<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 6, 1998
REGISTRATION NO. 333-46685
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SQL FINANCIALS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 7372 58-1972600
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION)
OF INCORPORATION OR
ORGANIZATION) ---------------
SQL FINANCIALS INTERNATIONAL, INC.
3950 JOHNS CREEK COURT, SUITE 100
SUWANEE, GEORGIA 30024
(770) 291-3900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
THE CORPORATION TRUST COMPANY
CORPORATION TRUST CENTER
1209 ORANGE STREET
WILMINGTON, DELAWARE 19801
(302) 658-7581
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
G. DONALD JOHNSON, ESQ. OBY T. BREWER III, ESQ.
SHARON L. MCBRAYER, ESQ. JOHN FRANKLIN SMITH, ESQ.
ELIZABETH O. DERRICK, ESQ. LAUREN Z. BURNHAM, ESQ.
WOMBLE CARLYLE SANDRIDGE & RICE, PLLC MORRIS, MANNING & MARTIN, L.L.P.
1275 PEACHTREE STREET, N.E., SUITE 700 1600 ATLANTA FINANCIAL CENTER
ATLANTA, GEORGIA 30309 3343 PEACHTREE ROAD, N.E.
(404) 872-7000 ATLANTA, GEORGIA 30326
--------------- (404) 233-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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<S> <C> <C> <C> <C>
Common Stock, $.0001 par
value.............. 3,504,625 shares $13.00 $45,560,125 $13,440
</TABLE>
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(1) Includes 375,000 shares which the Underwriters have the option to purchase
from the Company to cover over-allotments, if any, 629,625 shares owned by
certain stockholders of the Company.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
(3) The Company has already paid $12,934 in connection with this Registration
Statement.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with the Company's underwritten public offering of 2,500,000
shares of its Common Stock (the "Prospectus") and the other to be used in
connection with a resale of up to 629,625 shares of Common Stock offered from
time to time by certain stockholders of the Company (the "Resale Prospectus").
The Sections in the Prospectus entitled "Prospectus Summary--The Company,"
"--Summary Consolidated Financial Data Schedule," "--Forward-Looking
Statements," "Risk Factors," "Dividend Policy," "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business," "Management," "Certain Transactions,"
"Description of Capital Stock," "Shares Eligible For Future Sale," "Experts,"
"Additional Information," and "Financial Statements" are identical to the such
sections in the Resale Prospectus. The remaining Sections in the Resale
Prospectus are provided following the Prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED APRIL , 1998
2,500,000 SHARES
[LOGO]
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby are being sold by
SQL Financials International, Inc. (the "Company"). Concurrent with the
effective date of this offering (the "Offering"), certain stockholders of the
Company (the "Selling Stockholders") will offer up to 629,625 shares of Common
Stock under a separate prospectus. The Company will not receive any proceeds
from the sale of shares of Common Stock by the Selling Stockholders.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price of the Common Stock will be between $11.00 and $13.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied for quotation of the
Common Stock on the Nasdaq National Market under the symbol "SQLF."
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
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<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $1,400,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
total Price to Public, Underwriting Discount, and Proceeds to Company will
be $ , $ , and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any orders in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of NationsBanc Montgomery Securities LLC on or about , 1998.
-----------
NationsBanc Montgomery Securities LLC
Piper Jaffray Inc.
UBS Securities
, 1998
<PAGE>
[INSIDE FRONT COVER]
The inside front cover graphic depicts a transparent sphere made out of
hexagonal shapes. The sphere is blue in color, and the hexagonal shapes are
outlined in yellow. A cube, which is divided into smaller cubes, is inside the
sphere with its top and two sides exposed. The top and each side consist of
nine smaller cubes. Most of the smaller cubes are light red, while several are
a darker shade. A column to the left side of the sphere contains the text,
"SQL Financials(R) offers a complete suite of integrated applications: General
Ledger, Fixed Assets, Accounts Payable, Purchasing Control, Accounts
Receivable, Revenue Accounting, Personnel, Benefits, Payroll." Underneath the
sphere is the text "A client/server software company providing world class
Financial and Human Resource applications with a difference. . . . A
BREAKTHROUGH IN TIME."
The next graphic is titled Active Architecture. In this graphic, the same
sphere is shown bursting through the face of a clock. A line points to the
cube inside of the sphere from the text, "At the center are the Core
Components." Another line points to one of the hexagonal shapes making up the
sphere from the text, "Surrounding the Core is the Graphical Architects
layer." A third line points from the frame of the hexagonal shapes to the
text, "Supporting the Core Components and Graphical Architects is the Systems
Manager." Beneath the graphic is the following text:
"World Class Applications" means functionality that users can tailor to
their specific requirements. A "Breakthrough in Time" is achieved when
applications can be implemented, changed, and upgraded in a fraction of the
time demanded by other vendors' packages.
The SQL Financials solution is fundamentally different. Applications
based on the SQL Financials Active Architecture technology are designed to
enable organizations to adapt quickly to their specific requirements and to
respond just as quickly to changes in these requirements.
Active Architecture delivers a dynamic solution to business
customization. Active Architecture is comprised of flexible technology
layered around core business components. This agile and adaptable
technology allows users to tailor the system to their specific needs
without programming. Simply stated, Active Architecture is a world-class
solution that was built from the ground up to address rapid
implementations, modifications, and upgrades.
The final graphic is titled Graphical Architects and contains the text, "The
key to the Active Architecture technology is the visual manner in which users
specify their requirements through the Graphical Architects(TM) modules,
without the need for programmer assistance and without changing the source
code. These modules are designed to save time and reduce the cost of
ownership." The graphic consists of twelve blue hexagonal shapes arranged in
an "S" shape with each shape overlapping the next, increasing in size. The
first shape is labeled "Data Exchange," and from that text, a line points to
an image of a computer screen. The image is captioned, "Users can now control
data integration and conversion." The next hexagon is labeled "Workload." The
next hexagon is labeled "Solution," and a line points to another computer
screen, which is captioned, "Extend functionality by integrating with
customer's imaging system to view invoices online." The next hexagon is titled
"Business Controls" and a line points to a third computer screen image which
is captioned, "Users can click and drag a mouse to tailor unique business
rules such as reporting organization charts." The next two hexagons are
labeled "Internet" and "Workflow," and the last hexagon contains the label
"Analysis" and a line points to a fourth computer screen which is captioned,
"Quick Graphs provide information analysis at the users' fingertips."
----------------
SQL Financials(R) is a registered trademark of the Company and World Class
Applications . . . Breakthrough in Time(TM), Active Architecture(TM),
Graphical Architects(TM), Data Exchange/Graphical Architect(TM),
Solution/Graphical Architect(TM), Workload/Graphical Architect(TM),
Workflow/Graphical Architect(TM), Business Controls/Graphical Architect(TM),
Internet/Graphical Architect(TM) and Analysis/Graphical Architect(TM) are
trademarks of the Company. All other trademarks and registered trademarks used
in this Prospectus are the property of their respective owners.
