Meeting of Stockholders and
definitive Proxy Statement pertaining to the 1999 Annual Meeting of Stockholders
(the "Proxy Statement") to be filed pursuant to Regulation 14A (no later than
April 30, 1999) are incorporated herein by reference into Parts II and IV, and
Part III, respectively.
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Total pages - 19
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Item 1. Description of Business
Overview
Broadway & Seymour, Inc. (the "Company") is a software product and
services company, providing integrated solutions to the financial, legal and
professional services markets. The Company serves these markets through three
separately managed operating segments which are summarized below:
Elite Information Systems, Inc. ("Elite"), the Company's legal and
professional services business, is based in Los Angeles, California and provides
an integrated suite of practice management software for the legal and
professional services markets. Elite's products are focused primarily on time
tracking, billing, internal accounting and other administrative functions,
including marketing, records management, case management and conflicts of
interest prevention. Elite's software products are often sold with related
services to aid the customer in implementation, data conversion, user training,
support and maintenance of those products.
Broadway & Seymour, the Company's customer relationship management
business (the "CRM business"), is based in Charlotte, North Carolina and
provides product-based and services-based solutions that address the customer
relationship management needs of the financial services industry. The CRM
business' product-based solutions for customer relationship management include
the proprietary software products TouchPoint(TM), CRISP(TM) and BANCStar(R),
which are generally integrated and customized to provide a tailored business
solution to banks and other financial institutions. Through its services-based
solutions the CRM business provides consulting and custom system integration and
development services focused on customer relationship management.
The MiniComputer Company of Maryland, Inc. ("TMC"), based in
HuntValley, Maryland, is a marketer of proprietary time and billing software,
custom programming services and other computer related services primarily to law
firms. The majority of TMC's operations are focused on supporting existing
customers that have previously licensed TMC's software product. Subsequent to
the period covered by this report the Company signed a definitive stock purchase
agreement (effective March 5, 1999) to sell all of the outstanding shares of TMC
to a holding company owned by TMC management.
General Development of the Business
The Company was incorporated in 1985 in connection with the acquisition
of Broadway & Seymour, Inc., a North Carolina corporation that had been doing
business since 1981. The Company followed a strategy of growth through the
acquisition of products and businesses through mid-1995. At the end of 1995, the
Company changed its strategic direction to focus on achieving sustained
performance of core operations and growth through internally developed
product-based solutions and other selected services, rather than acquisitions.
Operations were reorganized to integrate independent business units, and certain
non-core business units were disposed of in 1995, 1996 and 1997 (see
Management's Discussion and Analysis - Significant Transactions).
Business Strategy
The Company's strategy is to develop and provide business solutions
that address the business management and customer relationship management needs
of its targeted markets which include legal and other service firms of all sizes
and top financial institutions.
In the legal and professional service industries, Elite will continue
to develop and market its client-server Windows and internet/intranet practice
management products (see "Product and Services Based Solutions" below), while
also focusing efforts such as the planned release of its 32-bit system with
enhanced
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query capabilities and object-oriented architecture. Elite markets its practice
management tools principally to law firms in the United States, Canada, the
United Kingdom and Europe. In addition, Elite will continue to focus on
expanding its market presence in other segments of the services
industry, including accounting, actuarial, consulting, advertising, public
relations and other services firms.
Elite has an extensive field operations unit that performs services
including installation, implementation, data conversion, training and consulting
on Elite products. Elite's Professional Services unit also provides follow-on
consulting and technical services to its client base on a fee for services
basis. Principally all Elite customers contract with Elite for maintenance and
telephone support services on an annual basis.
The Company's CRM business' strategy is to continue to address the
customer relationship management needs of large, market leading financial
services organizations that will offer opportunities for growth through
value-added relationships. CRM will continue to focus its primary marketing
efforts on its TouchPoint customer relationship management solution, targeting
large banks and thrifts and insurance companies in North America. CRM intends to
continue providing client and market support of its BANCStar and CRISP products
(see "Product and Services Based Solutions" below). CRM also plans to continue
providing consulting, system integration and custom development services in
conjunction with its product offerings and on a consulting-only basis by
leveraging its knowledge, software and services into financial services and
other markets with customer relationship management needs.
Product and Services Based Solutions
Software products mentioned in this document are for identification
purposes only and may be trademarks of Broadway & Seymour, Inc., its
subsidiaries or third parties.
Solutions for the Legal and Professional Services Markets
Elite's solutions incorporate client-server and open systems
architecture using either a Windows or internet browser interface and
can be run on multiple operating systems and major databases including
Unix, Windows NT Server, Microsoft SQL Server and Informix.
Elite Billing System is a comprehensive accounting and
information management software product serving legal and professional
service firms. The Elite Billing System responds to clients' billing
requirements with on-line management information and processes.
Elite Financial Management System is a general ledger and
accounts payable software product that supports multi-currency and
simultaneous cash and accrual-based accounting as well as budgeting
features.
Elite Case Management System is a case tracking software
system and conflicts/related-party database. This system also includes
calendar and docket functions, a case database, a related-party
tracking system, on-line viewing of case information and personal
calendars and a user-defined reporting system.
Elite Practice Development System is a comprehensive marketing
and practice development tool that tracks relationships, manages
mailings and monitors the effectiveness of client development efforts.
Elite Conflict of Interest Module is an integrated software
tool for checking conflicts of interest, based on a full-text search
engine.
Elite Records Management Module is a software tool for
managing both internal and external records, with bar code support and
integration with the Elite Conflict of Interest System.
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Elite Professional's Desktop is a software tool that
summarizes key information from all Elite applications in a simple and
concise manner within a web-browser. By using built in HTML hyperlinks,
a user can quickly move from application to application.
Solutions for the Financial Services Market
TouchPoint(TM) is a software solution that is integrated with a
financial institution or other company's existing hardware and software
systems to retrieve customer data and present it through a variety of
delivery channels, including call centers, offices and branches.
TouchPoint can be modified to address specific requirements and the
solution may involve integrated third party hardware and software
developed and provided by other vendors. TouchPoint allows improved
customer service by consolidating customer and account information from
existing legacy systems and presenting it on a universal workstation to
a customer service representative. The open client/server architecture
also makes TouchPoint scaleable so that it can be implemented in single
departments or enterprise-wide using a phased installation approach.
BANCStar(R) is a branch automation software product used to automate
branch and teller bank operations and integrate branch networks.
BANCStar supports teller, customer service, sales and loan calculation
activities, as well as basic system functions such as providing branch
statistics and storing and forwarding information to other computers.
BANCStar Prism(TM) is an automated banking system that supports a
graphical user interface, allowing for video and sound, dynamic data
exchange and a multi-tasking environment to help streamline banking
operations to the bank's other computers without interrupting
workstation activity. Custom systems integration and development
services, as well as third party hardware and software, may be provided
as part of the BANCStar solution.
CRISP(TM) is a decision support software product that assists
commercial bankers in the management of their relationships, products
and employees. Fully graphical and intuitive, CRISP delivers
comprehensive product and profitability analyses on a variety of bank
or customer organizational levels. CRISP provides a single repository
of on-line customer information from multiple other systems. Custom
systems integration and development services, as well as third party
hardware and software, may be provided as part of the CRISP solution.
Systems Integration, Consulting and Custom Development
Services are provided as services-based solutions. These engagements
typically involve the development of technology solutions for difficult
business and technical problems and are often provided as part of a
complex system that may include third party hardware and software
products and training and documentation services. The Company may be
retained to perform all aspects of a complex project or a discrete
portion of a project.
Support Services
The Company views its customer support services as a
significant part of its strategy to establish and maintain strong
customer relationships. The Company offers system maintenance and
support at fixed prices under renewable contracts as well as conversion
and installation services as needed by its customers. The degree of
maintenance service provided to customers differs depending on the
system being supported. Generally, support contracts entitle users to
telephone support and regular upgraded product releases. In addition,
the Company offers certain training classes and multi-media based
instruction to customers that aid in the implementation and effective
use of the Company's solutions.
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Year 2000 Issues
Overview
Many software products, custom-developed software, and products
embedded with microprocessor chips were designed to store, process or perform
calculations using only the last two digits of a four-digit year date, for
example, "98" rather than "1998". These software systems and embedded products
may assume the first two digits of the year date to be "19" and as such they may
not be able to process dates with years following 1999. For example, "00" may be
treated by certain software systems as the year 1900 rather than the year 2000.
Results of this failure to process the date correctly could include
miscalculations, unpredictable or inconsistent results or complete system
failures. Companies in all lines of business face issues in addressing whether
their software products, custom developed software and third party software used
internally, sold by the company or used by its vendors or customers or other
entities upon which the company relies, will be able to process data properly
relating to dates subsequent to December 31, 1999 ("Year 2000 compliance").
State of Readiness
The Company has recognized the need to address the Year 2000 compliance
issues and in 1997 established a Year 2000 compliance committee to supervise and
monitor the planning, performance and assessment of the Company's Year 2000
compliance efforts. This committee has involved members of senior management,
product development leaders, information systems management, facilities
management and corporate finance management in efforts to develop a
comprehensive and coordinated Year 2000 compliance effort. The chairman of the
committee periodically reports plans, progress and issues to executive
management and the audit committee of the Board of Directors.
Beginning in the second half of 1997, the Company began developing an
inventory list of all its proprietary software products, third party products it
incorporates in its products or resells, infrastructure and internal use
products, facilities and office service systems and hardware products upon which
it relies. Upon completion of the inventory list, the Company's Year 2000
committee appointed individual team leaders from various functional areas to be
responsible for the efforts of assessing Year 2000 compliance for each of the
inventory list items.
Proprietary Software Products and Custom Developed Software: In 1997,
the Company adopted the widely accepted definition for Year 2000 readiness set
out in the "Compliance with British Standards Institution DISC PD2000-1 for Year
2000". In May 1998, following a period of assessment and testing, the Company
issued its Year 2000 readiness statement which specifically identified the
current versions of each of the Company's proprietary products that met the
adopted standard. The Company continues to test new versions of its products for
compliance with this standard on an ongoing basis. The Company believes that its
current versions of proprietary software products are Year 2000 compliant;
however, no assurance can be given that additional modifications for Year 2000
compliance will not be necessary. The Company's software products are integrated
with its customers' software and hardware systems and have, in many cases, been
uniquely customized to the customers' specifications. The Company has generally
not tested its products as integrated in its customers' operating environments,
although it is in the process of developing methods to do so for current
TouchPoint customers. The customers' systems with which the Company's products
interoperate may not be Year 2000 compliant which may affect the operation of
the Company's products. As a result the Company, in the course of providing its
software maintenance services, may incur costs in ascertaining the cause(s) of
system failures not caused by its own products. Such costs, if any that the
Company may incur are not estimable, but will generally be charged to customers.
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Many of the Company's former customers and current customers presently
use earlier versions of the Company's software products, and/or associated
custom or systems integration code, that are not Year 2000 compliant. The
Company has made efforts to communicate with these customers to advise them that
they will need to upgrade to a Year 2000 compliant version of the Company's
software product, revise custom code or implement other alternatives to meet
their business needs. Customers paying support fees are entitled to receive
software product upgrades as part of their regular maintenance contracts.
Customers who have not maintained support agreements with the Company may
purchase such upgrades. Changes to custom or systems integration code provided
by the Company that is not Year 2000 compliant are not covered by customer
maintenance agreements. Customers may perform such changes themselves, engage
the Company to perform such changes, or, in some cases, engage third parties to
perform such changes. Customers may need to upgrade third party products and
their host software and hardware systems that share data or interoperate with
the Company's products in order to utilize the Company's software upgrades or
modified custom or systems integration code. Such costs could impact customer
purchasing decisions and may lead customers to choose alternatives to the
Company's products or services.
Third Party Products: Third party products embedded within the
Company's products are included in the test plans and compliance efforts that
the Company already has underway for its own products. In addition, the Company
has obtained certification of Year 2000 compliance from each third party vendor
whose products are embedded in the Company's products or that are resold by the
Company.
Infrastructure and Third Party Products Used Internally: The Company
has obtained certification of Year 2000 compliance from each of the vendors of
its internal use information technology systems. The Company is developing test
plans for these internal use systems following the same guidelines and standards
that it has used for its own products. Currently the Company anticipates having
all test plans developed for critical internal use technology systems by
mid-1999. The Company also intends to begin testing during that period and will
continue testing through 1999.
During the first half of 1999, the Company will begin developing a
contingency plan against Year 2000 failure for its mission critical software
applications, hardware and other systems.
The majority of non-information technology systems on which the Company
relies in its operations are owned and managed by the lessors of the buildings
in which the Company's offices are located. The Company has developed checklists
of critical systems upon which it relies and certification documents are being
sought from its lessors and other appropriate providers as applicable regarding
Year 2000 compliance of their systems. The Company will prioritize these systems
and develop test plans based on the responses it receives, or does not receive,
from its lessors and other providers. This effort is scheduled for completion in
the first half of 1999.
Risks and Costs
Because of the nature of the Company's business, the Company may be
subject to Year 2000 claims or litigation by its customers or other parties.
Many customers will incur significant costs in making their information
processing systems Year 2000 compliant and may seek to transfer such costs
through litigation to information processing industry vendors such as the
Company. Although the ultimate outcome of any litigation is uncertain, the
Company does not believe that the ultimate amount of liability, if any, from
such actions would have a material adverse affect on the Company.
The Company believes that Year 2000 issues may affect the purchasing
patterns of its customers and potential customers in a variety of ways. Many
companies are expending significant amounts and rededicating personnel to
correct or patch their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase software products
such as those offered by the Company. It is possible that certain of the
Company's customers are purchasing support contracts with the intent of
discontinuing such support after January 1, 2000 when they have satisfied
themselves that the supported product is Year 2000 compliant. Many potential
customers may also choose to defer purchasing Year 2000 compliant products until
they believe it is absolutely necessary, thus resulting in potentially stalled
market sales within the industry. Additionally, Year 2000 compliance issues
could cause a significant number of companies, including current Company
customers, to reevaluate their current system needs and as a result to consider
switching to other systems or suppliers.
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The Company has not specifically hired additional personnel or made
material purchases of products to address Year 2000 compliance issues, nor does
the Company expect it will be necessary to do so. The expenditures made to date
have principally related to salary costs of existing personnel assigned to
participate at various levels in the Company's compliance efforts. All costs
related to achieving Year 2000 compliance are being expensed as incurred. The
Company estimates that the costs incurred to date related to Year 2000
compliance efforts range between $.5 and $1.0 million. The Company expects to
continue to test current and new versions of its proprietary software, work with
vendors of third party software that the Company uses or resells, update and
test its inventory of potentially affected internal systems and communicate with
vendors and customers regarding the Year 2000 compliance issue. The Company
estimates the costs of these efforts will be below $.5 million.
Euro Currency
Beginning in January 1999, a new currency called the ECU or the "euro"
was introduced in certain Economic and Monetary Union (the "EMU") countries.
During 2002, all EMU countries are expected to be operating with the euro as
their single currency. As a result, computer software used by many organizations
headquartered or maintaining a subsidiary in an EMU country will need to be euro
currency enabled, and in less than three years all organizations headquartered
or maintaining a subsidiary in an EMU country are expected to need to be euro
currency enabled.
The transition to the euro currency will involve the handling of
parallel currencies and conversion of legacy data. Uncertainty exists as to the
effects the euro currency will have on the marketplace. Additionally, all of the
final rules and regulations have not yet been defined and finalized by the
European Commission with regard to the euro currency.
The Company is monitoring the rules and regulations as they become
known in order to make any changes to the software that the Company deems
necessary to comply with such rules and regulations. Although the Company
currently offers certain software products that are designed to be
multi-currency enabled and the Company believes that it will be able to
accommodate any required euro currency changes in its software products, there
can be no assurance that once the final rules and regulations are completed that
the Company's software will contain all of the necessary changes or meet all of
the euro currency requirements.
Research and Development
To meet the changing needs of the financial and professional services
industries, the Company expends resources to continually develop and enhance its
proprietary software products. The Company believes that ongoing commitment to
research and development is important to the long-term success of the business.
For the years ended December 31, 1998, 1997 and 1996, the Company's
total research and development expenditures (including capitalized costs) were
$8.5 million, $6.0 million and $7.4 million, respectively.
There are inherent risks in the development and introduction of a new
product. For example, new products may have quality or other defects in the
early stages of introduction that were not anticipated in the design of those
products. The Company cannot determine the effects on operating results of
unanticipated complications in product introductions or transitions.
Sales and Marketing
New customer contacts are generated by a variety of methods, including
customer referrals, personal sales calls, attendance at trade shows and
seminars, advertising in trade publications, direct mailings to targeted
customers and telemarketing.
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The Company's sales personnel are given sales responsibility within
their targeted customer markets. Additionally, senior management and technical
subject matter experts within the Company are directly involved in obtaining and
supporting relationships.
The Company's business strategy also emphasizes sales to existing
customers. Follow-on sales to existing customers include system upgrades,
expansion of license rights, migration to new products and maintenance and
support services.
Customers
The Company serves a client base of law firms and other professional
service firms through its Elite and TMC operations. Elite's customers include
over half of the 100 largest law firms in the United States and several large
firms in the United Kingdom and the largest law firm in the world. In addition,
the CRM business' customers include a broad variety of institutions and
companies in the financial services industry, including several of the largest
banks in the United States.
The Company provides software solutions under a variety of financial
arrangements, including fixed fee contracts and billings on a time and materials
basis.
The majority of Elite's revenue is concentrated in the legal services
industry. However, no single customer accounts for 10% or more of Elite's
revenue.
A majority of the CRM business revenue is concentrated among a few
customers in the financial services industry. In 1998, 1997 and 1996 the five
largest CRM business customers accounted for approximately 73%, 62% and 68%,
respectively, of the CRM business' revenue and 25%, 37% and 24% of consolidated
revenue for the same periods.
For the periods presented, the CRM business had two customers that
exceeded certain disclosure requirement thresholds and are therefore classified
as significant customers. In 1998 and 1997, Chase Manhattan Bank ("Chase")
accounted for $8.3 million, or 12.1%, and $10.3 million, or 13%, of the
Company's consolidated revenue, respectively. Also, in 1997 and 1996 First Data
Corp. ("FDC") accounted for $8.0 million, or 10.1%, and $9.6 million, or 10.6%,
of consolidated revenue, respectively.
Geographic Information
The Company's assets are principally located in the United States. The
Company's revenue is principally generated in United States, however for the
years ending December 31, 1998, 1997, and 1996 Elite revenue generated in Europe
represented 8%, 9%, and 5% of consolidated revenue, respectively, and 14%, 22%
and 11% of Elite's revenue for the same periods. In addition, for the years
ending December 31, 1998 and 1997, Elite's other international revenue was
approximately 2% and 1% of consolidated revenue, respectively, and 4% and 2% of
Elite's revenue for the same periods. Since the Company's contracts with
non-U.S. customers generally denominate the amount of payments to be received by
the Company in local currencies, exchange rate fluctuations between such local
currencies and the U.S. dollar will subject the Company to currency translation
risks. Also, the Company may be subject to currency transaction risks when the
Company's contracts are denominated in a currency other than the currency in
which the Company incurs expenses related to such contracts.
Competition
The Company's businesses are competitive. The Company is not aware of
any one competitor that offers the same combination of services and products
offered by the Company, but believes that a number of firms compete with the
Company in all areas. In the markets in which it competes, the Company believes
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there are participants that have greater financial, technical and marketing
resources. However, the Company believes that no one competitor is dominant in
its markets.
Elite principally competes for engagements with two other companies
that target similar prospects with office automation solutions for the legal and
professional services industry.
The CRM business is focused in an increasingly competitive environment
of software solutions for customer relationship management. A wide variety of
computer hardware and software companies are becoming involved in offering
similar solutions. Many large accounting and management consulting firms offer
services that overlap with at least a portion of the CRM business' solutions and
services. In addition, the CRM business also competes with the internal
operations of its customers and prospects.
The Company believes that competitive factors for engagements in both
the legal and professional services industry and the financial services industry
include knowledge of the respective industry, capabilities of resources, ease of
use or abilities to customize the solution, breadth of functionality and price.
Backlog
A significant portion of the Company's revenue is derived from work to
be performed under long-term, cancelable contracts entered into in the ordinary
course of business. These contracts often relate to ongoing projects with
respect to which the continuation of work is at the option of the customer. At
December 31, 1998 and 1997, the Company's Elite and CRM businesses had unearned
revenue in the following approximate amounts from signed contracts.
Substantially all of TMC's unearned revenue at those dates related to
maintenance services.
<TABLE>
<CAPTION>
December 31,
1998 1997
($ in thousands)
-------------------------
<S> <C> <C>
Elite $25,959 $14,100
CRM $9,535 $6,772
</TABLE>
Employees and Recruitment
The Company believes that its future success will depend in part on its
continued ability to hire and retain qualified employees. The Company believes
its relations with employees are good. Competition for personnel in the
Company's industry is intense. Although it actively recruits personnel and
provides professional employees with career path opportunities, there can be no
assurance that the Company will be successful in attracting and retaining
sufficient numbers of qualified personnel to conduct its business in the future.
The Company actively recruits at college campuses and also seeks employees with
expertise and experience in its chosen markets.
At February 28, 1999, the Company had approximately 465 full-time
employees. Elite had 231 employees, the CRM business had 216 and TMC had 18.
None of the Company's employees is represented by a labor union.
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Copyrights, Trademarks, Patents and Licenses
The Company currently markets several proprietary software products.
The Company attempts to protect its rights in its proprietary software by
retaining the title to and copyright in the software and documentation and
attempts to protect rights in all software it markets (including third-party
software) by including appropriate contractual restrictions on use and
disclosure in its licenses and by requiring its employees to execute
non-disclosure and assignment of inventions agreements. However, the Company
sometimes provides source code for some of its software products to users for
their internal use in connection with the license of these products. The Company
believes that, due to the rapid pace of innovation within its industry, factors
such as the technological and creative skills of its personnel are more
important in establishing and maintaining a leadership position within the
industry than are the various legal protections of its technology. The Company
believes that the nature of its customers, the importance of the Company's
products to them and their need for continuing product support reduce the risk
of unauthorized reproduction. However, there can be no assurance that any such
steps taken by the Company in this regard will be adequate to deter
misappropriation of its proprietary rights or independent third-party
development of functionally equivalent products.
The Company's business includes the development of custom software in
connection with specific customer engagements. Although the Company sometimes
assigns to its customer the copyright and other intellectual property rights in
the software and documentation developed for the customer, in these cases the
Company negotiates to retain the right to develop similar products for other
customers. In a limited number of circumstances, the Company has agreed not to
use certain specific technological code or functionality developed in an
engagement for one customer to perform projects for other customers or to
develop a system for a competitor of the customer that is similar to the system
developed for the customer. However, the Company believes these restrictions
will not have a material adverse effect on the Company.
The Company believes that its services and products do not infringe on
the intellectual property rights of its customers or other third parties.
However, particularly given the rapid changes in copyright and patent law, there
can be no assurance that an infringement claim will not be asserted against the
Company in the future. Any such claim, if resolved against the Company, could
adversely affect the Company's reputation, preclude it from offering certain
products and services, and subject it to substantial liability.
Item 2. Properties
The Company's corporate and the CRM business offices and are located at
128 South Tryon Street in Charlotte, North Carolina. The Company's lease of
those premises (approximately 107,000 square feet) expires December 31, 2000,
with two five-year renewal options thereafter. The Company has subleased
approximately 29,000 square feet of this space. Elite maintains its offices
(approximately 25,000 square feet) in Los Angeles, California under a lease that
expires July 2008. The Company also leases additional facilities, as needed,
principally as sales offices in other cities in North America and the United
Kingdom. The Company believes that its facilities are adequate for its current
needs.
Item 3. Legal Proceedings
The Company is involved in litigation from time to time that is routine
in nature and incidental to the conduct of its business. The Company believes
that the outcome of any such litigation would not have a material adverse effect
on the financial condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's stockholders
during the fourth quarter of the fiscal year ended December 31, 1998.
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PART II
Item 5. Market for Registrant's Common Stock and Related Stockholders' Matters
Market for Common Stock
The information under the caption "Market for Common Stock" on page 2
of the Annual Report is incorporated herein by reference.
Holders of Record
As of February 26, 1999, there were approximately 115 holders of record
of the Company's Common Stock.
Dividends
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain any earnings for use in its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future.
Item 6. Selected Financial Data
The information under the caption "Selected Financial Data" on page 2
of the Annual Report is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" on pages 3 through 14 of the
Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Financial Statements:
The consolidated financial statements and related notes, together with
the report thereon of PricewaterhouseCoopers LLP dated February 6, 1999 except
as to Note 14, which is as of March 5, 1999 appearing in the Annual Report are
incorporated herein by reference.
Financial Statement Schedules:
Item 14 includes an index to the financial statement schedules.
11
<PAGE> 12
Item 9. Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information under the captions "Election of Directors" and "Stock
Ownership of Directors and Executive Officers" in the Proxy Statement is
incorporated herein by reference.
Item 11. Executive Compensation
The information under the captions "Executive Officers, Compensation
and Other Information", "Employment Agreement" and "Compensation Committee
Report on Executive Compensation" in the Proxy Statement is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information under the captions "Principal Stockholders", "Election
of Directors" and "Stock Ownership of Directors and Executive Officers" in the
Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information under the captions "Employment Agreements" in the Proxy
Statement is incorporated herein by reference.
12
<PAGE> 13
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements.
The following consolidated financial statements and related notes,
including the report thereon of PricewaterhouseCoopers LLP dated February 6,
1999, except as to note 14, which is as of March 5, 1999 appearing in the Annual
Report, are incorporated herein by reference:
Consolidated Statement of Operations
Consolidated Balance Sheet
Consolidated Statement of Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Accountants
(a)(2) Financial Statement Schedules.
The following schedules are filed as a part of this report:
Page
----
Schedule II - Valuation and Qualifying Accounts and Reserves 18
Report of Independent Accountants on the
Financial Statement Schedule 19
All other schedules for which provision is made in the applicable
regulation of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable, or the required information is included
elsewhere in the financial statements.
13
<PAGE> 14
(a)(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of Broadway & Seymour, Inc., dated June 16,
1992 (Incorporated by reference to Exhibit 3.1 to the Registrants Annual Report on
Form 10-K for the Fiscal Year Ended January 31, 1993)
3.2 Restated By-laws of the Company (Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, SEC File No. 33-46672)
4.1 Specimen share certificate (Incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-1, SEC File No. 33-46672)
4.2 Articles 4 and 5 of Broadway & Seymour, Inc.'s Restated Certificate of
Incorporation (Incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-1, SEC File No. 33-46672)
4.3 Article II, Section 2.2 of the Company's Restated By-laws (Incorporated by reference
to Exhibit 4.3 to the Registrant's Registration Statement on Form S-1, SEC File
No. 33-46672)
10.01+ Restated 1985 Incentive Stock Option Plan of Broadway & Seymour, Inc. dated June 12,
1985 (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1, SEC File No. 33-46672)
10.02+ Amendment No. 1 to Restated 1985 Incentive Stock Option Plan of Broadway & Seymour,
Inc. dated February 25, 1993 (Incorporated by reference to Exhibit 10.2 to the
Registrant's Annual Report on Form 10-K for the Fiscal Year Ended January 31, 1993)
10.03+ Amendment No. 2 to Restated 1985 Incentive Stock Option Plan of Broadway & Seymour,
Inc. dated February 17, 1994 (Incorporated by reference to Exhibit 10.16 to the
Registrant's Transition Report on Form 10-K for the Eleven Months Ended December 31,
1993)
10.04+ Amendment No. 3 to Restated 1985 Incentive Stock Option Plan of Broadway & Seymour,
Inc. dated May 15, 1995 (Incorporated by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1995)
10.05+ Broadway & Seymour, Inc. 1996 Stock Option Plan dated September 16, 1996
(Incorporated by reference to Appendix B to the Registrant's Definitive Proxy
Statement on Form DEFS14A dated August 14, 1996)
10.06 Asset Purchase Agreement between Unisys Corporation and Broadway & Seymour, Inc.
dated as of July 24, 1997. (Incorporated by reference to Exhibit 10.35 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1997)
10.07 Amendment to Asset Purchase Agreement between Unisys Corporation and Broadway &
Seymour, Inc. dated September 17, 1997. (Incorporated by reference to Exhibit 10.36
to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September
30, 1997)
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C>
10.08 Loan Agreement by and among Broadway & Seymour, Inc., Elite Information Systems,
Inc., The Minicomputer Company of Maryland, Inc., Elite Information Systems
International, Inc., Pragmatix Telephony Solutions, Inc., and Fleet National Bank
(as agent and lender) for $15,000,000 secured revolving credit loan dated as of July
23, 1997. (Incorporated by reference to Exhibit 10.21 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter Ended June 30, 1997)
10.09 Security Agreement by and between Broadway & Seymour, Inc. and Fleet National Bank
dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.22 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997)
10.10 Security Agreement by and between Elite Information Systems, Inc. and Fleet National
Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.23 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997)
10.11 Security Agreement by and between Elite Information Systems International, Inc. and
Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit
10.24 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June
30, 1997)
10.12 Security Agreement by and between The Minicomputer of Maryland, Inc. and Fleet
National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.26
to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1997)
10.13 Security Agreement by and between Pragmatix Telephony Solutions, Inc. and Fleet
National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.26
to the Registrant's Quarterly Report of Form 10-Q for the Quarter Ended June 30,
1997)
10.14 Conditional Trademark Assignment by and between Broadway & Seymour, Inc. and Fleet
National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.27
to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1997)
10.15 Conditional Trademark Assignment by and between Elite Information Systems, Inc. and
Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit
10.28 to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June
30, 1997)
10.16 Conditional Trademark Assignment by and between Elite Information Systems
International, Inc. and Fleet National Bank dated as of July 23, 1997 (Incorporated
by reference to Exhibit 10.29 to the Registrant's Quarterly Report on Form 10-Q for
the Quarter Ended June 30, 1997)
10.17 Conditional Trademark Assignment by and between The Minicomputer of Maryland, Inc.
and Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to
Exhibit 10.30 to the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 1997)
10.18 Conditional Trademark Assignment by and between Pragmatix Telephony Solutions, Inc.
and Fleet National Bank dated as of July 23, 1997 (Incorporated by reference to
Exhibit 10.31 to the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 1997)
10.19 Stock Pledge Agreement by and between Broadway & Seymour, Inc. and Fleet National
Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.32 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997)
10.20 Stock Pledge Agreement by and between Elite Information Systems, Inc. and Fleet
National Bank dated as of July 23, 1997 (Incorporated by reference to Exhibit 10.33
to the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1997)
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
10.22 First Amendment to Loan Agreement by and among Broadway & Seymour, Inc., Elite
Information Systems, Inc., The Minicomputer Company of Maryland, Inc., Elite
Information Systems International, Inc., and Fleet National Bank (as agent and
lender) dated September 30, 1997 (Incorporated by reference to Exhibit 10.31 to the
Registrant's Annual Report on form 10-K for the year ended December 31, 1997)
10.23 Second Amendment to Loan Agreement by and among Broadway & Seymour, Inc., Elite
Information Systems, Inc., The Minicomputer Company of Maryland, Inc., Elite
Information Systems International, Inc., and Fleet National Bank (as agent and
lender) dated February 6, 1998 (Incorporated by reference to Exhibit 10.32 to the
Registrant's Annual Report on form 10-K for the year ended December 31, 1997)
10.24 Third Amendment to Loan Agreement by and among Broadway & Seymour, Inc., Elite
Information Systems, Inc., The Minicomputer Company of Maryland, Inc., Elite
Information Systems International, Inc., and Fleet National Bank (as agent and
lender) dated May 6, 1998
10.25 Fourth Amendment to Loan Agreement by and among Broadway & Seymour, Inc., Elite
Information Systems, Inc., The Minicomputer Company of Maryland, Inc., Elite
Information Systems International, Inc., and Fleet National Bank (as agent and
lender) dated August 7, 1998
10.26* Fifth Amendment to Loan Agreement by and among Broadway & Seymour, Inc., Elite
Information Systems, Inc., The Minicomputer Company of Maryland, Inc., Elite
Information Systems International, Inc., and Fleet National Bank (as agent and
lender) dated February 19, 1999
10.27+ Employment Agreement, dated as of May 29, 1997 (executed June 1, 1997), by and
between Broadway & Seymour, Inc. and Keith B. Hall (Incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997)
10.28+ Amendment No. 1 to Employment Agreement for Keith B. Hall dated February 19, 1998
10.29+ Employment Agreement dated as of September 1, 1995 by and between Broadway &
Seymour, Inc. and Alan C. Stanford (Incorporated by reference to Exhibit 10.28 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended September 30,
1995)
10.30+ Amendment No. 1 to Employment Agreement for Alan C. Stanford dated February 19, 1998
10.31* Stock Purchase Agreement among TMC Holding Corporation
and Broadway & Seymour, Inc. dated March 5, 1999.
11* Computation of earnings per share
13* Portions of the Broadway & Seymour, Inc. 1998 Annual Report.
21* Subsidiaries of the Registrant
23* Consent of Independent Accountants dated March 8, 1999.
27* Financial Data Schedule, which is submitted electronically to the Securities and
Exchange Commission for information only and not filed.
</TABLE>
* Filed herewith.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BROADWAY & SEYMOUR, INC.
Date: March 8, 1999 By:/s/ Keith B. Hall
---------------------------------
Keith B. Hall, Vice President and
Chief Financial Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities set forth below and on the 8th
day of March 1999.
Signature Title
--------- -----
/s/ Alan C. Stanford
- ----------------------------
Alan C. Stanford Chairman, President, Chief Executive
Officer and Director
/s/ William G. Seymour
- ----------------------------
William G. Seymour Vice Chairman and Director
/s/ David A. Finley
- ----------------------------
David A. Finley Director
/s/ Roger Noall
- ----------------------------
Roger Noall Director
/s/ George L. McTavish
- ----------------------------
George L. McTavish Director
/s/ Christopher K. Poole
- ----------------------------
Christopher K. Poole Director
/s/ Robert J. Kelly
- ----------------------------
Robert J. Kelly Director
17
<PAGE> 18
Item 14a(2) Schedule II - Valuation and Qualifying Accounts and Reserves:
Broadway & Seymour, Inc.