----------------
3
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO
COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
SQL Financials International, Inc. ("SQL Financials" or the "Company")
develops, markets and supports client/server financial software applications
that reduce the total cost of ownership by minimizing the time, costs and risks
associated with implementing, changing and upgrading applications. The
Company's products are based on a flexible, open architecture called Active
Architecture(TM) which allows for seamless, rapid changes and upgrades without
modifying the source code. The Company's software provides organizations with
the broad functionality of custom-designed applications without the high total
cost of ownership traditionally associated with such applications. By providing
broad functionality, a flexible open architecture, and minimized implementation
and modification time, the Company addresses the needs of a wide range of
organizations while giving end users more control of their work environment.
Widespread adoption of client/server environments has provided end users with
greater access to information and more flexibility, resulting in increased
productivity and greater control. Client/server-based financial applications
have become the key integration point with other enterprise-level applications,
enabling users to automate and streamline core business processes, improve
tracking, analysis and reporting, and make faster, more informed decisions.
According to International Data Corporation, the market for enterprise-level
accounting, human resource and payroll client/server applications exceeded $3.0
billion in 1996, and is projected to grow at a compound annual growth rate of
30% through the year 2001 to over $12.0 billion.
Traditionally, organizations have had two alternatives when deploying
enterprise financial applications: either a highly complex custom-designed
application to meet the organization's specific requirements; or an off-the-
shelf application often lacking the functionality of custom-designed
applications. The limitations of both the custom-designed and traditional off-
the-shelf applications result in high total cost of ownership to the
organization. The largest components of such cost are the necessary labor and
programming resources. According to the Gartner Group, labor-related services,
including implementation and post-implementation services, comprise
approximately 71% of the five- year total cost of ownership for client/server
applications, with the acquisition cost of software comprising only 17% of the
total cost of ownership, and hardware and networking costs comprising the
balance.
The Company's product family includes a full suite of financial and human
resource applications. These applications cover the full range of financial and
accounting functions, including general accounting, expense accounting, revenue
accounting and human resources. The Company licenses a series of modules, its
Graphical Architects(TM), that are designed to extend, enhance, integrate and
change the look-and-feel of the Company's core applications. Through a visual
point-and-click interface, the Graphical Architects modules allow users to
personalize and configure the Company's applications without any source code
programming. In addition, the Company provides dedicated implementation
services as an integral part of its solution, and believes that these services
result in a high level of customer satisfaction, strong customer references and
long relationships. The Company provides ongoing support services to assist
customers in maintaining and updating their systems, training their employees
and adding functionality as the customers' business grows and their
requirements change.
The Company's objective is to become the leading provider of financial
applications to non-industrial organizations. The key elements of the Company's
strategy are: (i) to extend its technology leadership; (ii) to leverage its
expertise in financial applications; (iii) to capitalize on middle market
opportunities; (iv) to leverage its installed customer base; and (v) to expand
sales and marketing channels.
5
<PAGE>
The Company licenses its products and services primarily through a direct
sales force in the United States and Canada. The Company focuses its sales and
marketing efforts on value buyers in mid-sized non-industrial organizations,
including divisions of larger companies, which represent the fastest growing
segment of the financial applications market. At March 31, 1998, the Company
had more than 200 customers, including leading organizations such as National
Railroad Passenger Corporation ("Amtrak"), Blue Cross/Blue Shield of Alabama,
Chartwell Re Holdings Corporation, First Data Corporation, Land's End, Inc.,
A.C. Nielsen Company, T. Rowe Price Associates, Inc., Shaw Industries, Inc.,
Toronto-Dominion Bank and United Technologies Corporation.
The Company was incorporated in Delaware in 1991. Unless the context
otherwise requires, references in this Prospectus to the "Company" refer to SQL
Financials International, Inc. and its consolidated subsidiaries, SQL
Financials Services, L.L.C. (the "Services Subsidiary") and SQL Financials
Europe, Inc. The Company's principal executive offices are located at 3950
Johns Creek Court, Suite 100, Suwanee, Georgia 30024. The Company's telephone
number at that address is (770) 291-3900.
THE OFFERING
Common Stock offered by the Company .... 2,500,000 shares
Common Stock to be outstanding after
the Offering............................ 9,047,914 shares(1)
Use of Proceeds ........................ For general corporate purposes and
working capital, which may include
future acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol ................................. SQLF
- --------
(1) Includes (i) 4,787,594 shares of Common Stock to be issued upon conversion
of all outstanding shares of the Company's Preferred Stock (the
"Conversion"); (ii) 225,000 shares of Common Stock issued by the Company in
connection with the purchase from Technology Ventures, LLC ("Tech
Ventures") of its 20% interest in the Services Subsidiary (the
"Acquisition"); and (iii) 131,250 shares of Common Stock to be issued upon
conversion of the Preferred Stock acquired upon the exercise of a warrant
held by Tech Ventures (the "Warrant Exercise"). The Conversion and Warrant
Exercise will be effected concurrently with the effective date of this
Offering. Excludes: (i) 1,652,700 shares of Common Stock reserved for
issuance under the Company's 1992 Stock Option Plan for which options to
acquire 1,528,188 shares of Common Stock are outstanding as of the date of
this Prospectus at exercise prices ranging from $0.67 to $4.83 per share
and a weighted average exercise price of $2.35 per share; (ii) 1,000,000
shares of Common Stock reserved for issuance under the Company's 1998 Stock
Incentive Plan for which no options have been granted; (iii) 300,000 shares
of Common Stock issuable upon the exercise of an outstanding warrant at an
exercise price of $3.67 per share issued in connection with the
Acquisition; and (iv) 95,610 shares of Common Stock issuable at a weighted
average price of $6.22 per share, upon conversion of Preferred Stock
issuable upon the exercise of outstanding warrants. See "Capitalization,"
"Management--Employee Benefit Plans," "Certain Transactions" and Note 11 of
Notes to the Consolidated Financial Statements.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................... $ 1,054 $ 3,821 $ 8,190 $13,056 $25,988
Operating loss................... (2,156) (5,157) (7,987) (7,658) (3,358)
Net loss......................... (2,170) (5,140) (8,049) (7,879) (4,110)
Basic and diluted net loss per
share........................... (2.23) (5.65) (6.19) (5.74) (2.97)
Weighted average common shares
outstanding (1)................. 975 910 1,300 1,373 1,386
Pro forma basic and diluted net
loss per share (2).............. $ (0.67)
Pro forma weighted average common
shares outstanding (2).......... 6,147
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------
PRO PRO FORMA
ACTUAL FORMA(3) AS ADJUSTED(4)
-------- -------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 7,213 $ 7,012 $34,124
Working capital (deficit)................... (453) (654) 26,458
Total assets................................ 15,019 16,961 44,073
Long-term debt, net of current portion...... 497 1,423 1,423
Redeemable convertible preferred stock...... 25,112 -- --
Total stockholders' equity (deficit)........ (27,910) (1,200) 25,911
</TABLE>
- -------
(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of weighted average shares outstanding.