Schedule II - Valuation and Qualifying Accounts and Reserves
For the Years ended December 31, 1998, 1998 and 1996
($ in thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance at
beginning charged to Deductions end
of period expense of period
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
December 31, 1998 $ 922 $ 1,400 $ 684 $ 1,638
December 31, 1997 892 1,046 1,016 922
December 31, 1996 941 1,076 1,125 892
</TABLE>
18
<PAGE> 19
Report of Independent Accountants on
Financial Statement Schedule
To the Board of Directors
of Broadway & Seymour, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 6, 1999, except as to Note 14, which is as of March 5, 1999,
appearing in the Company's 1998 Annual Report (which is incorporated by
reference in this Form 10-K) also included an audit of the Financial Statement
Schedule listed in Item 14 (a)(2) of this Form 10-K. In our opinion, this
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Charlotte, North Carolina
February 6, 1999
19
<PAGE> 1
EXHIBIT 10.26
FIFTH AMENDMENT TO LOAN AGREEMENT AND WAIVER
This Fifth Amendment to Loan Agreement is made by and among BROADWAY &
SEYMOUR, INC., a Delaware corporation ("Broadway") with a principal place of
business at 128 South Tryon Street, Charlotte, North Carolina 28202-5050, ELITE
INFORMATION SYSTEMS, INC., a California corporation ("Elite") with a principal
place of business at 5100 West Goldleaf Circle, Suite 100, Los Angeles,
California 90056, THE MINICOMPUTER COMPANY OF MARYLAND, INC., a Maryland
corporation ("TMC") with a principal place of business at Executive Plaza I,
11350 McCormick Road, Suite 600, Hunt Valley, MD 21031-1012, ELITE INFORMATION
SYSTEMS INTERNATIONAL, INC., a California corporation ("Elite International")
with a principal place of business at 5100 West Goldleaf Circle, Suite 100, Los
Angeles, California 90056 (Broadway, Elite, TMC and Elite International are
hereinafter jointly and severally referred to as, the "Borrower") and FLEET
NATIONAL BANK, a national banking association organized under the laws of the
United States and having an office at One Federal Street, Boston, Massachusetts
02110 as Agent for itself and each of the other Lenders who now and/or hereafter
become parties to the hereinafter defined Loan Agreement pursuant to the terms
of Section 9.11 thereof (sometimes the "Agent" and sometimes "Fleet" and in its
capacity as a Lender, sometimes "Fleet" and sometimes a "Lender"). Capitalized
terms used herein and not expressly defined herein shall have the respective
meanings ascribed to such terms in the hereinafter defined Loan Agreement.
WITNESSETH THAT:
WHEREAS, the Borrower and the Agent are parties to that certain Loan
Agreement dated as of July 23, 1997 pursuant to which the Lenders extended a
$15,000,000 revolving credit facility, as amended by that certain First
Amendment to Loan Agreement dated September 30, 1997, as further amended by that
certain Second Amendment to Loan Agreement dated February , 1998, effective as
of December 31, 1997, as further amended by that certain Third Amendment to Loan
Agreement dated May 5, 1998, effective as of March 31, 1998 and as further
amended by that certain Fourth Amendment to Loan Agreement dated August 7, 1998
(as amended hereby and as hereafter amended from time to time, the "Loan
Agreement"); and
WHEREAS, the Borrower and the Agent desire to amend a certain provision
of the Loan Agreement and waive Borrower's compliance therewith at December 31,
1998 as hereinafter set forth.
NOW, THEREFORE, the Borrower and the Agent hereby agree as follows:
1. All references in the Loan Agreement to the Financing Documents
shall be deemed to refer to such documents and in addition shall also refer to
this Fifth Amendment to Loan Agreement.
<PAGE> 2
2. Effective as of December 31, 1998, Section 5.1.10 of the Loan
Agreement is hereby deleted in its entirety and the following shall be
substituted in lieu thereof:
"Section 5.1.10. Minimum Consolidated Tangible Net
Worth. Maintain a Consolidated Tangible Net Worth in an amount
not less the sum of (i) $15,000,000, plus (ii) eighty-five
percent (85%) of Adjusted Net Income for the period beginning
as of the Closing Date without any reduction for losses, plus
(iii) eighty-five percent (85%) of the gross proceeds of an
offering or sale of a security, note or other instrument of
the Borrower or any Subsidiaries after the Closing Date, to be
measured at each Borrower fiscal quarter end on a cumulative
basis from the Closing Date."
3. (a) The Borrower has informed the Agent of its failure to comply
with Section 5.1.10 of the Agreement. Specifically, the Borrower has informed
the Agent that it was unable to meet its obligation to maintain Minimum
Consolidated Tangible Net Worth as required in such section of the Agreement for
the Borrower fiscal quarter ending December 31, 1998.
(b) In reliance on the accuracy of the Borrower's representation
referred to above and upon the verbal representations of the Borrower that no
Default or Event of Default (other than the Event of Default resulting from the
Borrower's failure to comply with Section 5.1.10 of the Agreement) exists under
the Agreement, Fleet hereby waives the Borrower's compliance with Section 5.1.10
of the Agreement for the Borrower fiscal quarter ended December 31, 1998. This
waiver is strictly limited to the Borrower's failure to meet its Minimum
Consolidated Tangible Net Worth obligation described above and is not, nor shall
it be construed as, a waiver of any other Default or Event of Default under the
Agreement, now existing or hereafter occurring.
4. The Borrower hereby restates all of the representations, warranties
and covenants (as amended hereby) of the Borrower set forth in the Loan
Agreement to the same extent as if fully set forth herein and the Borrower
hereby certifies that all such representations and warranties are true and
accurate and Borrower is in compliance with all such covenants as of the date
hereof.
5. The Borrower and the Agent hereby ratify, confirm and approve the
Loan Agreement, amended as set forth herein, as a binding obligation,
enforceable in accordance with its terms. The Borrower further acknowledges and
agrees that Agent has not waived any of its rights under the Loan Agreement,
amended as set forth herein, or any Event(s) of Default that may hereafter exist
thereunder and that there does not exist (i) any offset or defense against
payment or performance of any of the Indebtedness and Obligations of the
Borrower evidenced thereby, or (ii) any claim or cause of action by Borrower
against Agent with respect to the transactions described therein.
6. The Borrower represents and warrants to the Agent that no Default or
Event of Default exists under the Loan Agreement, amended as set forth herein,
any of the Financing Documents or any document or agreement executed in
connection therewith or herewith.
2
<PAGE> 3
7. This Fifth Amendment to Loan Agreement shall be effective as of
December 31, 1998.
IN WITNESS WHEREOF, the Borrower and the Agent have caused this Fourth
Amendment to Loan Agreement to be executed as a sealed instrument by their
proper representatives hereunto duly authorized as of the 19th day of February,
1999.
Witness: Broadway & Seymour, Inc.
/s/ Delores C. Tune By: /s/ Timothy Maness
- -------------------- ------------------------------
Timothy Maness, Treasurer
Witness: Elite Information Systems, Inc.
/s/ Delores C. Tune By: /s/ Timothy Maness
- -------------------- ------------------------------
Timothy Maness, Assistant Treasurer
Witness: The MiniComputer Company of Maryland,
Inc.
/s/ Delores C. Tune By: /s/ Timothy Maness
- -------------------- ------------------------------
Timothy Maness, Treasurer
Witness: Elite Information Systems International, Inc.
/s/ Delores C. Tune By: /s/ Timothy Maness
- -------------------- ------------------------------
Timothy Maness, Treasurer
Witness: Fleet National Bank, as Agent for the
Lenders and as a Lender
/s/ Andrew C. Wigren By: /s/ Michael S. Barclay
- -------------------- ------------------------------
Name: Michael S. Barclay
Title: Vice President
3
<PAGE> 1
EXHIBIT 10.31
STOCK PURCHASE AGREEMENT
AMONG
TMC HOLDING CORPORATION (BUYER)
AND
BROADWAY & SEYMOUR, INC. (SELLER)
MARCH 5, 1999
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of March
5, 1999 (the "Effective Date"), is by and between Broadway & Seymour, Inc., a
Delaware corporation (the "Seller"); and TMC Holding Corporation, a Maryland
corporation (the "Buyer").
BACKGROUND STATEMENT
The Seller owns all of the outstanding capital stock (the "Shares")
of The Minicomputer Company of Maryland, Inc., a North Carolina company (the
"Company"). The Buyer desires to purchase from the Seller, and the Seller
desires to sell to the Buyer, the Shares in return for cash and a note (the
"Transaction"). Based upon and subject to the representations and warranties
made by each of the Buyer and the Seller to the other in this Agreement, and in
those agreements attached hereto and referenced herein, and subject to the
respective conditions set forth in this Agreement, the parties have agreed to
consummate the Transaction on the terms contained herein.
STATEMENT OF AGREEMENT
In consideration of the premises and the mutual covenants herein
contained, the parties hereto agree as follows:
ARTICLE I
PURCHASE OF THE SHARES
1.1 PURCHASE AND SALE. On and subject to the terms and conditions
of this Agreement and for the consideration specified below, the Buyer agrees
to purchase from the Seller, and the Seller agrees to sell to the Buyer, the
Shares, representing in the aggregate all of the outstanding capital stock of
the Company.
1.2 PURCHASE PRICE. The Buyer agrees to pay the Seller $350,000
(the "Purchase Price") for the Shares. The Buyer will pay Seller $80,000 of the
Purchase Price by wire transfer or delivery of immediately available funds on
the Closing Date (the "Closing Payment"). The Buyer will give Seller a
Promissory Note, in the form attached hereto as EXHIBIT 1.2, for $270,000 (the
balance of the Purchase Price) payable at an annual rate of interest of ten
(10%) in accordance with the payment schedule attached to and made part of the
Promissory Note.
<PAGE> 3
ARTICLE II
THE CLOSING
2.1 CLOSING DATE. Subject to fulfillment of the conditions
herein, on March 5, 1999, or an earlier date acceptable to Buyer and Seller
(the "Closing Date"), the closing of the Transaction (the "Closing") shall take
place at the offices of the Seller in Charlotte, North Carolina, commencing at
10:00 a.m. on the Closing Date.
2.2 DELIVERIES BY SELLER AT CLOSING. At the Closing the Seller
will deliver the following items to Buyer (except as otherwise set forth
below):
a) the prepayments received by the Company for services to be
performed and products to be delivered by the Company after the
Closing Date as calculated pursuant to SECTION 2.4 below in cash
(the "Prepayments");
b) a stock certificate representing all of the Shares (to be
delivered to the escrow agent as provided in the Stock Pledge
Agreement to be executed by the parties as set forth in SECTION
2.3(C));
c) an executed Termination and Release Agreement in the form of
EXHIBIT 2.3(C) by which Seller agrees to pay Johnson $50,000
eight (8) days following the Closing Date (the "Release
Payment").
2.3 DELIVERIES BY BUYER AT CLOSING. At the Closing the Buyer will
deliver the following items:
a) the Closing Payment by wire transfer or by delivery in
immediately available funds; provided, however, that the Buyer
may elect to offset the Closing Payment against the Prepayments
upon notice to the Seller prior to the Closing Date;
b) a promissory note for the amount of $270,000 in the form attached
hereto as EXHIBIT 1.2;
c) a stock pledge agreement, in the form attached hereto as EXHIBIT
2.3(C) (the "Stock Pledge Agreement"), granting a security
interest in the Shares, and pledging the Shares to, Seller to
secure the amount of the Purchase Price not paid at Closing;
d) an executed Termination and Release and Settlement Agreement,
in the form attached hereto as EXHIBIT 2.3(D), duly executed by
Johnson releasing the Seller from any and all claims under the
Employment Agreement, dated June 9, 1995, as amended, between
Seller and Johnson, in consideration of the Release Payment;
2
<PAGE> 4
e) the Cooperation and Non-Compete Agreement, in the form attached
hereto as EXHIBIT 2.3(E), duly executed by Buyer and the
following individuals: Johnson, Bob Moore, Mike Stone, Marlene
Abramson and Kelly Long;
f) an assignment assigning the lease by and between Seller/Company
and Hill Management Services, Inc. (the "Landlord"), dated
February 5, 1994, as amended, for the premises occupied by the
Company (the "Lease") to the Company, which assignment (the
"Assignment") shall have been executed by the Landlord and
pursuant to which the Landlord shall have released the Seller
from liability thereunder.
g) the various certificates, instruments, agreements and other
documents required from the Buyer hereunder.
2.4 PREPAYMENTS. The Prepayments will be calculated as follows:
the sum of (i) five-sixths (5/6) of the maintenance revenues for calendar year
1999 payable on an annual basis collected as of the February 28, 1999, (ii) one
third (1/3) of the maintenance revenues for calendar year 1999 payable on a
quarterly basis collected as of February 28, 1999; and (iii) one third (1/3) of
the maintenance fees for the Universe Database Software payable for the year
running from July 1, 1998 to June 30, 1999 collected as of February 28, 1999. A
calculation of the Prepayments based on the preliminary February 28, 1999,
balance sheet for the Company is attached hereto as EXHIBIT 2.4. The
Prepayments paid on the Closing Date will be the amount set forth in EXHIBIT
2.4; provided, however, that the amount of the Prepayments will be adjusted
within thirty (30) days of the Closing Date, as necessary, based on the final
February 28, 1999 balance sheet for the Company and the amount of any
adjustment will be returned to Seller by Buyer or paid by Seller to Buyer as
appropriate within such time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer that the statements
contained in this ARTICLE III are correct as of the date of this Agreement
(except as expressly set forth below), and they will take no action to render
them incorrect as of the Closing Date.
3.1 THE SHARES. The Seller holds of record and owns beneficially
the Shares, which Shares shall be, within thirty (30) days following the
Closing Date, free and clear of any restrictions on transfer (other than any
restrictions under federal and state securities laws), taxes, security
interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands.
3.2 ORGANIZATION AND STANDING OF THE COMPANY. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the state of North Carolina.
3
<PAGE> 5
3.3 CAPITAL STOCK OF THE COMPANY. As of the date hereof, 100
shares of capital stock of the Company are outstanding. All outstanding shares
of capital stock of the Company are duly authorized, validly issued and
outstanding and fully paid and nonassessable. There are no outstanding, and at
Closing there will be no outstanding, warrants, options, agreements,
convertible or exchangeable securities or other commitments pursuant to which
the Company is or may become obligated to issue, sell, purchase or redeem any
shares of capital stock or other securities of the Company, and there are not
any equity securities of the Company reserved for issuance for any purpose.
3.4 TAXES AND TAX RETURNS.
(a) All tax returns that are required to be filed (taking into
account all extensions) on or before the Closing Date for the Company relating
to the income of the Company and those which include or should include the
Company (whether on a separate, consolidated, combined or any other basis) have
been or will be filed with the appropriate federal or state authorities on or
before the Closing Date, and all taxes shown to be due and payable on such tax
returns have been or will be paid in full on or before the Closing Date;
(b) To the knowledge of the Seller, all tax returns referred to
in Section 3.4(a) above and the information and data contained therein fairly
present or will fairly present, in all material respects, the information
purported to be shown therein, and reflect or will reflect all liabilities for
taxes for the periods covered by such tax returns; and
(c) To the knowledge of the Seller, none of such tax returns are
now under audit or examination by any governmental authority, and there are no
agreements, waivers or other arrangements providing for an extension of time
with respect of the assessment or collection of any tax or deficiency of any
nature against the Company or with respect to any such tax return, and no
proceedings or claims now pending or threatened against the Company with
respect to any tax.
3.5 OTHER LIABILITIES. Within thirty (30) days after the Closing
Date, Seller shall cause that certain Loan Agreement by and among Seller, the
Company and other affiliates of Seller and Fleet National Bank ("Fleet"), dated
July 23, 1997 (the "Loan Agreement"), and the following related documents of
even date therewith (i) the Security Agreement between Fleet and the Company,
and (ii) the Conditional Assignment of Trademark between the Company and Fleet,
to be amended and terminated, as the context requires, to relieve the Company
of liability thereunder. As of the date thirty (30) days following the Closing
Date, there shall be no liabilities, liens, or encumbrances that affect the
Company or its assets arising under or relating to any agreement entered on the
Company's behalf by the Seller.
4
<PAGE> 6
ARTICLE III-A
COVENANTS OF SELLER
3A.1. CORPORATE INCOME TAXES FOR 1999. Seller will in its federal
and state income tax returns for 1999 report taxable income for the Company for
the period of January 1, 1999 through February 28, 1999, and pay any income
taxes thereon.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer represents and warrants to the Company and the Seller as
follows:
4.1 NO VIOLATION. This Agreement has been duly and validly
authorized by the Buyer; neither the execution, delivery or performance of this
Agreement by the Buyer nor the operation of the Company's business by the Buyer
will violate any applicable legal requirement; and the Buyer has the power and
authority, and all necessary consents and approvals, to execute and deliver
this Agreement and to consummate the Transaction.
4.2 BROKERS' FEES. The Buyer has no liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
Transaction contemplated by this Agreement for which the Seller could become
liable or obligated.
4.3 INVESTMENT INTENT. The Buyer is not acquiring the Shares with
a view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act of 1933, as amended.
ARTICLE V
COVENANTS OF BUYER
5.1 CONFIDENTIALITY. The Buyer (a) will hold, and cause its
lenders, accountants, representatives, agents, consultants and advisors to
hold, in strict confidence, all information, other than such information as may
be or become (other than as a result of the violation of this Agreement by the
Buyer) publicly available, furnished to the Buyer in connection with the
Transaction as well as all information concerning the Company contained in any
analyses, compilations, studies or other documents prepared by or on behalf of
Buyer (collectively, the "Information"); and (b) will not, without the prior
written consent of the Sellers, except as required by law, release or disclose
any Information to any other person, except to the Buyer's employees, lenders,
accountants, representatives, agents, consultants and advisors who need to know
the Information in connection with the consummation of the Transaction, who are
5
<PAGE> 7
informed by the Buyer of the confidential nature of the Information and who are
instructed, and agree, to comply with the terms and conditions of this SECTION
5.1.
5.2 COOPERATION AND ACCESS TO RECORDS. Following the Closing, the
Buyer will, upon reasonable advance notice from Seller, make the Company's
books and records available for inspection by Seller, including Seller's
accountants, auditors and attorneys, and cooperate with and assist Seller in
such inspection, for the purpose of an audit of Seller or for Seller's use in
preparing tax returns for the periods through and including the Closing Date or
in responding to any audit(s) for such periods by any federal or state tax
authority.
5.3 RETURN OF EQUIPMENT. Within ten (10) days of the Closing
Date, the Buyer shall return to Seller at Seller's Charlotte, North Carolina
offices those items of equipment listed in EXHIBIT 5.3 hereto.
ARTICLE VI
MUTUAL COVENANTS
6.1 CONSUMMATION OF AGREEMENT. The Seller and the Buyer will each
use its best efforts to achieve the fulfillment of all conditions to each
party's obligations to closing hereunder so that the Transaction shall be
consummated. Except for events that are the subject of specific provisions of
this Agreement, if any event should occur that would materially delay or
prevent fulfillment of the conditions upon the obligations of any party hereto
to consummate the Transaction, that party will notify the other of any such
event and the parties will use their respective reasonable, diligent and good
faith efforts to cure or minimize the same as expeditiously as possible.
6.2 SECTION 338(H)(10) ELECTION. The Seller and Buyer shall
jointly make an election under Section 338(h)(10) of the Internal Revenue Code,
and any applicable analogous provision of any state law, for treatment of the
transactions contemplated by this Agreement. A schedule showing the allocation
of the purchase price, which has been agreed upon by the parties, and which is
based on the preliminary February 28, 1999, balance sheet for the Company, is
attached hereto as EXHIBIT 6.2. Within thirty (30) days after the Closing Date
the Seller shall prepare and deliver to Buyer a proposed modified purchase
price allocation schedule using the final February 28, 1999, balance sheet for
the Company, for Buyer's approval, which approval shall not be unreasonably
withheld or delayed. This modified schedule shall be adopted by the parties in
the preparation of the federal, and, if appropriate, state income tax returns.
The parties will do such other things necessary, including, but not limited to,
making all necessary filings with tax authorities, to accomplish the purposes
of this SECTION 6.2.
6
<PAGE> 8
ARTICLE VII
CLOSING CONDITIONS
7.1 CONDITION TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
TRANSACTION. The respective obligations of each party to effect the
transactions contemplated hereby shall be subject to the following conditions:
(a) No party shall be subject on the Closing Date to any order,
decree or injunction of a court of competent jurisdiction that enjoins or
prohibits the consummation of this Agreement, nor shall there be pending a suit
or proceeding by any governmental authority that seeks injunctive or other
relief in connection with the Transaction.
(b) Any required approvals by governmental authorities of the
Transaction, including any approvals required under permit(s) held by Company,
shall have been provided; provided, however, the Buyer hereby agrees to use its
best efforts to obtain all such required approvals as soon as is reasonably
possible (the Seller hereby agreeing to provide any reasonable cooperation that
the Buyer may request, provided the Seller is not required to incur any
liability or obligation, or substantial expense).
7.2 CONDITIONS TO THE OBLIGATIONS OF THE SELLER TO EFFECT THE
TRANSACTION. The obligations of the Seller to effect the Transaction shall be
further subject to the fulfillment of the following conditions, any one or more
of which may be waived by the Seller:
(a) All representations and warranties of the Buyer contained in
this Agreement shall be true and correct in all material respects as of such
Closing Date as though made as of such date. The Buyer shall have performed and
complied in all material respects with all covenants and agreements contained
in this Agreement required to be performed and complied with by it at or prior
to the Closing Date.
(b) All documents required hereunder to have been delivered by
the Buyer to the Seller, at or prior to the Closing Date, as well as the
Closing Payment, shall have been delivered to the Seller.
7.3 CONDITIONS TO THE OBLIGATIONS OF BUYER TO EFFECT THE
TRANSACTIONS CONTEMPLATED HEREBY. The obligations of the Buyer to effect the
transactions contemplated hereby shall be further subject to the fulfillment of
the following conditions, any one or more of which may be waived by the Buyer:
(a) All representations and warranties of the Seller contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date as though made as of such date. The Seller shall have performed
and complied in all material respects with all covenants and agreements
contained in this Agreement required to be performed and complied with by it at
or prior to the Closing Date.
7
<PAGE> 9
(b) All documents, if any, required hereunder to have been
delivered by the Seller to the Buyer, at or prior to the Closing Date, as well
as the Prepayments, shall have been delivered.
ARTICLE VIII
TERMINATION
8.1 TERMINATION. The obligations of the parties hereunder may be
terminated and the transactions contemplated hereby abandoned at any time prior
to the Closing Date:
(a) by mutual written consent of the Seller and the Buyer;
(b) by either the Seller or the Buyer, if there shall be any law
or regulation that hereafter becomes effective that makes consummation of this
Agreement illegal or otherwise prohibited or if any judgment, injunction, order
or decree permanently enjoining the Buyer or the Seller from consummating this
Agreement is entered and such judgment, injunction, order or decree shall
become final and non-appealable;
(c) by either the Buyer or the Seller, if the conditions to their
respective obligations to effect the Transaction shall not have been fulfilled
or waived by the Closing Date and if the party seeking termination is in
material compliance with all of its obligations under this Agreement; and
(d) by either the Buyer or the Seller, if a condition of its
obligation to effect the Transaction shall have become incapable of fulfillment
(notwithstanding the efforts of the party seeking to terminate as set forth in
SECTION 6.1) and shall not have been waived.
(e) By either the Buyer or the Seller, if there shall be any
material misrepresentation or breach of warranty by the other party or any
failure by the other party to perform one or more of its other obligations
under this Agreement which are performable on or prior to the Closing Date.
8.2 PROCEDURE AND EFFECT OF TERMINATION OR FAILURE TO CLOSE.
(a) In the event of a termination contemplated hereby by any
party pursuant to SECTION 8.1, prompt written notice thereof shall be given to
the other party, and the Transaction shall be abandoned, without further action
by the parties hereto. In such event:
(i) The Buyer shall return to the Seller all documents
and other material received from or on behalf of the
Seller or the Company, whether obtained before or
after the execution hereof;
(ii) All filings, applications and other submissions
relating to the Transaction shall, to the extent
practicable, be withdrawn from the agency or other
person to which made; and
8
<PAGE> 10
(iii) None of the parties hereto nor any of their
partners, directors, officers, shareholders,
employees, agents, or affiliates shall have any
further obligation to the other party or any of its
partners, directors, officers, shareholders,
employees, agents, or affiliates pursuant to this
Agreement, except (A) as stated in SECTIONS 5.1
(relating to confidentiality) and 11.1 (expenses)
hereof and (B) the Buyer and the Seller shall
nevertheless be entitled to seek any remedy to which
it or they may be entitled at law or in equity for
the material violation or breach by any other party
of any agreement, covenant, representation or
warranty contained in this Agreement.
ARTICLE IX
SELLER'S AGREEMENT TO INDEMNIFY
9.1 SELLERS' AGREEMENT TO INDEMNIFY.
(a) INDEMNIFICATION. Subject to the limitations, conditions and
provisions set forth herein, the Seller agrees, effective upon the Closing, to
indemnify, defend and hold harmless the Buyer, the Company, and its officers,
directors, agents, and representatives from and against all demands, claims,
actions, losses, damages, liabilities, costs and expenses, including without
limitation, reasonable attorney's fees, asserted against or incurred by them
resulting from a breach of the representation and warranty of the Seller
contained in ARTICLE 3 and the convenants contained in ARTICLE 3A of this
Agreement (collectively, "Buyer's Damages").
(b) LIMITATION OF LIABILITY. The Seller's obligation to indemnify
Buyer pursuant to this SECTION 9.1 shall be subject to all of the following
limitations:
(i) The Seller shall be obligated to indemnify the Buyer
pursuant to SECTION 9.1(A) only for those Buyer's
Damages as to which the Buyer has given the Seller
written notice within 48 months after the Closing
Date. Any written notice delivered by the Buyer to
the Seller pursuant to this Section shall set forth
with specificity the basis of the claim for Buyer's
Damages and an estimate of the amount thereof.
(ii) Notwithstanding anything to the contrary contained
in this Agreement, the Seller's total liability to
the Buyer arising under this Section or otherwise
out of the transactions contemplated herein shall be
limited to the amount of the Purchase Price paid as
of the date of claim hereunder.
(c) CONDITIONS OF INDEMNIFICATION. The obligations and
liabilities of the Seller under SECTION 9.1 hereof with respect to claims for
Buyer's Damages resulting from the assertion of liability by third parties
including, without limitation, governmental entities, ("Buyer's
9
<PAGE> 11
Claims") shall be subject to the condition that within ten days after receiving
notice thereof, the Buyer will give the Seller notice of any Buyer's Claims
asserted against or incurred by the Buyer, and the Seller may undertake the
defense thereof by counsel of its own choosing and further that Buyer comply,
and have complied, in all respects with SECTION 5.2 hereof. The Buyer may, by
counsel, participate in such proceedings, negotiations or defense, at its own
expense, but the Seller shall retain control over such litigation. In all such
cases, the Buyer will give reasonable assistance to the Seller, including
making employees available without charge as reasonably requested.
ARTICLE X
BUYER'S AGREEMENT TO INDEMNIFY
10.1 BUYER'S AGREEMENT TO INDEMNIFY.
(a) INDEMNIFICATION. Subject to the conditions and provisions set
forth herein, the Buyer hereby agrees, effective upon the Closing, to
indemnify, defend and hold the Seller harmless from and against all demands,
claims, actions, losses, damages, liabilities, costs and expenses, including,
without limitation, reasonable attorney's fees, asserted against or incurred by
the Seller which (i) results from a breach of any covenant, agreement,
representation or warranty of Buyer contained in this Agreement, (ii) arises
under or relates to the Lease or (iii) relates to the Company, including, but
not limited to, claims by customers or suppliers of the Company (collectively
the "Seller's Damages").
(b) LIMITATION OF LIABILITY. The Buyer's obligation to indemnify
the Seller pursuant to this SECTION 10.1 shall be subject to the following
limitations:
(i) Except with respect to ARTICLE XI below, the Buyer
shall be obligated to indemnify the Seller pursuant
to SECTION 10.1(A) only for those Seller's Damages
as to which the Seller have given the Buyer written
notice within 48 months after the Closing Date. Any
written notice delivered by the Seller to the Buyer
pursuant to this Section shall set forth with
specificity the basis of the claim for the Seller's
Damages and an estimate of the amount thereof.
(c) CONDITIONS OF INDEMNIFICATION. The obligations and
liabilities of the Buyer under SECTION 10.1(A) hereof with respect to claims
for Seller's Damages resulting from the assertion of liability by third parties
including, without limitation, governmental entities ("Seller's Claims") shall
be subject to the condition that within ten days after receiving notice
thereof, the Seller will give the Buyer notice of any Seller's Claims asserted
against or incurred by the Seller and the Buyer will undertake the defense
thereof by counsel of his own choosing. The Seller may, by counsel, participate
in such proceedings, negotiations or defense, at their own expense, but the
Buyer shall retain control over such litigation. In all such cases, the Seller
shall give reasonable assistance to the Buyer.
10
<PAGE> 12
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 EXPENSES. Whether or not the transactions contemplated hereby
are consummated, except as otherwise provided herein, the Buyer will pay all
costs and expenses incurred by it in connection with this Agreement and the
Transaction, and the Seller will pay all costs and expenses incurred by the
Seller in connection with this Agreement and the Transaction.
11.2 SURVIVAL OF REPRESENTATIONS. All representations, warranties
and agreements made by the parties to this Agreement or pursuant hereto shall
survive the Closing, but except as otherwise expressly provided herein, all
claims made by virtue of such representations, warranties and agreements shall
be made under, and subject to the applicable limitations set forth in, ARTICLES
IX and X.
11.3 DEFINITION OF "KNOWLEDGE". For purposes of this Agreement,
the term "knowledge," when referring to the Seller's knowledge, shall mean the
actual knowledge of the executive officers of the Seller.
11.4 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by written agreement of the Seller and the Buyer.
11.5 WAIVER OF COMPLIANCE; CONSENTS. Except as otherwise provided
in this Agreement, any failure of any of the parties to comply with any
obligation, representation, warranty, covenant, agreement or condition herein
may be waived by the party entitled to the benefits thereof only by a written
instrument signed by the party granting such waiver, but such waiver or failure
to insist upon strict compliance with such obligation, representation,
warranty, covenant, agreement or condition shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing in a manner consistent with the requirements
for a waiver of compliance as set forth in this Section.
11.6 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given when delivered by hand or by facsimile
transmission or mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice; provided
that notices of a change of address shall be effective only upon receipt
thereof):
11
<PAGE> 13
(a) If to the Seller, to:
Broadway & Seymour, Inc.
Attn: General Counsel
128 South Tryon Street
Charlotte, NC 28202-5050
Facsimile: 704-344-3542
With copy to:
Elite Information Systems, Inc.
Attn: President
5100 West Goldleaf Circle, Suite 100
Los Angeles, CA 90056-1271
(b) If to the Buyer, to:
TMC, Inc.
Attn: Robert Johnson
11350 McCormick Road
Executive Plaza III #601
Hunt Valley, MD 21031
Facsimile: 410-584-7736
11.7 ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any
party hereto without the prior written consent of the other party, nor is this
Agreement intended to confer upon any other person except the parties hereto
any rights or remedies hereunder except as otherwise expressly provided herein.
Notwithstanding the foregoing, the Seller may assign its rights and remedies
hereunder in connection with any sale or other transfer of assets of the Seller
(including a transfer by merger, liquidation or otherwise).
11.8 GOVERNING LAW; JURISDICTION. This Agreement shall be
construed in accordance with the laws of the State of North Carolina without
reference to the conflicts of laws provisions thereof. The parties hereby
consent to the personal jurisdiction of the state and federal courts of and for
the County of Mecklenburg, State of North Carolina, for the adjudication of all
matters relating hereto or arising hereunder, and shall accept as due and
binding service of legal process there for service by receipted mail directed
to the parties' respective offices.
11.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12
<PAGE> 14
11.10 INTERPRETATION. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
11.11 ENTIRE AGREEMENT. This Agreement, including the Exhibits and
any Schedules hereto and the documents delivered pursuant to this Agreement,
embody the entire agreement and understanding of the parties hereto in respect
of the subject matter hereof. The Exhibits and any Schedules hereto are an
integral part of this Agreement and are incorporated by reference herein. This
Agreement supersedes all prior agreements and understandings between the
parties with respect to the Transaction.
IN WITNESS WHEREOF, the Sellers and Buyer have caused this Agreement
to be signed by their respective duly authorized officers as of the date first
above written.
SELLER
-------------------------------------------
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
BUYER
-------------------------------------------
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
13
<PAGE> 1
EXHIBIT 11
Broadway & Seymour, Inc.
Computation of Earnings per Share
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
------- --------- --------
<S> <C> <C> <C>
Net income (loss) ($7,597) $ 2,939 ($2,248)
======= ========= =======
Basic earnings per share:
Weighted average common shares outstanding 8,815 9,085 8,914
======= ========= =======
Net income (loss) per common share ($ 0.86) $ 0.32 ($ 0.25)
======= ========= =======
Diluted earnings per share:
Weighted average common shares outstanding 8,815 9,085 8,914
Addition from assumed exercise of stock options 52
------- --------- -------
Weighted average common and common equivalent
shares outstanding 8,815 9,137 8,914
======= ========= =======
Net income (loss) per common and common equivalent share ($ 0.86) $ 0.32 ($ 0.25)
======= ========= =======
</TABLE>
<PAGE> 1
<TABLE>
<CAPTION>
FINANCIAL TABLE OF CONTENTS PAGE
- --------------------------- ----
<S> <C>
Selected Financial Data 2
Management's Discussion and Analysis of Financial Condition and Results of Operations 3
Consolidated Statement of Operations 15
Consolidated Balance Sheet 16
Consolidated Statement of Changes in Stockholders' Equity 17
Consolidated Statement of Cash Flows 18
Notes to the Consolidated Financial Statements 19
Report of Independent Accountants 30
</TABLE>
1
<PAGE> 2
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
CONSOLIDATED OPERATIONS: 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue $ 69,035 $ 79,559 $ 89,351 $ 114,738 $ 132,858
Operating costs and expenses 82,948 76,208 99,609 130,583 118,983
--------- --------- --------- --------- ---------
Operating income (loss) (13,913) 3,351 (10,258) (15,845) 13,875
--------- --------- --------- --------- ---------
Gain on disposition of non-strategic business units 1,917 1,155 9,652 -- --
Net interest income (expense) 857 832 (187) (493) (821)
--------- --------- --------- --------- ---------
Income (loss) before income taxes (11,139) 5,338 (793) (16,338) 13,054
Income tax (provision) benefit 3,542 (2,399) (1,455) 4,958 (5,858)
--------- --------- --------- --------- ---------
Net income (loss) $ (7,597) $ 2,939 $ (2,248) $ (11,380) $ 7,196
========= ========= ========= ========= =========
Net income (loss) per share:
Basic $ (0.86) $ 0.32 $ (0.25) $ (1.32) $ 0.85
Diluted $ (0.86) $ 0.32 $ (0.25) $ (1.32) $ 0.85
</TABLE>
<TABLE>
<CAPTION>
SELECTED BALANCE SHEET DATA 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital (deficit) $ 14,070 $ 24,572 $ 15,907 $ 490 $ (407)
Total assets $ 65,096 $ 67,343 $ 66,474 $ 83,245 $ 75,683
Long-term debt, including current portion -- $ 138 $ 611 $ 2,373 $ 1,765
Stockholders' equity $ 25,019 $ 37,373 $ 32,190 $ 32,437 $ 34,780
</TABLE>
The selected financial data includes the results of acquired businesses
from the date of acquisition and, in the case of Micro/Resources, Inc.