(2) Pro forma to effect the Conversion. See "Certain Transactions."
(3) Pro forma balance sheet data gives effect to the following transactions as
if such transactions occurred as of the date presented: (i) the recognition
of goodwill of $2.6 million, (ii) the issuance of 225,000 shares of the
Company's Common Stock, the present value of a note payable of $926,000,
and the value of the warrant to purchase 300,000 shares of Common Stock
valued at $547,000 to be recognized upon completion of the Acquisition;
(iii) the elimination of the minority interest of $243,000 related to the
20% interest of Tech Ventures in the Services Subsidiary through the
payment of cash of $205,000, the repayment of a note receivable of $37,000,
and the elimination of the original $75,000 investment by Tech Ventures in
the Services Subsidiary; and (iv) the Conversion.
(4) Adjusted to give effect to the sale of the 2,500,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $12.00 per share (the midpoint of the valuation range), after deducting
the estimated underwriting discount and offering expenses payable by the
Company, and the application of the estimated net proceeds therefrom and
the Warrant Exercise resulting in net proceeds to the Company of $612,500.
See "Use of Proceeds" and "Capitalization."
7
<PAGE>
FORWARD-LOOKING STATEMENTS
Information contained in this Prospectus includes "forward-looking
statements" that are based largely on the Company's current expectations and
are subject to a number of risks and uncertainties. The Company faces many
risks and uncertainties, including those described in this Prospectus under the
caption "Risk Factors." Because of these many risks and uncertainties, the
Company's actual results may differ materially from any results presented in or
implied by the forward-looking statements included in this Prospectus.
----------------
Except as otherwise indicated, all information in this Prospectus: (i)
assumes no exercise of the Underwriters' over-allotment option; and (ii)
reflects a three-for-two split of the Company's Common Stock, effected in the
form of a stock dividend, upon the effective date of this Offering, whereby
each share of the Company's outstanding Common Stock will be converted into 1.5
shares of Common Stock.
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should consider carefully the following risk factors in evaluating
the Company and its business before purchasing the shares of Common Stock
offered hereby.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE OPERATING RESULTS
The Company has incurred significant net losses in each year since its
formation. As of December 31, 1997, the Company had an accumulated deficit of
approximately $28.0 million. These losses have occurred, in part, because of
the substantial costs incurred by the Company to develop its products, expand
its product research and hire and train its direct sales force. Although the
Company has achieved recent revenue growth and profitability for the quarters
ended September 30, 1997 and December 31, 1997, there can be no assurance that
the Company will be able to generate the substantial additional growth in
revenues that will be necessary to sustain profitability. The Company plans to
continue to increase its operating expenses in order to fund higher levels of
research and development, increase its sales and marketing efforts, broaden
its customer support capabilities and expand its administrative resources in
anticipation of future growth. To the extent that increases in such expenses
precede or are not offset by increased revenues, the Company's business,
results of operations and financial condition would be materially adversely
affected. The Company's financial prospects must be considered in light of the
risks, costs and difficulties frequently encountered by emerging companies,
particularly companies in the competitive financial and human resource
software industry. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced, and is expected to continue to experience,
significant fluctuations in quarterly operating results caused by many
factors, including, but not limited to: (i) changes in the demand for the
Company's products; (ii) the timing, composition and size of orders from the
Company's customers, including the tendency for significant bookings to occur
in the fourth quarter; (iii) lengthy sales cycles; (iv) spending patterns and
budgetary resources of its customers; (v) the success of the Company in
generating new customers; (vi) introductions or enhancements of products, or
delays in the introductions or enhancements of products, by the Company or its
competitors; (vii) changes in the Company's pricing policies or those of its
competitors; (viii) the Company's ability to anticipate and effectively adapt
to developing markets and rapidly changing technologies; (ix) the Company's
ability to attract, retain and motivate qualified personnel; (x) changes in
the mix of products sold; (xi) the publication of opinions about the Company
and its products, or its competitors and their products, by industry analysts
or others; and (xii) changes in general economic conditions.
The loss of any large sale, or the deferral of a large sale to a subsequent
quarter, could have a material adverse effect on current quarter operating
results and could cause significant fluctuations in revenues and earnings from
quarter-to-quarter. Additionally, because the Company derives a smaller
percentage of its revenues from maintenance contracts than many financial and
human resource software companies with a longer history of operations, the
Company does not have a significant ongoing revenue stream that may tend to
mitigate quarterly fluctuations in operating results.
The Company also has experienced, and is expected to continue to experience,
a high degree of seasonality, and in recent years has recognized a
proportionately greater percentage of its total revenues in the fourth
quarter. Fourth quarter revenues in 1995, 1996 and 1997 were 39.1%, 33.6% and
32.5%, respectively, of total revenues for those years. As a result of this
seasonality, the Company may experience reduced net income, or even net
losses, in the first, second or third fiscal quarters in any year.
Consistent with software industry practice, the Company typically ships its
software promptly following receipt of a firm order. Accordingly, the Company
expects to continue to operate with minimal backlog. As a
9
<PAGE>
result, quarterly sales and operating results depend generally on the volume
and timing of orders within the quarter, the tendency of sales to occur late
in fiscal quarters and the ability of the Company to fill orders received
within the quarter, all of which are difficult to forecast and manage. The
Company's expense levels are based in part on its expectations of future
orders and sales. A substantial portion of the Company's operating expenses
are related to personnel, facilities and sales and marketing programs. This
level of spending for such expenses cannot be adjusted quickly and is,
therefore, relatively fixed in the near term. Accordingly, any significant
shortfall in demand for the Company's products in relation to the Company's
expectations would have an immediate and material adverse financial effect on
the Company.
Due to all of the foregoing factors, the Company believes that its quarterly
operating results are likely to vary significantly in the future. Therefore,
in some future quarter the Company's results of operations may fall below the
expectations of securities analysts and investors. In such event, or in the
event that such result is perceived by market analysts to have occurred, the
trading price of the Company's Common Stock would likely be materially
adversely affected.
DEPENDENCE ON DIRECT SALES MODEL
To date, the Company has sold its products exclusively through its direct
sales force. The Company intends to continue to differentiate itself from many
of its competitors by relying principally on its direct sales model. As a
consequence of this strategy, the Company's ability to achieve significant
revenue growth in the future will depend in large part on its success in
recruiting, training and retaining additional direct sales and consulting
personnel and on the continuing success of the direct sales force. The
Company's financial success will depend in large part on the ability of the
Company's direct sales force to increase sales to levels necessary to sustain
profitability. In order to increase sales, the Company must hire, train and
deploy a continually increasing staff of competent sales personnel. The
Company believes that there is a shortage of, and significant competition for,
direct sales personnel with the advanced sales skills and technological
knowledge necessary to sell the Company's products. The Company's inability to
hire, or failure to retain, competent sales persons would have a material
adverse affect on the Company's business, results of operations and financial
condition.