(accounted for using the pooling of interests method), for all periods
presented. The comparability of the results of operations for the periods
presented are also impacted by dispositions of certain businesses as discussed
in Management's Discussion and Analysis of Financial Condition and Results of
Operations and by the acquisition of certain businesses in 1995 and 1994.
MARKET FOR COMMON STOCK
The Company's common stock, $.01 par value, trades on the National
Association of Securities Dealers, Inc. Nasdaq National Market System ("Nasdaq")
under the symbol BSIS. The following table shows the price range in the
Company's common stock for the past two fiscal years:
<TABLE>
<CAPTION>
Quarter ended: 12/31/98 9/30/98 6/30/98 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $3.75 $7.63 $8.00 $9.06 $11.75 $14.38 $13.13 $13.25
Low $2.25 $3.25 $5.25 $7.13 $ 7.38 $ 9.50 $10.67 $10.38
</TABLE>
2
<PAGE> 3
BROADWAY & SEYMOUR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Broadway & Seymour, Inc. (the "Company") is a software product and
services company, providing integrated solutions to the financial, legal and
professional services markets. The Company serves these markets through three
separately managed operating segments that are summarized below:
Elite Information Systems, Inc. ("Elite"), the Company's legal and
professional services business, is based in Los Angeles, California and provides
a suite of practice management software products including integrated time and
billing, general ledger and practice management solutions as well as consulting
services to the legal and professional services markets. Elite's software
products are often sold with related services to aid the customer in
implementation, data conversion and user training efforts.
Broadway & Seymour, the Company's customer relationship management
business (the "CRM business"), is based in Charlotte, North Carolina and
provides product-based and services-based solutions that address the customer
relationship management needs of the financial services industry. The CRM
business' product-based solutions for customer relationship management include
the proprietary software products TouchPoint(TM), CRISP(TM) and BANCStar(R),
which are generally integrated and customized to provide a tailored business
solution to banks and other financial institutions. Through its services-based
solutions, the CRM business provides consulting and system integration and
custom development services focused on customer relationship management.
The MiniComputer Company of Maryland, Inc. ("TMC"), based in
HuntValley, Maryland, is a marketer of proprietary time and billing software,
custom programming services and other computer related services primarily to law
firms. The majority of TMC's operations are focused on supporting existing
customers that have previously licensed TMC's software product. Subsequent to
the period covered by this report the Company signed a definitive stock
purchase agreement (effective March 5, 1999) to sell all of the outstanding
shares of TMC to a holding company owned by TMC management.
This Annual Report may contain certain "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended, that
represent the Company's expectations or beliefs concerning future events or
projected financial results. Such forward-looking statements are about matters
that are inherently subject to risks and uncertainties. Factors that could
influence the matters discussed in certain forward-looking statements include
the timing and amount of revenue that may be recognized by the Company,
continuation of current expense trends, absence of unforeseen changes in the
Company's markets, continued acceptance of the Company's services and products
and general changes in the economy, as well as matters discussed in "Risks and
Uncertainties" below. There can be no assurances that projected results will be
achieved and actual results could differ materially.
3
<PAGE> 4
1998 COMPARED TO 1997
<TABLE>
<CAPTION>
1998
(IN THOUSANDS, UNAUDITED)
Reconciling
Elite CRM TMC Headquarters (1) Items (2) Consolidated
----- --- --- ---------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 41,693 $ 23,973 $ 2,805 $ -- $ 564 $ 69,035
Cost of revenue 24,161 21,804 2,266 2,254 -- 50,485
---------------------------------------------------------------------------
Gross margin 17,532 2,169 539 (2,254) 564 18,550
Research and development 3,059 4,443 -- -- -- 7,502
Sales and marketing 8,901 4,333 -- -- -- 13,234
General and administrative 2,368 4,413 191 4,116 -- 11,088
Restructuring -- -- -- 639 -- 639
---------------------------------------------------------------------------
Operating income (loss) $ 3,204 $(11,020) $ 348 $ (7,009) $ 564 $(13,913)
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997
(IN THOUSANDS, UNAUDITED)
Reconciling
Elite CRM TMC Headquarters (1) Items (2) Consolidated
----- --- --- ---------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 31,086 $ 42,270 $ 2,847 $ -- $ 3,356 $ 79,559
Cost of revenue 19,430 24,087 2,337 2,016 1,924 49,794
---------------------------------------------------------------------------
Gross margin 11,656 18,183 510 (2,016) 1,432 29,765
Research and development 1,470 3,415 -- -- 983 5,868
Sales and marketing 5,933 4,720 23 -- 425 11,101
General and administrative 1,778 4,110 215 4,048 -- 10,151
Restructuring -- -- -- (706) -- (706)
---------------------------------------------------------------------------
Operating income (loss) $ 2,475 $ 5,938 $ 272 $ (5,358) $ 24 $ 3,351
---------------------------------------------------------------------------
</TABLE>
(1) Headquarters includes the non-allocated costs such as professional
fees, property and casualty insurance, directors and officers
insurance, the costs of the corporate executive and legal departments,
restructuring charges and amortization expense associated
with the excess costs over the fair value of assets acquired in the
Elite and TMC purchase transactions.
(2) Reconciling items include the results of operations from disposed
business units (see separate discussion and analysis under "Significant
Transactions").
4
<PAGE> 5
Elite
Revenue from the Company's Elite legal and professional services
business increased $10.6 million in 1998 from 1997. This 34% increase was due in
part to increased emphasis on expanding sales to existing customers but was
principally due to work performed under new contracts to provide professional
service firms with the Elite suite of products. In 1998 Elite's volume of new
contract signings increased 67% over the prior year. Management also believes
that the increases in revenue were due to Elite's introduction of products
utilizing a wider variety of database platforms. Also, the functionality of
existing products was enhanced with multi-language and multi-currency
capabilities. The expansion of Elite's customer base has also increased customer
support and training revenue. In addition, management believes the Year 2000
issue may have focused an increasing number of professional service firms on
replacing their existing systems by the end of 1999.
Elite's gross margin increased to $17.5 million (or 42% of revenue) in
1998 from $11.7 million (or 37% of revenue) in 1997. This improvement reflects
the increases in revenue noted above without corresponding equivalent increases
in costs of revenue. A substantial part of Elite's costs of revenue are expenses
for deployable resources such as implementation personnel and contract labor.
The improved margin reflects a more efficient utilization of these resources and
a lower proportion of contract labor in 1998. In addition, a more favorable
sales mix with lower third party hardware content also improved the gross
margin.
Research and development expenses increased by $1.6 million in 1998 to
$3.1 million (or 7% of revenue) from $1.5 million (or 5% of revenue) in 1997.
The increase was principally related to efforts during the year to develop the
next version of the Elite suite of products, a 32-bit system with enhanced query
capabilities and object-oriented architecture. In addition, Elite's 1998
research and development efforts included enhancement of its software products
to work on additional platforms as well as adding functionality. The Company is
committed to maintaining its research and development efforts so it can continue
to provide marketable software solutions as the needs of its customer base and
target markets change.
Sales and marketing expenses increased $3.0 million in 1998 to $8.9
million (or 21% of revenue) from $5.9 million (or 19% of revenue) in 1997 due
primarily to higher commissions related to the increased revenue. In 1998, Elite
also started a new sales incentive plan that increased awards for contract
signings and added a number of additional sales people.
General and administrative expenses increased by $.6 million in 1998 to
$2.4 million (or 6% of revenue) from $1.8 million (or 6% of revenue), due
primarily to higher occupancy costs related to a move to a new office facility
and additional support expenses related to business growth.
CRM Business
Revenue from the Company's CRM business decreased $18.3 million or 43%
in 1998 when compared to 1997. This decrease reflects a $10.0 million decline in
services-based revenue and a $8.3 million decline in revenue from product-based
solutions.
The decrease in custom services revenue was principally the result of
the Company amending its contract in late 1997 with a significant customer,
substantially reducing the scope of work and the amount of future revenue for
the Company. Revenue from this customer in 1997 was $8.0 million and in 1998 it
was $1.4 million.
Product-based solutions revenue declined principally due to the
completion of several projects with existing customers and a lack of new
customers to offset the loss of revenue. Management believes the CRM business'
ability to obtain new or expanded CRM business during 1998 was negatively
impacted by consolidations in the financial services industry, a lengthy sales
cycle for a relatively new product and industry focus on the Year 2000 issue. To
address these declines in revenue from the CRM business, the Company has added
two new experienced sales professionals, a new product development manager,
implemented a solutions selling program and changed its marketing plan to focus
on new business origination in both service-based and product-based CRM
engagements.
Gross margin for the CRM business decreased to 9% of revenue (or $ 2.2
million) for 1998 from 43% of revenue (or $18.2 million) for 1997. The lower
gross margin in 1998 is largely the result of significantly lower revenue levels
without corresponding decreases in costs. The majority of the CRM business'
costs of revenue are for deployable resources such as
5
<PAGE> 6
technical personnel and contract labor. Personnel levels are based, in part, on
expectations for work efforts needed to generate future revenue and are
relatively fixed in the short-term. Although the CRM business has had declines
in personnel levels in 1998, these declines were partially offset by increases
in compensation and other costs necessary to retain, train or recruit highly
skilled personnel in a very competitive environment.
Research and development expenses for 1998 increased by $1.0 million
($1.8 million before software capitalization) to $4.4 million in 1998 (or 19% of
revenue) from $3.4 million (or 8% of revenue) in 1997. Research and development
efforts in the CRM business include work on the next TouchPoint releases and new
TouchPoint functionality, including a JAVA-based bank teller application. The
Company is committed to maintaining its research and development efforts so it
can continue to meet the needs of its customer base and target markets.
Sales and marketing and general and administrative expenses for the CRM
business remained relatively consistent with the prior year.
TMC
The majority of TMC's revenue is earned from maintenance support
contracts with customers that have previously licensed its proprietary software
product. TMC's revenue remained consistent at $2.8 million for both 1998 and
1997.
Gross margin increased in 1998 to 19%, compared to 18% in 1997. The
increase in gross margin reflects consistent revenue levels in 1998 and 1997
while reducing personnel related expenses by $.1 million and depreciation and
other equipment expenses also decreased approximately $.1 million.
TMC operating expenses remained fairly constant at $.2 million in 1998
and 1997.
6
<PAGE> 7
1997 COMPARED TO 1996
<TABLE>
<CAPTION>
1997
(IN THOUSANDS, UNAUDITED)
Reconciling
Elite CRM TMC Headquarters (1) Items (2) Consolidated
----- --- --- ---------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 31,086 $ 42,270 $ 2,847 $ -- $ 3,356 $ 79,559
Cost of revenue 19,430 24,087 2,337 2,016 1,924 49,794
--------------------------------------------------------------------------
Gross margin 11,656 18,183 510 (2,016) 1,432 29,765
Research and development 1,470 3,415 -- -- 983 5,868
Sales and marketing 5,933 4,720 23 -- 425 11,101
General and administrative 1,778 4,110 215 4,048 -- 10,151
Restructuring -- -- -- (706) -- (706)
--------------------------------------------------------------------------
Operating income (loss) $ 2,475 $ 5,938 $ 272 $ (5,358) $ 24 $ 3,351
--------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1996
(IN THOUSANDS, UNAUDITED)
Reconciling
Elite CRM TMC Headquarters (1) Items (2) Consolidated
----- --- --- ---------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 22,756 $ 31,902 $ 3,333 $ -- $ 31,360 $ 89,351
Cost of revenue 16,420 22,556 2,825 2,016 24,145 67,962
--------------------------------------------------------------------------
Gross margin 6,336 9,346 508 (2,016) 7,215 21,389
Research and development 649 2,236 -- -- 2,945 5,830
Sales and marketing 4,573 3,982 29 -- 3,731 12,315
General and administrative 1,674 4,910 264 3,061 1,274 11,183
Restructuring -- -- -- 2,319 -- 2,319
--------------------------------------------------------------------------
Operating income (loss) $ (560) $ (1,782) $ 215 $ (7,396) $ (735) $(10,258)
--------------------------------------------------------------------------
</TABLE>
(1) Headquarters includes the non-allocated costs such as professional
fees, property and casualty insurance, directors and officers insurance,
costs of the corporate executive and legal departments, restructuring
charges and amortization expense associated with the excess costs over
the fair value of assets acquired in the Elite and TMC purchase
transactions.
(2) Reconciling items include the results of operations from disposed
business units (see separate discussion and analysis under "Significant
Transactions").
7
<PAGE> 8
Elite
Elite revenue increased $8.3 million in 1997 from 1996. This 37%
increase was principally due to increased contract signings over the prior year
and additional custom programming and training revenue in excess of the original
contract amounts. In addition, Elite increased its sales of add-on modules to
existing customers as well as customer support revenue, reflecting an expanding
customer base.
Gross margins increased to 37% of revenue (or $11.7 million) from 28%
of revenue (or $6.3 million) for 1997 and 1996, respectively. This improvement
reflects the increases in revenue noted above without corresponding
proportionate increases in costs of revenue. A substantial part of Elite's costs
of revenue are expenses for deployable resources such as implementation
personnel and contract labor. The improved margin reflects a more efficient
utilization of these resources and a lower proportion of contract labor in 1997.
Research and development expenses for 1997 increased $.8 million to
$1.5 million (or 5% of revenue) from $.7 million (or 3% of revenue) in 1996 due
to expenditures related principally to the ongoing development of the Company's
Elite software products, including efforts to expand the ability of the software
to function on additional database platforms.
Sales and marketing activities increased $1.3 million in 1997 to $5.9
million (or 19% of revenue) from $4.6 million (or 20% of revenue) in 1996. The
overall increase in sales and marketing expenses is related to business
development efforts, increased marketing and higher commissions and incentive
awards for new business growth achieved in the period.
General and administrative expenses for 1997 remained relatively
consistent with 1996.
CRM Business
Revenue from the CRM business increased $10.4 million in 1997 compared
to 1996. This increase was principally the result of continued revenue growth
from the Company's TouchPoint solution, which increased $18.6 million over the
prior year, reflecting several new engagements with leading financial
institutions. Revenue from its BANCStar and CRISP products grew at a much lower
rate, reflecting the relative maturity of these products in the marketplace.
Decreases in revenue from other areas (systems integration, custom development,
training and other services) of $9 million reflected the Company's strategy, at
that time, to focus more on sales of the product-based solutions.
Gross margin for the CRM business increased to 43% of related revenue
(or $18.2 million) from 29% of related revenue (or $9.3 million) for 1997 and
1996, respectively. The majority of costs of revenue are direct project expenses
such as personnel costs, contract labor and the costs of purchasing third party
products for resale to customers. The overall improvement in gross margin in
1997 reflects improved utilization of project resources, improved pricing, as
well as an increase in the number of higher margin time and materials
engagements.
Research and development expenses for 1997 increased by $1.2 million
from 1996 due to expenditures related principally to the ongoing development of
the Company's TouchPoint solution. The Company is committed to maintaining its
research and development efforts to enhance and support its existing and future
software products.
Sales and marketing activities increased $.7 million to $4.7 million in
1997 from $4.0 million in 1996. Overall the increase in sales and marketing
expense is related to business development efforts, increased marketing and
higher commissions and incentive awards for new business growth achieved in the
period.
General and administrative expenses decreased to $4.1 million, or 10 %
of revenue, in 1997 from $4.9 million, or 15% of revenue, in 1996 principally
due to lower depreciation expense in 1997 as compared to 1996.
8
<PAGE> 9
TMC
Revenue from TMC decreased $.5 million in 1997 from 1996. The majority
of TMC's revenue is earned from maintenance support contracts with customers
that have previously licensed its proprietary software products. However, the
decrease in revenue from 1996 to 1997 reflects a decline in software
customization fees and sales of third party hardware products from one year to
the next.
Gross margins for TMC increased to 18% of related revenue (or $.5
million) in 1997 from 15.2% of related revenue (or $.5 million) in 1996 due to a
$.5 million reduction in costs in 1997.
Operating expenses for TMC remained fairly constant at $.2 million in
1997 and $.3 million in 1996.
SIGNIFICANT TRANSACTIONS
The following is a brief summary of the significant transactions that
have had a material effect on the Company's historical operating results and
financial condition. See the notes to the Company's Consolidated Financial
Statements, included herein, for additional discussion related to such
transactions.
Dispositions:
In September 1997, the Company sold substantially all of the assets,
including proprietary rights, object code and source code, related to its
VisualImpact(TM) software product line, resulting in a $.2 million gain. For the
years ended December 31, 1997 and 1996, the VisualImpact product line
contributed revenue of approximately $3.0 million in each year. The VisualImpact
product line had operating income of $. 4 million in 1997 and operating losses
of $.6 million in 1996. Subsequent to the sale and under the terms of the sale
agreement, the Company has received royalties from the buyer of the VisualImpact
product line of approximately $.2 million in 1997 and $.6 million in 1998.
In November 1996, the Company sold all of the issued and outstanding
common stock of its wholly owned subsidiary, Corbel & Co. ("Corbel"), which
included the assets of EBG & Associates, Inc. (acquired in January 1995),
resulting in a gain of $.9 million. The Company received a net earnout payment
of $1.6 million in 1998 based on Corbel's operating performance. No additional
earnout payments are due to the Company. In 1996 (prior to the sale), Corbel
contributed revenue of $17.4 million and operating income of $3.4 million.
However, revenue and operating income for 1996 include a one-time software
license fee of $5.0 million from a single transaction.
In May 1996, the Company sold substantially all of the assets of its
Asset Management Services group ("AMSG"), which included BancCorp Systems Inc.
(acquired in January 1995). The gain on the sale of AMSG was $8.7 million. In
1996 (prior to the sale), AMSG's revenue was $5.8 million, and its operating
losses for the same period were $2.8 million. In addition, in 1996, subsequent
to the sale of AMSG, the Company recorded an additional $4.0 million of
non-recurring revenue, and approximately $3 million of expense related to
certain professional and transition services provided to the purchaser of AMSG
under agreements entered into at the time of the sale.
In 1996 the Company received $.5 million related to certain software
license fees, software maintenance and transition services provided to the
purchaser of its wholly owned subsidiary, Liberty Software Inc. The Company
incurred substantially no expense in connection with this revenue.
Impairment of Long-Term Assets and Restructuring of Operations:
In 1998 the Company incurred restructuring charges of $.6 million for
termination benefits for 17 people related to the Company's efforts to re-size
its CRM staff, reflecting changing business conditions. In 1998 the Company
utilized cash of approximately $.4 million for termination benefits and has paid
approximately $.2 million in January 1999.
In August 1996, the Company developed a plan to close the National
Pension Alliance ("NPA"), a partnership of which Corbel/NPA, Inc., a wholly
owned subsidiary of the Company, was a 75% general partner. For the year ended
December 31, 1996 NPA had revenue of $.6 million, and a loss before
restructuring charges of $2.3 million. The Company reserved approximately $2.5
million related to the exit costs of NPA, including $1.3 million for customer
refunds, $.8 million related to asset write-offs, and $.4 million related to
employee severance costs. During the year ended 1996, $1.3 million, related
principally to customer refunds and asset write-offs was charged against the
reserve, using $1.0 million of cash. In
9
<PAGE> 10
1997, the Company charged approximately $.7 million against the accrual, using
cash of $.4 million, relating principally to employee severance costs, asset
write-offs and customer refunds and reduced its estimate of the remaining cost
to complete the exit plan by $.5 million. As of December 31, 1997 the
restructuring was completed.
RISKS AND UNCERTAINTIES
Concentration of Revenue Sources:
The business and organizational characteristics of the Company's
customer base may vary significantly from period to period and may cause
fluctuations in the size and timing of revenue.
The majority of Elite's revenue is concentrated in the legal services
industry. However, no single customer accounts for 10% or more of Elite's
revenue.
The majority of the CRM business revenue is concentrated among a few
customers in the financial services industry. In 1998, 1997 and 1996 the 5
largest CRM business customers accounted for approximately 73%, 62% and 68%,
respectively, of the CRM business' revenue and 25%, 37% and 24% of consolidated
revenue for the same periods.
For the periods presented, the CRM business had two customers that
exceeded certain disclosure requirement thresholds and are therefore classified
as significant customers. In 1998 and 1997, Chase Manhattan Bank ("Chase")
accounted for $8.3 million, or 12.1%, and $10.3 million, or 13%, of the
Company's consolidated revenue, respectively. Also, in 1997 and 1996 First Data
Corp. ("FDC") accounted for $8.0 million, or 10.1%, and $9.6 million, or 10.6%,
of consolidated revenue, respectively.
Fluctuations in Operating Results:
The Company's personnel and other operating expenses are based in part
on its expectations for work efforts needed to generate future revenue and are
relatively fixed in the short-term. If the Company is unable to generate
significant new engagements, or if there is any delay or cancellation of
engagements in a particular period, there could be a material adverse affect on
the Company's financial condition and results of operations.
Management believes that the Company could experience significant
fluctuations in future operating results as a result of several factors,
including the size and timing of customer engagements; the length of the sales
cycle; market acceptance of its software systems and services; technological
changes in computer systems and environments; changes in the Company's or its
competitors' pricing policies; the Company's success in expanding to new
markets; the mix of software systems and services; and changes in general
economic conditions.
As a result of all of these factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Volatility of the Financial Services Market:
The Company derives a significant portion of its CRM business revenue
from bank customers and other segments of the financial services industry. As a
result of economic and regulatory factors, banks and other segments of the
financial services industry are consolidating, and over the last few years a
number of the Company's clients and prospects have been acquired. The Company
anticipates that this trend toward consolidation may continue. No assurance can
be given that such consolidation will not have a material adverse effect on the
Company's financial condition and results of operations.
10
<PAGE> 11
Year 2000 Issues:
Overview
Many software products, custom-developed software, and products
embedded with microprocessor chips were designed to store, process or perform
calculations using only the last two digits of a four-digit year date, for
example, "98" rather than "1998". These software systems and embedded products
may assume the first two digits of the year date to be "19" and as such they may
not be able to process dates with years following 1999. For example, "00" may be
treated by certain software systems as the year 1900 rather than the year 2000.
Results of this failure to process the date correctly could include
miscalculations, unpredictable or inconsistent results or complete system
failures. Companies in all lines of business face issues in addressing whether
their software products, custom developed software and third party software used
internally, sold by the company or used by its vendors or customers or other
entities upon which the company relies, will be able to process data properly
relating to dates subsequent to December 31, 1999 ("Year 2000 compliance").
State of Readiness
The Company has recognized the need to address the Year 2000 compliance
issues and in 1997 established a Year 2000 compliance committee to supervise and
monitor the planning, performance and assessment of the Company's Year 2000
compliance efforts. This committee has involved members of senior management,
product development leaders, information systems management, facilities
management and corporate finance management in efforts to develop a
comprehensive and coordinated Year 2000 compliance effort. The chairman of the
committee periodically reports plans, progress and issues to executive
management and the audit committee of the Board of Directors.
Beginning in the second half of 1997, the Company began developing an
inventory list of all its proprietary software products, third party products it
incorporates in its products or resells, infrastructure and internal use
products, facilities and office service systems and hardware products upon which
it relies. Upon completion of the inventory list, the Company's Year 2000
committee appointed individual team leaders from various functional areas to be
responsible for the efforts of assessing Year 2000 compliance for each of the
inventory list items.
Proprietary Software Products and Custom Developed Software: In 1997,
the Company adopted the widely accepted definition for Year 2000 readiness set
out in the "Compliance with British Standards Institution DISC PD2000-1 for Year
2000". In May 1998, following a period of assessment and testing, the Company
issued its Year 2000 readiness statement which specifically identified the
current versions of each of the Company's proprietary products that met the
adopted standard. The Company continues to test new versions of its products for
compliance with this standard on an ongoing basis. The Company believes that its
current versions of proprietary software products are Year 2000 compliant;
however, no assurance can be given that additional modifications for Year 2000
compliance will not be necessary. The Company's software products are integrated
with its customers' software and hardware systems and have, in many cases, been
uniquely customized to the customers' specifications. The Company has generally
not tested its products as integrated in its customers' operating environments,
although it is in the process of developing methods to do so for current
TouchPoint customers. The customers' systems with which the Company's products
interoperate may not be Year 2000 compliant which may affect the operation of
the Company's products. As a result the Company, in the course of providing its
software maintenance services, may incur costs in ascertaining the cause(s) of
system failures not caused by its own products. Such costs, if any that the
Company may incur are not estimable, but will generally be charged to customers.
Many of the Company's former customers and current customers presently
use earlier versions of the Company's software products, and/or associated
custom or systems integration code, that are not Year 2000 compliant. The
Company has made efforts to communicate with these customers to advise them that
they will need to upgrade to a Year 2000 compliant version of the Company's
software product, revise custom code or implement other alternatives to meet
their business needs. Customers paying support fees are entitled to receive
software product upgrades as part of their regular maintenance contracts.
Customers who have not maintained support agreements with the Company may
purchase such upgrades. Changes to custom or systems integration code provided
by the Company that is not Year 2000 compliant are not covered by customer
maintenance agreements. Customers may perform such changes themselves, engage
the Company to perform such changes, or, in some cases, engage third parties to
perform such changes. Customers may need to upgrade third party products and
their host software and hardware systems that share data or interoperate with
the Company's products in order to utilize the
11
<PAGE> 12
Company's software upgrades or modified custom or systems integration code. Such
costs could impact customer purchasing decisions and may lead customers to
choose alternatives to the Company's products or services.
Third Party Products: Third party products embedded within the
Company's products are included in the test plans and compliance efforts that
the Company already has underway for its own products. In addition, the Company
has obtained certification of Year 2000 compliance from each third party vendor
whose products are embedded in the Company's products or that are resold by the
Company.
Infrastructure and Third Party Products Used Internally: The Company
has obtained certification of Year 2000 compliance from each of the vendors of
its internal use information technology systems. The Company is developing test
plans for these internal use systems following the same guidelines and standards
that it has used for its own products. Currently the Company anticipates having
all test plans developed for critical internal use technology systems by
mid-1999. The Company also intends to begin testing during that period and will
continue testing through 1999.
During the first half of 1999, the Company will begin developing a
contingency plan against Year 2000 failure for its mission critical software
applications, hardware and other systems.
The majority of non-information technology systems on which the Company
relies in its operations are owned and managed by the lessors of the buildings
in which the Company's offices are located. The Company has developed checklists
of critical systems upon which it relies and certification documents are being
sought from its lessors and other appropriate providers as applicable regarding
Year 2000 compliance of their systems. The Company will prioritize these systems
and develop test plans based on the responses it receives, or does not receive,
from its lessors and other providers. This effort is scheduled for completion in
the first half of 1999.
Risks and Costs
Because of the nature of the Company's business, the Company may be
subject to Year 2000 claims or litigation by its customers or other parties.
Many customers will incur significant costs in making their information
processing systems Year 2000 compliant and may seek to transfer such costs
through litigation to information processing industry vendors such as the
Company. Although the ultimate outcome of any litigation is uncertain, the
Company does not believe that the ultimate amount of liability, if any, from
such actions would have a material adverse affect on the Company.
The Company believes that Year 2000 issues may affect the purchasing
patterns of its customers and potential customers in a variety of ways. Many
companies are expending significant amounts and rededicating personnel to
correct or patch their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase software products
such as those offered by the Company. It is possible that certain of the
Company's customers are purchasing support contracts with the intent of
discontinuing such support after January 1, 2000 when they have satisfied
themselves that the supported product is Year 2000 compliant. Many potential
customers may also choose to defer purchasing Year 2000 compliant products until
they believe it is absolutely necessary, thus resulting in potentially stalled
market sales within the industry. Additionally, Year 2000 compliance issues
could cause a significant number of companies, including current Company
customers, to reevaluate their current system needs and as a result to consider
switching to other systems or suppliers.
The Company has not specifically hired additional personnel or made
material purchases of products to address Year 2000 compliance issues, nor does
the Company expect it will be necessary to do so. The expenditures made to date
have principally related to salary costs of existing personnel assigned to
participate at various levels in the Company's compliance efforts. All costs
related to achieving Year 2000 compliance are being expensed as incurred. The
Company estimates that the costs incurred to date related to Year 2000
compliance efforts range between $.5 and $1.0 million. The Company expects to
continue to test current and new versions of its proprietary software, work with
vendors of third party software that the Company uses or resells, update and
test its inventory of potentially affected internal systems and communicate with
vendors and customers regarding the Year 2000 compliance issue. The Company
estimates the costs of these efforts will be below $.5 million.
Exchange Rate Fluctuations:
The Company's revenue is principally generated in the United States,
however for the years ending December 31, 1998, 1997, and 1996 Elite revenue
generated in Europe represented approximately 8%, 9%, and 5% of consolidated
revenue, respectively, and 14%, 22% and 11% of Elite's revenue for the same
periods. In addition, for the years ending December 31, 1998 and 1997, Elite
revenue generated in Canada represented approximately 2% and 1% of consolidated
revenue, respectively, and 4% and 2% of Elite's revenue for the same periods.
Since the Company's contracts with non-U.S. customers
12
<PAGE> 13
generally denominate the amount of payments to be received by the Company in
local currencies, exchange rate fluctuations between such local currencies and
the U.S. dollar will subject the Company to currency translation risks. Also,
the Company may be subject to currency transaction risks when the Company's
contracts are denominated in a currency other than the currency in which the
Company incurs expenses related to such contracts.
Euro Currency:
Beginning in January 1999, a new currency called the ECU or the "euro"
was introduced in certain Economic and Monetary Union (the "EMU") countries.
During 2002, all EMU countries are expected to be operating with the euro as
their single currency. As a result, computer software used by many organizations
headquartered or maintaining a subsidiary in an EMU country will need to be euro
currency enabled, and in less than three years all organizations headquartered
or maintaining a subsidiary in an EMU country are expected to need to be euro
currency enabled. The transition to the euro currency will involve the handling
of parallel currencies and conversion of legacy data. Uncertainty exists as to
the effects the euro currency will have on the marketplace. Additionally, all of
the final rules and regulations have not yet been defined and finalized by the
European Commission with regard to the euro currency. The Company is monitoring
the rules and regulations as they become known in order to make any changes to
the software that the Company deems necessary to comply with such rules and
regulations. Although the Company currently offers certain software products
that are designed to be multi-currency enabled and the Company believes that it
will be able to accommodate any required euro currency changes in its software
products, there can be no assurance that once the final rules and regulations
are completed that the Company's software will contain all of the necessary
changes or meet all of the euro currency requirements.
INCOME TAXES
The benefit for income taxes of $3.5 million in 1998 is a direct result
of the pre-tax loss, offset in part, by the permanent difference of
non-deductible goodwill amortization, stock compensation expense, and state
income taxes. The provisions for income taxes of $2.4 million (45% of the
pre-tax income) in 1997 and $1.5 million (183% of pre-tax loss) in 1996 exceed
the income tax expense at the statutory rates for these periods primarily due to
the permanent difference of non-deductible goodwill amortization, stock
compensation expense, and state income taxes. The Company believes that the
effective tax rate in 1999 will remain higher than the statutory rate due to the
ongoing non-deductible goodwill amortization associated with the Company's
acquisitions.
The Company has net operating losses ("NOLs") for state income tax
purposes of $21.1 million. A valuation allowance has been recorded against the
deferred tax assets arising from the state NOLs based on uncertainty of
realization under current separate company income limitations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had cash and cash equivalents of
approximately $15.3 million and working capital of approximately $14.1 million.
During 1998, the Company utilized approximately $5 million to acquire 1,000,000
shares of its own common stock. The Company had positive cash flows from
operations of approximately $6.3 million and $2.5 million for 1998 and 1997,
respectively, and negative cash flows from operations of $7.3 million in 1996.
The Company utilized portions of the proceeds from the sales of
non-strategic business units to fund working capital requirements, pay off
certain debt and to pay certain expenses. The reduction in debt and investment
of cash proceeds from the sales of non-strategic business units resulted in
lower interest expense and higher interest income for 1998 and 1997 as compared
to 1996. The remainder of the proceeds from these sales was invested in
short-term discount notes.
13
<PAGE> 14
The Company has a two-year, $15 million revolving credit facility,
against which it has made no borrowings. Based on current operating
expectations, the Company does not anticipate drawing on the facility in the
near-term. The credit facility expires in July of 1999. The Company currently
intends to begin negotiations for a renewal of or a replacement of the credit
facility prior to its expiration. The Company may borrow up to a maximum of 80%
of eligible accounts receivable. As of January 31, 1999, the Company had $13.5
million available for borrowing under this agreement. The credit facility is
secured by substantially all of the Company's tangible and intangible assets.
Additionally, the loan agreement contains customary covenants that require
compliance with certain financial ratios and targets and restricts the
incurrence of additional indebtedness, payment of dividends and acquisitions or
dispositions of assets, among other things. As of December 31, 1998, the Company
was in compliance with such covenants, as amended.
Management believes that cash and cash equivalents, projected cash from
operations, and availability under the credit facility (or a similar facility)
will be sufficient to meet currently anticipated operating needs through the end
of 1999.