In addition, by relying primarily on a direct sales force model, the Company
may fail to leverage the additional sales capabilities that might be available
through other sales distribution channels, which may place the Company at a
disadvantage with respect to its competition. In the future, the Company
intends to develop indirect distribution channels through third-party
distribution arrangements. There can be no assurance that the Company will be
successful in establishing third-party distribution arrangements, or that any
such expansion of the Company's indirect distribution channels will result in
increased revenues. See "Business--Sales and Marketing" and "--Competition."
COMPETITION
The market for financial and human resource applications is intensely
competitive. The Company's applications are designed for use in a
client/server environment utilizing Windows NT and Unix servers. Principal
competitors that offer products that run on Windows NT or Unix servers in a
client/server environment include PeopleSoft, Inc. ("PeopleSoft"), Oracle
Corporation ("Oracle"), and Lawson Software, Inc. ("Lawson"). In 1997, J.D.
Edwards & Company introduced financial applications for use on Windows NT or
Unix servers in competition with the Company. The Company also faces indirect
competition from companies that sell financial software applications for use
mainly on proprietary mid-range computing systems, from suppliers of custom-
developed financial applications software systems, from the consulting groups
of major accounting firms and from the IT departments of potential customers
that choose to develop systems internally.
The majority of the Company's principal current and potential competitors
have significantly greater financial, technical and marketing resources and
name recognition than the Company. In addition, because of relatively low
barriers to entry and relatively high availability of capital in today's
markets, the Company believes that new competitors will emerge in the
Company's markets. The Company anticipates that it may face
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pricing pressures and that one or more companies in its markets may face
financial failure. In the past, a number of software markets have become
dominated by one or a small number of suppliers, and a small number of
suppliers or even a single supplier may dominate the Company's market. If the
Company does not offer products that continue to achieve success in its market
in the short term, the Company could suffer a loss in market share and brand
name acceptance. Moreover, any material reduction in the price of the
Company's products would negatively affect the Company's margins as a
percentage of net revenues and would require the Company to increase sales or
reduce costs to maintain or increase net income. The occurrence of any of the
foregoing would result in a material adverse effect on the Company's business,
results of operations and financial condition. There can be no assurance that
the Company will be able to compete effectively with current and future
competitors. See "Business--Competition."
RAPID TECHNOLOGICAL CHANGE; RISKS ASSOCIATED WITH NEW PRODUCTS AND PRODUCT
ENHANCEMENTS
The market for financial and human resource applications is characterized by
rapid technological change, frequent introductions of new and enhanced
products, changes in customer demands and evolving industry and financial
accounting standards and practices. The introduction of products embodying new
technologies and functionality can render existing products obsolete and
unmarketable. As a result, the Company's future success will depend, in part,
upon its ability to continue to enhance its existing products and develop and
introduce new products that keep pace with technological developments, satisfy
customer requirements and achieve market acceptance. There can be no assurance
that the Company will successfully identify new product opportunities and
develop and bring new products to the market in a timely and cost-effective
manner, or that products, capabilities or technologies developed by others
will not render the Company's products or technologies obsolete or
noncompetitive or shorten life cycles of the Company's products. The Company
has addressed and will continue to address product development and enhancement
initiatives primarily through the Company's internal research and development
staff, as well as through the licensing of third-party technologies.
Because of these potentially rapid changes in the financial and human
resource applications market, the life cycle of versions of the Company's
products is difficult to estimate. The Company's future success will depend
upon its ability to address the increasingly sophisticated needs of its
customers by developing and introducing enhancements to its products on a
timely basis that keep pace with technological developments, emerging industry
standards and customer requirements. The Company has recently released 32-bit
versions of its financial applications products. The Company believes that
these products offer the advanced functionality and technological capabilities
necessary to compete with generally available competitive products. There can
be no assurance, however, that the Company will be successful in developing
and marketing enhancements to existing products or in developing new products
that respond to technological changes, evolving industry or accounting
standards or practices or customer requirements. Any failure by the Company to
successfully develop and bring new or enhanced products to market that offer
advanced technology and functionality adequate to compete with other available
products could have a material adverse effect on the business, results of
operations and financial condition of the Company. See "Business--Industry
Background," "--Products," "--Technology" and "--Research and Development."
MANAGEMENT OF GROWTH
The Company recently has experienced significant growth in its sales and
operations and in the complexity of its products and product distribution
channels. The Company increased its sales by approximately 217% from
approximately $8.2 million in 1995 to approximately $26.0 million in 1997. The
Company increased the number of its employees from 105 at December 31, 1995 to
208 persons at December 31, 1997, and intends to further increase the size of
its sales force and development staff to address anticipated growth in sales.
The Company's growth, coupled with the rapid evolution of the Company's
markets, has placed, and is likely to continue to place, significant strains
on the Company's administrative, operational and financial resources and
increase demands on its internal systems, procedures and controls. If the
Company is unable to manage future growth effectively, the Company's business,
results of operations and financial condition could be materially adversely
affected. See "Business--Sales and Marketing," "--Employees," and
"Management."
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DEPENDENCE ON KEY PERSONNEL; ABILITY TO HIRE AND RETAIN PERSONNEL
The Company's performance is substantially dependent on the performance of
its key management, sales, support and technical personnel, all of whom are
employed at will and are not bound by an employment agreement to continue in
the employ of the Company. The loss of the services of any of such personnel
could have a material adverse effect on the business, results of operations
and financial condition of the Company. The Company does not maintain key
person life insurance policies on any of its employees or consultants other
than Joseph S. McCall.
The Company's success also is highly dependent on its continuing ability to
identify, hire, train, motivate and retain highly qualified management,
technical, and sales and marketing personnel. Competition for such personnel
is intense, and the Company believes that there is a shortage of qualified
personnel with the skills required to manage, develop, sell and market
financial and human resource applications and enhancements in today's highly
competitive environment. Accordingly, there can be no assurance that the
Company will be able to attract, assimilate or retain highly qualified
personnel in the future. The inability to attract and retain the necessary
personnel would have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Employees" and
"Management."
PLANNED INTERNATIONAL EXPANSION
To date, the Company has had limited experience selling or marketing its
products to customers outside of the United States and Canada. In 1994, the
Company investigated opportunities to market its products in the United
Kingdom and ultimately determined that expansion in that market was not
advantageous at that time. At the same time, the Company formed SQL Financials
Europe, Inc. ("SQL Europe"). SQL Europe currently does not conduct any
operations; however, the Company may use this entity in connection with its
planned international expansion. Notwithstanding that determination, the
Company believes that a potential market exists for its current applications
in countries other than the United States and Canada. Therefore, the Company
currently intends to expand its operations outside of the United States and
Canada and believes that an increasing percentage of its future sales will be
derived from international sales. However, because of the Company's limited
experience in international sales and marketing, no assurance can be given
that the Company will be able to successfully sell its products to customers
outside the United States and Canada. There are certain difficulties and risks
inherent in doing business internationally, including, but not limited to: (i)
costs of customizing products and services for international markets; (ii)
dependence on independent resellers; (iii) multiple and conflicting
regulations; (iv) exchange controls; (v) longer payment cycles; (vi)
unexpected changes in regulatory requirements; (vii) import and export
restrictions and tariffs; (viii) difficulties in staffing and managing
international operations; (ix) greater difficulty or delay in accounts
receivable collection; (x) potentially adverse tax consequences; (xi) the
burden of complying with a variety of laws outside the United States; (xii)
the impact of possible recessionary environments in economies outside the
United States; and (xiii) political and economic instability. The Company's
ability to expand its business in certain countries will require modification
of its products, including modifications to support foreign languages and
accounting principals and practices. Furthermore, the Company expects that its
export sales will be denominated predominantly in United States dollars. An
increase in the value of the United States dollar relative to other currencies
could make the Company's products and services more expensive and, therefore,
potentially less competitive in international markets. If the Company
successfully increases its international sales, its total revenues may also be
affected to a greater extent by seasonal fluctuations resulting from lower
sales that typically occur during the summer months in Europe and other parts
of the world. See "Business--Industry Background," "--Strategy" and "--Sales
and Marketing."
PRODUCT CONCENTRATION; MARKET ACCEPTANCE
The Company expects that revenues from its financial applications products
will continue to account for substantially all of the Company's product
revenues for the foreseeable future. During 1997, the Company released 32-bit
versions of its financial applications with enhanced functionality. Increased
market acceptance of this enhanced product family is critical to the Company's
ability to increase sales and therefore to sustain profitability. Any factor
adversely affecting sales or pricing levels of these applications will have a
material adverse effect on the Company's business, results of operations and
financial condition. Factors that may affect
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market acceptance include the availability and price of competing products and
technologies and the success of the sales efforts of the Company. Moreover,
the Company anticipates that its competitors will introduce additional
competitive products, particularly if demand for financial applications
increases, which may reduce future market acceptance of the Company's
products. The Company's future performance will also depend in part on the
successful development, introduction and market acceptance of new and enhanced
products. There can be no assurance that any such new or enhanced products
will be successfully developed, introduced or marketed, and failure to do so
would have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business--Products," "--Technology,"
and "--Competition."
LENGTHY SALES CYCLES
A customer's decision to license and implement the Company's financial and
human resource applications presents significant enterprise-wide implications
and involves a substantial commitment of the customer's management attention
and resources. The Company believes that the period between initial customer
contact and the customer's purchase commitment typically ranges from four to
seven months for its applications. Currently, the demand for solutions to the
Year 2000 problem generally has resulted in a temporary reduction in the sales
cycle for many companies that have chosen to implement client/server based
financial applications to resolve impending systems failure caused by the Year
2000. However, as more companies achieve Year 2000 compliance in their
financial applications, and as a result of the increased complexity of the
Company's products and an increase in the number and sophistication of
competing products, sales cycles are likely to increase in the future.
Accordingly, the Company's future sales cycle could extend beyond seven months
as a result of lengthy evaluation and approval processes that typically
accompany major initiatives or capital expenditures, including delays over
which the Company has little or no control. The loss of individual orders due
to increased sales and evaluation cycles, or delays in the sale of even a
limited number of systems, could have a material adverse effect on the
Company's business, results of operations and financial condition and, in
particular, could contribute to significant fluctuations in operating results
on a quarterly basis. See "Business--Sales and Marketing."
PROPRIETARY RIGHTS AND LICENSING
The Company's success depends significantly upon its internally developed
proprietary intellectual property and intellectual property licensed from
others. The Company relies on a combination of copyright, trademark and trade
secret laws as well as on confidentiality procedures and licensing
arrangements, to establish and protect its proprietary rights in its products.
The Company has no patents or patent applications pending, and existing trade
secret and copyright laws provide only limited protection of the Company's
proprietary rights. The Company has registered or applied for registration for
certain copyrights and trademarks and will continue to evaluate the
registration of additional copyrights and trademarks as appropriate. Despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Third parties may also
independently develop products similar to the Company's products. In addition,
the laws of some foreign countries do not protect proprietary rights to the
same extent as the laws of the United States.
The Company enters into license agreements with each of its customers. The
Company's license agreements provide for the customer's non-exclusive right to
use the object code version of the Company's products. The Company's license
agreements prohibit the customer from disclosing to third parties or reverse
engineering the Company's products and disclosing the Company's other
confidential information. In certain rare circumstances, typically for the
earliest releases of the Company's products, the Company has granted its
customers a source code license, solely for the customer's internal use.
The Company has in the past licensed and may in the future license on a non-
exclusive basis third-party software for use and distribution with the
Company's financial and human resource applications. Additionally, the
Company's human resource applications are based on software acquired under a
non-exclusive object code and source code license from Personnel Data Systems,
Inc. ("PDS"). On March 1, 1996, the Company entered into a private label and
license agreement with PDS, which provides for the purchase by the Company of
the licensed human resource application. The purchase price is paid by the
Company through ongoing royalties on the licensing of such products, with a
final lump sum payment being due after PDS has met certain delivery
obligations. PDS is required to support and maintain this software until the
private label and license agreement
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terminates when the full purchase price is paid. Because these third-party
software licenses are non-exclusive, no assurance can be given that these
licensors will not grant similar licenses to the Company's competitors.
Expiration or termination of the Company's third-party licenses or the
inability of Company's licensors to adequately maintain or update software
would adversely affect the Company's ability to ship certain products. While
it may be necessary or desirable in the future to obtain third-party software
licenses from alternative sources, there can be no assurance that the Company
will be able to do so on commercially reasonable terms, if at all. See
"Business--Proprietary Rights and Licensing."
Although the Company does not believe that it is infringing the intellectual
property rights of others, claims of infringement are becoming increasingly
common as the software industry matures and expanded legal protections are
applied to software products. Third parties may assert infringement claims
against the Company with respect to the Company's proprietary technology and
intellectual property licensed from others. Generally, the Company's third-
party software licensors indemnify the Company from claims of infringement.
However, in the event the Company receives a claim of infringement relating to
third-party software distributed by the Company there can be no assurance that
the Company's licensors will be able to fully indemnify the Company for such
claim, it at all. Infringement claims against the Company can cause product
release delays, require the Company to redesign its products or require the
Company to enter into royalty or license agreements, which agreements may not
be available on terms acceptable to the Company or at all. Furthermore,
litigation, regardless of the outcome, could result in substantial cost to the
Company, divert management attention and delay customer purchasing decisions.
Any infringement claim against the Company could have a material adverse
effect on the Company's business, results of operations and financial
condition.
RISK OF PRODUCT DEFECTS; PRODUCT LIABILITY
As a result of their complexity, software products may contain undetected
errors or failures when first introduced or as new versions are released.
There can be no assurance that, despite testing by the Company and testing and
use by current and potential customers, errors will not be found in new
financial applications after commencement of commercial shipments or, if
discovered, that the Company will be able to successfully correct such errors
in a timely manner or at all. The occurrence of errors and failures in the
Company's products could result in the loss of or delay in market acceptance
of the Company's financial applications, and alleviating such errors and
failures could require significant expenditure of capital and other resources
by the Company. The consequences of such errors and failures could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Since the Company's financial applications are used by its customers for
financial reporting and analysis and payroll processing, design defects,
software errors, misuse of the Company's products, incorrect data from network
elements or other potential problems within or out of the Company's control
that may arise from the use of the Company's products could result in
financial or other damages to the Company's customers. Although the Company's
license agreements with its customers typically contain provisions designed to
limit the Company's exposure to potential claims as well as any liabilities
arising from such claims, such provisions may not effectively protect the
Company against such claims and the liability and costs associated therewith.
The Company does not maintain product liability insurance. Accordingly, any
such claim could have a material adverse effect upon the Company's business,
results of operations and financial condition. The Company provides warranties
for its products after the software is purchased for the period in which the
customer maintains the Company's support of the product. The Company generally
supports only current releases and the immediately prior releases of its
products. The Company's license agreements generally do not permit product
returns by the customer, and product returns and warranty expense for 1995,
1996 and 1997 represented less than 8.3%, 4.9% and 1.2% of total revenues
during each respective period. However, no assurance can be given that product
returns will not increase as a percentage of total revenues in future periods.
See "Business--Products," "--Technology," and "--Customers."
RELIANCE ON THIRD-PARTY SOFTWARE
The Company maintains nonexclusive license agreements with Microsoft
Corporation, Oracle Corporation and Sybase, Inc. which allow the Company to
integrate its products with relational database management systems provided by
these companies. If the Company's customers experience significant problems
with these database management systems and such problems are not corrected by
the database system provider, there can be no
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assurance that Company's customers will be able to continue to use the
Company's products. Additionally, the Company's inability to maintain upward
compatibility with a new database management system release could impact the
ability of the Company's customers to use the Company's products. The
customer's inability to use the Company's products would affect customer's
renewal of software maintenance for such products, which would have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company relies on non-exclusive license agreements with Arbor Software
Corporation, Centura Corporation, FRx Software Corporation and PDS for third-
party software that is distributed by the Company. The loss of, or inability
to maintain, any of these software licenses would result in delays or
reductions in product shipments until equivalent software could be identified,
licensed or developed. Any such delays could have a material adverse effect on
the Company's business, operating results and financial condition. Further, in
some instances the Company only receives object code from its licensors,
causing the Company to be reliant on software support services from third
parties. If these third parties fail to satisfy their maintenance obligations
to the Company, then the Company would likely fail to satisfy its software
support obligations to its customers. Any such failure would have a material
adverse effect on the Company's business, results of operation and financial
condition.
The termination of any such licenses or the failure of any of these third-
party licensors to adequately maintain or update their products could delay
the shipment of certain of the Company's products while it seeks to implement
software offered by alternative sources, and any required replacement licenses
could prove costly. While it may be necessary or desirable in the future to
obtain other licenses relating to one or more of the Company's products or
relating to current or future technologies, there can be no assurance that the
Company will be able to do so on commercially reasonable terms or at all.
The Company's financial applications are designed to be Year 2000 compliant.
However, the Company is in the process of determining the extent to which
third-party licensed software distributed by the Company is Year 2000
compliant, as well as the impact of any non-compliance on the Company and its
customers. Additionally, in the event relational database management systems
used with the Company's software are not Year 2000 compliant, there can be no
assurance that Company's customers will be able to continue to use the
Company's products. The Company does not currently believe that the effects of
any Year 2000 non-compliance in the Company's installed base of software will
result in a material adverse impact on the Company's business or financial
condition. However, the Company's investigation with respect to third-party
software is in its preliminary stages, and no assurance can be given that the
Company will not be exposed to potential claims resulting from system problems
associated with the century change.
BENEFITS OF OFFERING TO CURRENT STOCKHOLDERS
The Offering will provide substantial benefits to current stockholders of
the Company, including directors and executive officers of the Company.
Consummation of the Offering is expected to (i) create a public market for the
Company's Common Stock; (ii) provide an opportunity for certain selling
stockholders to register their shares of Common Stock; and (iii) allow current
stockholders to realize the appreciation in the value of the equity securities
held by such stockholders. Current stockholders (including the Company's
directors, executive officers and selling stockholders), the Company's
directors and executive officers and the selling stockholders paid an
aggregate of approximately $ million, $ million and $1,261,900 million,
respectively, for an aggregate of approximately shares, shares and
629,625 shares, respectively, of Common Stock. The Offering will result in
gross unrealized gain to such stockholders (including directors, executive
officers and selling stockholders), directors and executive officers and
selling stockholders in the aggregate of approximately $ million, $
million and $6,293,600 million, respectively. See "Shares Eligible For Future
Sale."
RELIANCE ON MICROSOFT TECHNOLOGIES
The Company has entered into partnership and marketing arrangements with
Microsoft. The Company's products operate with Microsoft's proprietary
products, such as: Windows NT, Visual C++, Foundation Classes, Active X,
OLE/COM and SQL Server. The Company has designed its products and technology
to be compatible
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with new developments in Microsoft technology. Although the Company believes
that Microsoft technologies are currently widely utilized by businesses of all
sizes, there can be no assurance that businesses will continue to adopt such
technologies as anticipated, will migrate from older Microsoft technologies to
newer Microsoft technologies or will not adopt alternative technologies that
the Company does not support.
CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Upon completion of this Offering, the Company's executive officers and
directors, and their affiliates, as a group, will beneficially own
approximately 26% of the Company's outstanding Common Stock. As a result,
these stockholders will be able to influence matters requiring approval by the
stockholders of the Company, including the election of directors and approval
of significant corporate transactions.
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS
The Company intends to use the net proceeds of this Offering for general
corporate purposes, including product development and working capital. The
Company may use a portion of the net proceeds of the Offering to acquire or
invest in businesses, technologies or products complementary to the Company's
business. The Company has no other specific plans to use the net proceeds of
this Offering. Accordingly, the Company will retain broad discretion to
allocate a substantial portion of the net proceeds of this Offering. Pending
any such uses, the Company plans to invest the net proceeds in investment-
grade, interest-bearing securities. See "Use of Proceeds."
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
The Company may in the future engage in selective acquisitions of businesses
that are complementary to the business conducted by the Company. While the
Company has from time to time in the past considered acquisition
opportunities, it has never acquired a significant business and has no
existing agreements or commitments to effect any acquisition. Accordingly,
there can be no assurance that the Company will be able to identify suitable
acquisition candidates available for sale at reasonable prices, consummate any
acquisition or successfully integrate any acquired business into the Company's
operations. Such integration risk includes, among other things, the difficulty
in assimilating the operations and personnel of an acquired company; potential
disruption of the Company's ongoing business; inability to successfully
integrate acquired systems into the Company's operations, maintenance of
uniform standards, controls and procedures; and possible impairment of
relationships with employees of an acquired business as a result of changes in
management. Further, acquisitions may involve a number of additional risks,
including diversion of management's attention, failure to retain key acquired
personnel, unanticipated events or circumstances and legal liabilities, some
or all of which could have a material adverse effect on the Company's
business, results of operations and financial condition. Problems with an
acquired business could have a material adverse impact on the performance of
the Company as a whole. The Company expects to finance any future acquisitions
with the proceeds of this Offering as well as with possible debt financing,
the issuance of equity securities (common or preferred stock) or a combination
of the foregoing. There can be no assurance that the Company will be able to
arrange adequate financing on acceptable terms. If the Company were to proceed
with one or more significant future acquisitions in which the consideration
consisted of cash, a substantial portion of the Company's available cash
(possibly including a portion of the proceeds of this Offering) could be used
to consummate the acquisitions. If the Company were to consummate one or more
significant acquisitions in which the consideration consisted of stock,
stockholders of the Company could suffer significant dilution of their
interests in the Company. Many business acquisitions must be accounted for as
a purchase. Most of the businesses that might become attractive acquisition
candidates for the Company are likely to have significant intangible assets
and acquisition of those businesses, if accounted for as a purchase, would
typically result in substantial goodwill amortization charges to the Company,
reducing future earnings. In addition, such acquisitions could involve non-
recurring acquisition-related charges, such as the write-off or write-down of
software development costs or other intangible items.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the shares of
Common Stock of the Company, and there can be no assurance that an active
public market for the shares of Common Stock of the Company will
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develop or be sustained after the Offering. The initial public offering price
will be determined by negotiation between the Company and the Underwriters
based upon several factors. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The market
price of the shares of Common Stock may be highly volatile and could be
subject to wide fluctuations in response to variations in results of
operations, announcements of technological innovations or new products by the
Company or its competitors, changes in financial estimates by securities
analysts or other events or factors. In addition, the financial markets have
experienced significant price and volume fluctuations that have particularly
affected the market prices of equity securities of many high technology
companies and that often have been unrelated to the operating performance of
such companies or have resulted from the failure of the operating results of
such companies to meet market expectations in a particular quarter. Broad
market fluctuations or any failure of the Company's operating results in a
particular quarter to meet market expectations may adversely affect the market
price of the shares of Common Stock. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which would have a material adverse effect on the
Company's business, results of operations and financial condition.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Company's Common Stock in the
public market after this Offering, or the perception that such sales could
occur, could adversely affect the market price of the shares of the Common
Stock. Of the 9,047,914 shares of Common Stock to be outstanding upon
completion of this Offering, 2,875,000 shares are being registered in the
Registration Statement covering this Prospectus and will be freely tradeable
without restriction. All of the remaining 5,543,289 shares of Common Stock are
restricted securities as that term is defined in Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Securities Act"). Taking into
consideration the effect of lock-up agreements entered into by all officers
and directors and substantially all of the stockholders of the Company, an
additional shares will become eligible for sale upon expiration of the
lock-up agreements 180 days after the date of this Prospectus, subject to the
provisions of Rules 144 and 701 of the Securities Act. The Company intends to
file a Registration Statement on Form S-8 after the completion of the
Offering, after which time an additional 277,578 shares issuable upon the
exercise of vested employee and consultant stock options will become eligible
for sale. The holders of 4,787,594 shares of Common Stock to be outstanding
upon the completion of this Offering are entitled to certain rights with
respect to registration of such shares for sale to the public beginning 180
days after the completion of this Offering. See "Management--Executive
Compensation," "Description of Capital Stock" and "Shares Eligible for Future
Sale."
POTENTIAL ISSUANCE OF PREFERRED STOCK; ANTITAKEOVER PROVISIONS
The Company's Certificate of Incorporation permits the issuance of up to
5,000,000 shares of Preferred Stock and permits the Board of Directors to fix
the rights, preferences, privileges and restrictions of such shares without
any further vote or action by the Company's stockholders. As of the date of
this Prospectus, the Company had 3,191,743 shares of Preferred Stock
outstanding, all of which will convert to 4,787,594 shares of Common Stock
upon the effectiveness of this Offering. Although the Company has no current
plans to issue new shares of Preferred Stock, the potential issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company, may discourage bids for the Common Stock at
a premium over the market price of the Common Stock and may adversely affect
the market price of, and the voting and other rights of the holders of, Common
Stock. At the effective time of this Offering, the Company's Board of
Directors will be divided into three classes, each of which serves for a
staggered three-year term. Such staggered board may make it more difficult for
a third party to gain control of the Company's Board of Directors. In
addition, certain provisions of the Company's corporate charter and by-laws
and of Delaware law may be deemed to have an anti-takeover effect and may
discourage takeover attempts not first approved by the Board of Directors
including takeovers which certain stockholders may deem to be in their best
interest. See "Description of Capital Stock."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains certain forward-looking statements, including,
among others, (i) the ability of the Company to fund higher levels of research
and development, increase its sales and marketing efforts, broaden its
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customer support capabilities and expand its administrative resources in
anticipation of future growth; (ii) the ability of the Company to continue to
rely principally on a direct sales model; (iii) the Company's plans to develop
indirect distribution channels through third-party arrangements; (iv) the
ability of the Company to increase the size of its sales force and development
staff; and (v) the expansion of the Company's operations outside of the United
States and Canada. These forward-looking statements are based largely on the
Company's current expectations and are subject to a number of risks and
uncertainties. Actual results could differ materially from these forward-
looking statements. In addition to the other risks described elsewhere in this
"Risk Factors" discussion, important factors to consider in evaluating such
forward-looking statements include: (i) changes in external competitive market
factors or in the Company's internal budgeting process which might impact
trends in the Company's results of operations; (ii) unanticipated working
capital or other cash requirements; and (iii) various competitive factors that
may prevent the Company from competing successfully in the marketplace. In
light of these risks and uncertainties, many of which are described in greater
detail elsewhere in this "Risk Factors" discussion, there can be no assurance
that the forward-looking statements contained in this Prospectus will in fact
transpire.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share of Common Stock is substantially
higher than the book value per share of the outstanding Common Stock. As a
result, purchasers of Common Stock in this Offering will experience an
immediate dilution of $9.54 per share in the pro forma net tangible book value
of their Common Stock from the assumed initial public offering price of $12.00
per share. Additional dilution is likely to occur upon the exercise of
outstanding stock options, which entitle the option holders to purchase shares
of Common Stock at prices significantly below the initial public offering
price. To the extent such options are exercised, there will be further
dilution. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby are estimated to be approximately $26.5 million
($30.6 million if the Underwriters' over-allotment option is exercised in
full), assuming an initial public offering price of $12.00 per share and after
deducting the estimated underwriting discounts and estimated expenses payable
by the Company in connection with the Offering.
The Company expects to use the net proceeds of this Offering for working
capital and other general corporate purposes. These purposes may include
increased expenditures on research and product development, expansion of the
Company's sales and marketing staff, the development of new distribution and
sales channels, including channels for international sales, and the expansion
of the Company's capabilities to provide implementation, training and upgrade
services, and customer support and maintenance.
From time to time in the ordinary course of business, the Company evaluates
the acquisition of businesses and technologies that complement the Company's
business, for which a portion of the net proceeds may be used. Currently,
however, the Company does not have any understandings, commitments or
agreements with respect to any such acquisitions. Pending application of the
net proceeds for the purposes described above, the Company intends to invest
the net proceeds in investment-grade, interest-bearing securities.
DIVIDEND POLICY
The Company currently anticipates that it will retain all future earnings
for use in its business and does not anticipate that it will pay any cash
dividends in the foreseeable future. The payment of any future dividends will
be at the discretion of the Company's Board of Directors and will depend upon,
among other things, the Company's results of operations, capital requirements,
general business conditions, contractual restrictions on payment of dividends,
if any, legal and regulatory restrictions on payment of dividends, and other
factors the Company's Board of Directors deems relevant. In addition, the
Company's line of credit prohibits the payment of dividends without prior
lender approval.
18
<PAGE>
CAPITALIZATION
The following table sets forth the long-term indebtedness and capitalization
of the Company at December 31, 1997 on an actual, pro forma and pro forma as
adjusted basis. The table should be read in conjunction with the Company's
Unaudited Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(1) ADJUSTED(2)
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, net of current portion, net of
a discount of $166,000 pro forma and pro forma
as adjusted................................... $ 497 $ 1,423 $ 1,423
Redeemable convertible preferred stock:
3,500,000 shares Preferred Stock, par value
$1.00 per share authorized; 262,500 shares
of Series A Preferred Stock issued and
outstanding; 454,888 shares of Series B
Preferred Stock issued and outstanding;
428,572 shares of Series C Preferred Stock
issued and outstanding; 701,755 shares of
series D Preferred Stock issued and
outstanding; 697,675 shares of Series E
Preferred Stock issued and outstanding;
628,809 shares of Series F Preferred Stock
issued and outstanding, actual; no shares
outstanding pro forma or pro forma as
adjusted.................................... 25,112 -- --
Stockholders' equity (deficit):
Preferred stock, $1.00 par value, 3,500,000
shares authorized, 3,174,199 shares of
redeemable convertible preferred stock
issued, actual; no shares issued and
outstanding pro forma or pro forma as
adjusted.................................... -- -- --
Common stock, $.0001 par value, 9,000,000
shares authorized and 1,467,160 shares
issued and outstanding, actual; 6,453,443
shares issued and outstanding, pro forma;
and 8,953,443 shares issued, pro forma as
adjusted(3)(4).............................. -- 1 1
Additional paid-in capital..................... 438 26,600 53,711
Accumulated deficit............................ (28,019) (28,019) (28,019)
Warrants....................................... 652 1,199 587
Treasury stock, at cost........................ (2) (2) (2)
Note from stockholder.......................... (612) (612) --
Deferred compensation.......................... (367) (367) (367)
-------- -------- --------
Total stockholders' equity (deficit)......... (27,910) (1,200) 25,911
-------- -------- --------
Total capitalization....................... $ (2,301) $ 223 $ 27,334
======== ======== ========
</TABLE>
- --------
(1) Pro forma capitalization data gives effect to: (i) the Conversion and;
(ii) the Acquisition. See "Certain Transactions" and Note 11 to Notes to
Consolidated Financial Statements.
(2) Adjusted to give effect to the sale by the Company of 2,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$12.00 per share and the receipt of the estimated net proceeds therefrom
and the Warrant Exercise. See "Use of Proceeds."
(3) Includes 75,000 shares of Common Stock held in treasury. Excludes: (i)
1,652,700 shares of Common Stock reserved for issuance under the Company's
1992 Stock Option Plan for which options to acquire 1,528,188 shares of
Common Stock are outstanding as of the date of this Prospectus at exercise
prices ranging from $0.67 to $4.83 per share and a weighted average
exercise price equal to $2.35 per share; (ii) 1,000,000 shares of Common
Stock reserved for issuance under the Company's 1998 Stock Incentive Plan
for which no options have yet been granted; (iii) 300,000 shares of Common
Stock issuable upon the exercise of an outstanding warrant at an exercise
price of $3.67 per share issued in connection with the Acquisition and
(iv) 95,610 shares of Common Stock issuable at a weighted average price of
$6.22 per share upon exercise and conversion of Preferred Stock issuable
upon the exercise of outstanding warrants. See "Capitalization,"
"Management--Employee Benefit Plans," "--Director Compensation."
(4) The Company will file an amendment to its Certificate of Incorporation
concurrent with the effective date of this Offering to increase its
authorized capital stock to 30,000,000 shares.
19
<PAGE>
DILUTION
As of December 31, 1997, the net tangible book deficit of the Company was
approximately $(29.2 million) or $(20.96) per share. The pro forma net
tangible book deficit of the Company, assuming completion of the Conversion,
and the Acquisition was $(5.0 million) or $(0.78) per share. Pro forma net
tangible book deficit per share is equal to the Company's total pro forma
tangible assets, less total liabilities, divided by the number of shares of
Common Stock outstanding on a pro forma basis at that date.
After giving effect to the sale by the Company of the 2,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$12.00 per share, and the receipt of the estimated net proceeds therefrom and
the Warrant Exercise, the pro forma net tangible book value of the Company as
of December 31, 1997 would have been approximately $22.2 million, or $2.46 per
share. This represents an immediate increase in pro forma net tangible book
value of $3.24 per share to existing stockholders and an immediate dilution of
$9.54 per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $12.00
------
Net tangible book deficit per share as of December 31, 1997... $(20.96)
Increase per share attributable to pro forma adjustments...... $ 20.18
-------
Pro forma net tangible book deficit per share as of December
31, 1997..................................................... $ (0.78)
Increase per share attributable to new investors.............. $ 3.24
-------
Pro forma net tangible book value per share as of December 31,
1997 after the Offering...................................... $ 2.46
------
Dilution per share to new investors........................... $ 9.54
======
</TABLE>
The following table sets forth, as of December 31, 1997, on a pro forma
basis after giving effect to the issuance of 4,761,283 shares of Common Stock
in connection with Conversion; 225,000 shares of Common Stock in connection
with the Acquisition; 131,250 shares of Common Stock in connection with the
Warrant Exercise, 2,500,000 shares of