14
<PAGE> 15
BROADWAY & SEYMOUR, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net revenue $ 69,035 $ 79,559 $ 89,351
-------- -------- --------
Operating expenses:
Cost of revenue 50,485 49,794 67,962
Research and development 7,502 5,868 5,830
Sales and marketing 13,234 11,101 12,315
General and administrative 11,088 10,151 11,183
Restructuring and impairment 639 (706) 2,319
-------- -------- --------
Total operating expenses 82,948 76,208 99,609
-------- -------- --------
Operating income (loss) (13,913) 3,351 (10,258)
Gain on disposition of non-strategic business units 1,917 1,155 9,652
Interest income 920 890 260
Interest expense (63) (58) (447)
-------- -------- --------
Income (loss) before income taxes (11,139) 5,338 (793)
Income tax (provision) benefit 3,542 (2,399) (1,455)
-------- -------- --------
Net income (loss) $ (7,597) $ 2,939 $ (2,248)
======== ======== ========
Net income (loss) per share:
- Basic $ (0.86) $ 0.32 $ (0.25)
- Diluted $ (0.86) $ 0.32 $ (0.25)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
15
<PAGE> 16
BROADWAY & SEYMOUR, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
As of December 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,273 $ 17,965
Receivables 28,417 29,372
Deferred income taxes 6,131 2,945
Other current assets 1,930 2,128
-------- --------
Total current assets 51,751 52,410
Property and equipment, net 5,167 5,154
Software costs, net 3,309 3,630
Intangible assets, net 4,782 6,064
Other assets 87 85
-------- --------
$ 65,096 $ 67,343
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ -- $ 138
Accounts payable-trade 5,070 6,325
Accrued compensation 3,974 2,295
Estimated liabilities for contract losses 439 1,162
Other current liabilities 4,319 3,807
Deferred revenue and customer deposits 22,710 11,732
Income taxes payable 1,169 2,379
-------- --------
Total current liabilities 37,681 27,838
-------- --------
Deferred income taxes 1,392 1,435
-------- --------
Other liabilities 1,004 697
-------- --------
Stockholders' equity:
Common stock, $.01 par value; Authorized 20,000,000 shares;
Issued 9,228,623 shares, 1998 and 1997 92 92
Paid-in capital 38,696 38,518
Treasury stock, at cost, 1,038,552 and 38,552 shares, respectively (5,427) (492)
Accumulated deficit (8,342) (745)
-------- --------
Total stockholders' equity 25,019 37,373
-------- --------
$ 65,096 $ 67,343
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
16
<PAGE> 17
BROADWAY & SEYMOUR, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Retained
Common Stock Paid-in earnings Treasury Stock
Shares Par value capital (deficit) Shares Cost Total
--------- --------- ------- --------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 8,801,016 $88 $34,277 $(1,436) (38,552) $ (492)
Issuance of common shares in
business acquisitions 15,723 250 250
Issuance of common shares pursuant
to option and employee purchase plans 171,869 2 1,666 1,668
Tax benefit from exercise of certain
stock options 83 83
Net loss (2,248) (2,248)
----------------------------------------------------------------------------------
Balance, December 31, 1996 8,988,608 $90 $36,276 $(3,684) (38,552) $ (492) $ (247)
Issuance of common shares in
business acquisitions 18,800 235 235
Issuance of common shares pursuant
to option and employee purchase plans 221,215 2 1,940 1,942
Tax benefit from exercise of certain
stock options 67 67
Net income 2,939 2,939
----------------------------------------------------------------------------------
Balance, December 31, 1997 9,228,623 $92 $38,518 $ (745) (38,552) $ (492) $ 4,936
Purchase of treasury stock (1,000,000) (4,935) (4,935)
Adjustments to be paid-in capital related
to cancelled compensatory stock options 178 178
Net loss (7,597) (7,597)
----------------------------------------------------------------------------------
Balance, December 31, 1998 9,228,623 $92 $38,696 $(8,342) (1,038,552) $(5,427) $(7,418)
==================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
17
<PAGE> 18
BROADWAY & SEYMOUR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (7,597) $ 2,939 $ (2,248)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 5,277 5,687 8,888
Restructuring and impairment costs 639 (706) 2,319
Gain on sale of non-strategic business units (1,917) (1,155) (9,652)
Deferred income taxes (3,229) 350 (1,511)
Loss (gain) on disposal of property and equipment 24 47 (11)
Changes in assets and liabilities excluding effects of
businesses divested:
Receivables 2,910 (4,166) (3,337)
Other assets 194 652 (1,120)
Accounts payable-trade (1,255) 489 (75)
Accrued compensation 1,333 457 (104)
Other liabilities 139 (2,475) (9,102)
Deferred revenue and customer deposits 10,978 464 4,170
Income taxes (1,210) (102) 4,456
-------- -------- --------
Net cash provided (used) by operating activities 6,286 2,481 (7,327)
-------- -------- --------
Cash flows provided (used) by investing activities:
Purchase of property and equipment (2,885) (2,492) (3,337)
Investment in software costs (1,020) (239) (1,576)
Proceeds from sale of businesses -- 1,736 31,219
Cash used in business acquisitions -- -- (864)
-------- -------- --------
Net cash provided (used) by investing activities (3,905) (995) 25,442
-------- -------- --------
Cash flows provided (used) by financing activities:
Net borrowings (payments) under credit facility -- -- (5,217)
Proceeds from issuance of long-term debt and notes payable -- -- 251
Purchase of treasury stock (4,935) -- --
Payment of notes payable and long-term debt (138) (473) (1,860)
Proceeds from issuance of common stock -- 1,942 1,668
-------- -------- --------
Net cash provided (used) by financing activities (5,073) 1,469 (5,158)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (2,692) 2,955 12,957
Cash and cash equivalents, beginning of period 17,965 15,010 2,053
-------- -------- --------
Cash and cash equivalents, end of period $ 15,273 $ 17,965 $ 15,010
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
18
<PAGE> 19
BROADWAY & SEYMOUR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS, CERTAIN SIGNIFICANT ESTIMATES AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES:
Broadway & Seymour, Inc. (the "Company") is a software product and
services company, providing integrated solutions to the financial and legal and
professional services markets. The Company serves these markets through three
separately managed operating segments which are summarized below (see also note
2):
Elite Information Systems, Inc. ("Elite"), the Company's legal and
professional services business, is based in Los Angeles, California and provides
a suite of practice management software products including integrated time and
billing, general ledger and practice management solutions and consulting
services to the legal and professional services markets. Elite's software
products are often sold with related services to aid the customer in
implementation, data conversion and user training efforts.
Broadway & Seymour, the Company's customer relationship management
business (the "CRM business"), is based in Charlotte, North Carolina and
provides product-based and services-based solutions that address the customer
relationship management needs of the financial services industry. The CRM
business' product-based solutions for customer relationship management include
the proprietary software products TouchPoint(TM), CRISP(TM) and BANCStar(R),
which are generally integrated and customized to provide a tailored business
solution to banks and other financial institutions. Through its services-based
solutions, the CRM business provides consulting and system integration and
custom development services focused on customer relationship management.
The MiniComputer Company of Maryland, Inc. ("TMC"), based in
HuntValley, Maryland, is a marketer of proprietary time and billing software,
custom programming services and other computer related services primarily to law
firms. The majority of TMC's operations are focused on supporting existing
customers that have previously licensed TMC's software product.
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. The more significant
estimates affecting the Company's financial statements relate to revenue
recognition, realizability of assets, allowance for uncollectible receivables
and useful lives used in depreciating property and equipment and amortizing
capitalized software costs and intangible assets.
The significant accounting policies used in the preparation of the
accompanying financial statements are as follows:
Principles of consolidation. The consolidated financial statements
include the accounts of the Company and its majority-owned subsidiaries. All
significant intercompany transactions have been eliminated in consolidation.
Revenue recognition. Revenue from services and from the licensing of
software with related services is generally recognized as work is performed
under the percentage of completion method with progress measured using labor
hours incurred to date compared to total estimated labor hours to be incurred.
Revenue from the licensing of software and the sale of hardware products having
no significant ongoing obligations is generally recognized upon delivery of the
product. Maintenance revenue is recognized ratably over the contract term.
Losses are recognized on contracts in the period in which the loss is
determined to be probable and estimable.
Cash equivalents. Cash equivalents are short-term, highly liquid
investments with maturities of three months or less.
Property and equipment. Property and equipment are recorded at cost.
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the related assets, which range from
three to ten years. Leasehold improvements are amortized using the straight-line
method over the lesser of their estimated useful lives, generally ten years, or
the remaining terms of the leases.
19
<PAGE> 20
Software costs and intangible assets. The Company capitalizes a portion
of its costs of developing software to be licensed. These costs are incurred
after the establishment of technological feasibility and prior to the
availability of the software for general release, including costs of product
enhancements that improve the marketability of the original product or extend
its life. Software costs are amortized using the straight-line method over the
estimated economic life of the products, up to a maximum of six years.
The excess of cost over fair value of assets acquired is amortized
using the straight-line method over ten years. Other intangible assets are
amortized using the straight-line method over the useful lives of the assets,
which range from five to ten years.
The Company continually monitors conditions that may affect the
carrying value of its software costs and intangible assets. When conditions
indicate potential impairment of such assets, the Company undertakes necessary
market and technology studies and evaluates projected future earnings associated
with these assets. When projected future cash flows, not discounted for the time
value of money, are less than the carrying value of the asset, an impairment
loss is recognized.
Stock-based compensation. The Company adopted Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation," effective January 1, 1996. Upon adoption, the Company elected to
disclose in its footnotes to its financial statements the impact of utilizing
the fair value approach to measure stock-based compensation, as provided for
under the provisions of SFAS 123, and to exclude such impact from its recorded
earnings. The Company measures stock-based compensation based on the intrinsic
value approach as provided for under the provisions of Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25").
Fair Value of Financial Instruments. The fair value of the Company's
financial instruments such as cash and short-term investments, trade
receivables, trade payables and notes payable approximates the carrying value of
such instruments at December 31, 1998. All of the Company's financial
instruments are held for purposes other than trading.
Advertising costs. The Company expenses advertising costs as incurred.
Advertising expenses for 1998, 1997 and 1996 were $1.0 million, $1.0 million and
$1.3 million, respectively.
Income (loss) per share. In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
Number 128 "Earnings per Share" ("SFAS 128") which changed the method of
calculating and reporting earnings per share. The following is a reconciliation
of the numerators and denominators of the basic and diluted earnings per share
("EPS") computation for December 31, 1997. For the years ended December 31, 1998
and 1996, there was no difference between the basic and diluted numerators and
denominators because both years had a net loss and the effect of the assumed
exercise of common stock equivalents (principally stock options) would have been
anti-dilutive.
<TABLE>
<CAPTION>
For the Year Ended Per Share
December 31, 1997 Income Shares Amount
--------------------------- ------ ------ ------
(In thousands)
<S> <C> <C> <C>
BASIC EPS: $2,939 9,085 $0.32
EFFECT OF DILUTIVE SECURITIES:
Options 52
------ ----- -----
DILUTED EPS: $2,939 9,137 $0.32
====== ===== =====
</TABLE>
Options with an exercise price greater than the average market price of
the common shares (or "anti-dilutive options") were not included in the
computation of diluted earnings per share. At December 31, 1997, there were
outstanding anti-dilutive options to purchase 1,008,749 shares of common stock
at a weighted average price of $11.97
Reclassifications. Certain prior year amounts have been reclassified to
conform with the current year presentation.
20
<PAGE> 21
NOTE 2 - SEGMENT DISCLOSURES:
In June 1997, the FASB issued Statement of Financial Accounting
Standards Number 131 "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131") which changes the way that public companies report
information about operating segments in annual financial statements and interim
financial reports. The Company has adopted SFAS 131 beginning in its 1998 annual
financial statements.
Segment Information
The Company has determined that its reportable segments are Elite, the
CRM business and TMC based on each business unit having separate management
teams that independently review financial and operating performance, differences
in products and services offered, distinct geographic locations and the
respective markets served.
The following tables provide key data related to each reportable segment, a
summary of headquarters cost and a reconciliation to consolidated results for
the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998
(IN THOUSANDS, UNAUDITED)
Reconciling
Elite CRM TMC Headquarters (1) Items (2) Consolidated
----- --- --- ---------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $41,693 $ 23,973 $2,805 $564 $ 69,035
Operating income (loss) $ 3,204 $(11,020) $ 348 $(7,009) $564 $(13,913)
Total assets $24,713 $ 33,568 (3) $1,239 $ 5,576 $ 65,096
Depreciation and amortization $ 865 $ 2,254 $ 91 $ 2,067 $ 5,277
Capital expenditures $ 1,503 $ 1,380 $ 2 $ 2,885
</TABLE>
<TABLE>
<CAPTION>
1997
(IN THOUSANDS, UNAUDITED)
Reconciling
Elite CRM TMC Headquarters (1) Items (2) Consolidated
----- --- --- ---------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $31,086 $42,270 $2,847 $3,356 $79,559
Operating income (loss) $ 2,475 $ 5,938 $ 272 $(5,358) $ 24 $ 3,351
Total assets $17,026 $41,587 (3) $1,139 $ 7,591 $67,343
Depreciation and amortization $ 709 $ 2,412 $ 379 $ 2,067 $ 120 $ 5,687
Capital expenditures $ 382 $ 2,043 $ 67 $ 2,492
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
1996
(IN THOUSANDS, UNAUDITED)
Reconciling
Elite CRM TMC Headquarters (1) Items (2) Consolidated
----- --- --- ---------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 22,756 $ 31,902 $ 3,333 $ 31,360 $ 89,351
Operating income (loss) $ (560) $ (1,782) $ 427 $ (7,608) $ (735) $(10,258)
Total assets $ 12,947 $ 41,955 (3) $ 1,374 $ 9,607 $ 591 $ 66,474
Depreciation and amortization $ 606 $ 2,379 $ 127 $ 2,239 $ 3,537 $ 8,888
Capital expenditures $ 372 $ 2,573 $ 2 $ 390 $ 3,337
</TABLE>
(1) Headquarters operating loss includes the non-allocated costs such as
professional fees, property and casualty insurance, directors and
officers insurance, the costs of corporate executives and legal
departments, restructuring charges and amortization expense associated
with the excess costs over the fair value of assets acquired in the
Elite and TMC purchase transactions. Headquarters total assets include
the excess costs over the fair value of assets acquired in the Elite
and TMC purchase transactions.
(2) Reconciling items include the results of operations, total assets and
capital expenditures from disposed business units (see separate
discussion and analysis under "Significant Transactions").
(3) Total assets of the CRM business include unsegregated assets utilized
by Headquarters personnel as well as substantially all of the cash
balances of the Company and all of the Company's deferred tax assets.
NOTE 3 - SIGNIFICANT TRANSACTIONS:
In September 1997, the Company sold substantially all of the assets,
including proprietary rights, object code and source code related to its
VisualImpact software product line. The Company has received cash payments of
$3.3 million for the net assets sold and payments for certain royalties and
software licenses. The gain on the transaction was approximately $.2 million. In
addition, the Company is entitled to receive additional royalties based
primarily on the business' end user revenue, determined quarterly through the
fourth quarter of the year 2000. Subsequent to the sale and under the terms of
the sale agreement, the Company has received royalties from the buyer of the
VisualImpact product line of approximately $.2 million in 1997 and $.6 million
in 1998.
In November 1996, the Company sold all of the issued and outstanding
capital stock of the Company's wholly owned subsidiary, Corbel & Co. ("Corbel")
(excluding its interest in the National Pension Alliance ("NPA") - See Note 7).
The consideration paid to the Company at closing was approximately $13.5 million
and the gain on the transaction was approximately $.9 million. In addition, in
1998 the Company received an earnout payment from the purchasor of Corbel of
$1.6 million, net of certain fees, expenses and provisions for indemnification
obligations.
In May 1996, the Company sold substantially all of the assets of its
Asset Management Services group ("AMSG"), including the Company's wholly owned
subsidiary BancCorp Systems, Inc. The Company has received cash proceeds of
$18.5 million, net of certain fees and expenses, for the net assets of AMSG and
licensing of certain software. Certain additional proceeds were scheduled to be
paid to the Company over the twenty-four months following the closing, subject
to certain holdback provisions for indemnification obligations. Effective June
30, 1997, the Company and the purchaser terminated these provisions, resulting
in the release of the net remaining proceeds to the Company and termination of
all future indemnity claims. As a result of this settlement, the Company
recognized an additional $.8 million gain on the disposition of AMSG in the
quarter ended June 30, 1997.
In 1996 the Company received $.5 million related to certain software
license fees, software maintenance and transition services provided to the
purchaser of its wholly owned subsidiary, Liberty Software Inc. The Company
incurred substantially no expense in connection with this revenue.
22
<PAGE> 23
NOTE 4 - Receivables
At December 31, 1998 and 1997 receivables consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Trade $ 26,052 $ 24,302
Unbilled 2,967 4,631
Other 1,036 1,361
--------- ---------
30,055 30,294
Less - Allowance for doubtful accounts (1,638) (922)
--------- ---------
$ 28,417 $ 29,372
========= =========
</TABLE>
NOTE 5 - Property and Equipment:
At December 31, 1998 and 1997 property and equipment consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Equipment $ 13,847 $ 13,280
Furniture and fixtures 2,345 2,270
Leasehold improvements 1,568 1,026
--------- ---------
17,760 16,576
Less - Accumulated depreciation (12,593) (11,422)
--------- ---------
$ 5,167 $ 5,154
========= =========
</TABLE>
Depreciation expense related to property and equipment was $2.6
million, $2.8 million and $3.3 million for 1998, 1997 and 1996, respectively.
NOTE 6 - SOFTWARE COSTS:
During 1998, 1997 and 1996, the Company capitalized software
development costs of $1 million, $.2 million and $1.6 million, respectively.
Software costs in the accompanying balance sheet also include the cost of
purchased software.
Accumulated amortization for software costs was $9.0 million and $7.7
million at December 31, 1998 and 1997, respectively. Amortization expense was
$1.3 million, $1.4 million and $2.3 million in 1998, 1997 and 1996,
respectively.
In connection with certain software developed or acquired by the
Company and licensed to customers, the Company is obligated to pay royalties to
third parties. The agreements generally provide for payment of a specific amount
for each software license granted by the Company. Royalty expense was $1.6
million, $.7 million and $.7 million for 1998, 1997 and 1996, respectively.
23
<PAGE> 24
NOTE 7 - INTANGIBLE ASSETS:
At December 31, 1998 and 1997 intangible assets consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Excess of cost over fair value of assets acquired $ 6,443 $ 6,443
Customer lists and maintenance contracts 2,700 2,700
Assembled workforce 1,800 1,800
-------- --------
10,943 10,943
Less - Accumulated amortization (6,161) (4,879)
-------- --------
$ 4,782 $ 6,064
======== ========
</TABLE>
Amortization expense was $1.3 million, $1.3 million and $3.3 million for 1998,
1997 and 1996, respectively.
NOTE 8 - RESTRUCTURING AND IMPAIRMENT CHARGES:
In 1998 the Company incurred restructuring charges of $.6 million for
termination benefits for 17 people related to the Company's efforts to re-size
its CRM staff, reflecting changing business conditions. In 1998 the Company
utilized cash of approximately $.4 million to satisfy obligations related to
this reserve and will pay approximately $.2 million in January 1999.
In August 1996, the Company developed a plan to close its NPA business.
The Company reserved approximately $2.5 million related to the exit costs of
NPA, including $1.3 million for customer refunds, $.8 million related to asset
write-offs, and $.4 million related to employee severance costs for 8 people.
During the year ended 1996, $1.3 million, related principally to customer
refunds and asset write-offs had been charged against the reserve, using $1.0
million of cash. In 1997, the Company charged approximately $.7 million against
the accrual, using cash of $.4 million, relating principally to employee
severance costs, asset write-offs and customer refunds and reduced its estimate
of the remaining cost to complete the exit plan by $.5 million. As of December
31, 1997, the restructuring was completed.
NOTE 9 - NOTES PAYABLE AND CREDIT FACILITY:
At December 31, 1998, the Company had no outstanding notes payable. At
December 31, 1997 notes payable consisted of an unsecured promissory note due in
quarterly installments plus interest at 7.7% through May 1998 with a balance of
$67,000, related to a 1995 acquisition, and an unsecured note due through
September 1998 plus interest at 9.0% with a balance of $71,000.
The Company has a two-year, $15 million revolving credit facility,
against which it has made no borrowings. The Company may borrow up to a maximum
of 80% of eligible accounts receivable. As of January 31, 1999 the Company had
$13.5 million available for borrowing under this agreement. Borrowings under the
credit facility will bear interest at the adjusted LIBOR or prime rate (as
defined by the loan agreement). The credit facility is secured by substantially
all of the Company's tangible and intangible assets. Additionally, the loan
agreement contains customary covenants that require compliance with certain
financial ratios and targets and restricts the incurrance of additional
indebtedness, payment of dividends and acquisitions or dispositions of assets,
among other things. As of December 31, 1998 the Company was in compliance with
such covenants, as amended. The credit facility expires in July of 1999. The
Company currently intends to begin negotiations for a renewal of or a
replacement of the credit facility prior to its expiration.
Cash paid for interest on debt and credit line fees was less than $.1
million for 1998 and 1997 and approximately $.3 million for 1996.
24
<PAGE> 25
NOTE 10 - EMPLOYEE BENEFIT PLANS:
The Company maintains a 401(k) retirement plan to which qualified
employees may contribute from 1% to 15% of eligible annual compensation. The
Company matches 50% of these contributions, up to a maximum of 6% of each
participant's compensation for the plan year. Company contributions totaled $.8
million, $.7 million and $.9 million for 1998, 1997 and 1996, respectively.
Effective January 1, 1995, the Company adopted the Broadway & Seymour,
Inc. 1995 Employee Stock Purchase Plan covering a five-year period, under which
substantially all employees may purchase up to an aggregate of 1,000,000 shares
of the Company's common stock. The purchase price of the shares under the plan
is 85% of the lesser of the fair value of the Company's common stock at the
beginning of the plan year or at the end of the plan year. Employees may
designate up to 10% of their compensation to be withheld towards the purchase of
stock under the plan, up to a maximum value of $25,000 based on the fair market
value as of the beginning of each plan year. The Company may provide shares
under the plan from shares authorized and unissued or from shares acquired and
held in treasury.
NOTE 11 - INCOME TAXES:
The components of the provision for income taxes for 1998, 1997 and
1996 consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- --------
(In thousands)
<S> <C> <C> <C>
Current provision (benefit):
Federal $ (660) $ 1,829 $ 2,740
State 346 219 226
-------- ------- --------
(314) 2,048 2,966
-------- ------- --------
Deferred provision (benefit):
Federal (2,934) 354 (1,096)
State (294) (3) (415)
-------- ------- --------
(3,228) 351 (1,511)
-------- ------- --------
$ (3,542) $ 2,399 $ 1,455
======== ======= ========
</TABLE>
25
<PAGE> 26
A reconciliation of income taxes computed at the statutory federal
income tax rate to the recorded provision for income taxes is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
(In thousands)
<S> <C> <C> <C>
Provision (benefit) for income taxes computed
at the statutory federal rate $(3,788) $1,815 $ (270)
Non-deductible amortization and
impairment of intangible assets 204 204 1,374
Stock compensation 165 181
State income taxes, net of federal income
tax benefit 34 143 127
Research and development tax credit (283)
Other 126 56 224
------- ------ ------
$(3,542) $2,399 $1,455
======= ====== ======
</TABLE>
Deferred tax assets (liabilities) recognized in the Company's balance sheet at
December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Asset allowances $ 710 $ 339
Loss accruals on contracts 140 288
Deferred revenue and other accruals 4,989 1,899
Net operating losses and other carryforwards 1,555 527
Other deductions 292 419
------- -------
Gross deferred tax assets 7,686 3,472
------- -------
Less: valuation allowance (1,555) (527)
------- -------
Deferred tax assets 6,131 2,945
------- -------
Deferred tax liabilities, net:
Property and equipment (73) 289
Software costs and intangible assets (1,094) (1,531)
Other liabilities (225) (193)
------- -------
(1,392) (1,435)
------- -------
$ 4,739 $ 1,510
======= =======
</TABLE>
Cash paid for income taxes was approximately $1 million, $3.4 million
and $1 million for 1998, 1997 and 1996, respectively.
At December 31, 1998, the Company had approximately $21 million in
state net operating loss ("NOL") carryforwards. The state NOLs begin to expire
in the year 1999. A full valuation allowance has been recorded against the state
NOLs based on management's judgement as to current separate company income
limitations. Management has evaluated the Company's other deferred tax assets
and believes that such assets will more likely than not be realized. The Company
utilized $0, $4.9 million and $1 million of its state NOLs during 1998, 1997 and
1996, respectively.
26
<PAGE> 27
NOTE 12 - STOCKHOLDERS' EQUITY:
The Company's authorized capital stock consists of 20,000,000 shares of
$.01 par value common stock and 2,000,000 shares of $.01 par value preferred
stock. The preferred stock is issuable in one or more series with such rights,
preferences and privileges as the Company's Board of Directors shall determine.
At December 31, 1998, options for 207,916 shares of common stock were
outstanding under the Company's former Restated 1985 Incentive Stock Option Plan
(the "1985 Plan"), which was terminated in June 1995. No additional options may
be granted under this plan. The 1985 Plan was administered by the Compensation
Committee of the Company's Board of Directors. Options were granted under the
1985 Plan at a price not less than 100% of the fair market value of the shares
subject to options (or 110% of fair market value in the case of an optionee who
owns, directly or indirectly, more than 10% of the total combined voting power
of all classes of shares of the Company immediately before such option is
granted). Options became exercisable in six equal annual installments beginning
on the date of grant and expired ten years from the date of grant.
During 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan") under which options for up to 875,000 shares of the Company's common
stock may be granted to key employees and directors. Options for 767,328 shares
of common stock were outstanding under the 1996 Plan at December 31, 1998. The
1996 Plan is administered by the Compensation Committee of the Company's Board
of Directors which determines the price, exercise date and term (not to exceed
10 years) of each option granted to employees. Options may be granted under the
1996 Plan at a price not less than 100% of the fair market value of the shares
subject to options. In addition, the 1996 Plan provides for the formula grant of
options to members of the Company's Board of Directors. The Company recognized
$.5 million, $.5 million and $.2 million of stock based compensation related to
options granted under this plan in its 1998, 1997 and 1996 statement of
operations, respectively. The following table sets forth the changes in the
number of shares subject to options during 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Weighted
Number Option Price Average
of shares per Share ($) Option Price ($)
--------- -------------- ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1995 1,460,089 3.14-28.38 18.58
Granted 790,000 9.50-11.19 10.99
Exercised (103,618) 3.14-15.50 6.99
Canceled or expired (829,966) 6.80-25.50 23.12
---------
Outstanding at December 31, 1996 1,316,505 6.80-25.50 12.10
Granted 37,000 11.00-14.00 12.60
Exercised (101,668) 6.80-11.25 9.05
Canceled or expired (201,754) 7.75-25.50 15.24
---------
Outstanding at December 31, 1997 1,050,083 7.75-25.50 11.82
Granted 28,000 3.06-8.69 6.19
Exercised --
Canceled or expired (102,839) 7.75-25.50 11.02
---------
Outstanding at December 31, 1998 975,244 3.06-25.50 11.62
=========
Available for grant at December 31, 1998 107,672
=========
</TABLE>
Subsequent to December 31, 1998, an employee of the Company voluntarily
forfeited 400,000 options, returning them to the Company and thereby increasing
the total available options for grant to above 500,000 at that time. In January
1999, the Company granted 503,000 options under the 1996 plan at the then
current fair market value of $2.34 to certain key employees, which did not
include the employee who had forfeited his options. These reissued options
vested one-half upon grant and one-half one-year later.
27
<PAGE> 28
Pursuant to the requirements of SFAS No. 123, the following disclosures
are presented to reflect the Company's pro forma net income (loss) and net
income (loss) per common and common equivalent share, as if the Company had
elected to use the fair value method of accounting prescribed by SFAS No. 123,
rather than continuing to apply the provisions of APB 25. In preparing these
disclosures, the Company has determined the value of all options granted during
1998, 1997 and 1996 using the average value method, as described in SFAS No.
123, and based on an assumed dividend yield rate of 0%, a weighted average risk
free rate of 4.5% for 1998, 6.1% for 1997 and 6.7% for 1996 and weighted average
expected lives of approximately 5 to 9 years, depending on the grant date. Had
compensation expense been determined consistent with SFAS No. 123, utilizing
these assumptions and the straight-line amortization method over the vesting
period, the Company's net income (loss) and net income (loss) per common and
common equivalent share would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------
($ in thousands, except per share amounts)
<S> <C> <C> <C>
Net income (loss) $ (7,597) $ 2,939 $ (2,248)
Pro forma adjustment for
stock compensation expense (1,768) (2,460) (1,470)
---------- ---------- ---------
Pro forma net income (loss) $ (9,365) $ 479 $ (3,718)
========== ========== =========
Net income (loss) per common and
common equivalent share - Basic and Diluted $ (0.86) $ 0.32 $ (0.25)
Pro forma adjustment for stock
compensation expense (0.20) (0.27) (0.17)
---------- ---------- ---------
Pro forma net income (loss) per common and
common equivalent share - Basic and Diluted $ (1.06) $ 0.05 $ (0.42)
========== ========== =========
</TABLE>
NOTE 13 - COMMITMENTS, SIGNIFICANT RISKS AND UNCERTAINTIES:
Legal Matters
The Company is exposed to a number of asserted and unasserted claims
encountered in the normal course of business. In the opinion of management, the
resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
Lease Commitments
The Company leases equipment and facilities under operating leases.
Rental expense from operating leases was $3.6 million, $3.7 million and $5.2
million for 1998, 1997 and 1996, respectively. As of December 31, 1998 there is
approximately $1 million of deferred lease incentives that will reduce the
annual lease expense related to the Company's Elite office facilities by
approximately $.1 million per year through June 30, 2008. Future minimum lease
payments under operating leases having an initial or remaining non-cancelable
term in excess of one year are as follows:
28
<PAGE> 29
<TABLE>
<CAPTION>
Future Minimum
Lease Payments
--------------
Years ending December 31: (In thousands)
<S> <C>
1999 $ 2,160
2000 2,042
2001 561
2002 541
2003 & thereafter 3,050
-------
$ 8,354
=======
</TABLE>
Acquisition Earnout
In June 1995, the Company acquired certain assets and liabilities of
TMC. In connection with this acquisition, the sellers of TMC were entitled to
receive additional shares of the Company's common stock through June of 1998 in
the event certain annual financial and other targets were met. In 1998 the
Company amended its purchase agreement with the sellers of TMC to specify that
the 1998 earnout would be paid in cash. In connection with this earn-out
provision, the Company paid cash of $320,000 in 1998 and issued stock during the
years ended 1997 and 1996 valued at approximately $235,000 and $250,000,
respectively, to the sellers of TMC and recorded expense for such amounts.
Concentrations of Revenue
The business and organizational characteristics of the Company's
customer base may vary significantly from period to period and may cause
fluctuations in the size and timing of revenue.
The majority of Elite's revenue is concentrated in the legal services
industry. However, no single customer accounts for 10% or more of Elite's
revenue.
The majority of the CRM business revenue is concentrated among a few
customers in the financial services industry. In 1998, 1997 and 1996 the 5
largest CRM business customers accounted for approximately 73%, 62% and 68%,
respectively, of the CRM business revenue and approximately 25%, 37% and 24%,
respectively, of consolidated revenue.
For the periods presented, the CRM business had two customers that
exceeded certain disclosure requirement thresholds and are therefore classified
as significant customers. In 1998 and 1997, Chase Manhattan Bank ("Chase")
accounted for $8.3 million, or 12.1%, and $10.3 million, or 13%, of the
Company's consolidated revenue, respectively. Also, in 1997 and 1996 First Data
Corp. ("FDC") accounted for $8.0 million, or 10.1%, and $9.6 million, or 10.6%,
of consolidated revenue, respectively.
Geographic Information
The Company's assets are principally located in North America. The
Company's revenue is principally generated in North America, however for the
years ending December 31, 1998, 1997, and 1996 Elite revenue generated in Europe
represented 8% 9%, and 5% of consolidated revenue, respectively and 14%, 22% and
11% of Elite's revenue for the same periods. In addition, for the years ending
December 31, 1998 and 1997 Elite revenue generated in Canada represented
approximately 2% and 1% of consolidated revenue, respectively, and 4% and 2% of
Elite's revenue for the same periods. Since the Company's contracts with
non-U.S. customers generally denominate the amount of payments to be received by
the Company in local currencies, exchange rate fluctuations between such local
currencies and the U.S. dollar will subject the Company to currency translation
risks. Also, the Company may be subject to currency transaction risks when the
Company's contracts are denominated in a currency other than the currency in
which the Company incurs expenses related to such contracts.
NOTE 14 SUBSEQUENT EVENT:
On March 5, 1999 the Company entered into a stock purchase
agreement whereby the Company sold all of the outstanding shares of its wholly
owned subsidiary, The MiniComputer Company of Maryland, Inc. ("TMC"), for
$350,000. The purchase price is payable with $80,000 in cash at closing and the
balance in installments with interest at 10% over a three year period. The loss
on the transaction in the first quarter of 1999 was approximately $.3 million
before tax.
29
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Broadway & Seymour, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of Broadway & Seymour, Inc. and its subsidiaries at December 31, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards that 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Charlotte, North Carolina
February 6, 1999, except as to Note 14
which is as of March 5, 1999
30
<PAGE> 1
Exhibit 21
Broadway & Seymour, Inc.
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
State of Percentage
Name of subsidiary Incorporation ownership
------------------ ------------- ----------
<S> <C> <C>
Elite Information Systems, Inc. California 100%
The MiniComputer Company of Maryland, Inc. North Carolina 100%
Elite Information Systems International, Inc. California 100%
</TABLE>
<PAGE> 1
Exhibit 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 of the Broadway & Seymour, Inc. 1995 Employee Stock
Purchase Plan (33-85924) and the Broadway & Seymour, Inc. Restated 1985
Incentive Stock Option Plan (33-81130) of our report dated February 6, 1999,
except as to note 14, which is as of March 5, 1999 appearing in the Company's
1998 Annual Report (which is incorporated by reference in this Form 10-K).
PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 8, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 15,273,000
<SECURITIES> 0
<RECEIVABLES> 30,055,000
<ALLOWANCES> (1,638,000)
<INVENTORY> 0
<CURRENT-ASSETS> 51,751,000
<PP&E> 17,760,000
<DEPRECIATION> (12,593,000)
<TOTAL-ASSETS> 65,096,000
<CURRENT-LIABILITIES> 37,681,000
<BONDS> 0
0
0
<COMMON> 92,000
<OTHER-SE> 24,927,000
<TOTAL-LIABILITY-AND-EQUITY> 65,096,000
<SALES> 69,035,000
<TOTAL-REVENUES> 69,035,000
<CGS> 50,485,000
<TOTAL-COSTS> 50,485,000
<OTHER-EXPENSES> 31,824,000
<LOSS-PROVISION> 1,522,000
<INTEREST-EXPENSE> (857,000)
<INCOME-PRETAX> (11,139,000)
<INCOME-TAX> (3,542,000)
<INCOME-CONTINUING> (7,597,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,597,000)
<EPS-PRIMARY> (0.86)
<EPS-DILUTED> (0.86)
</TABLE>
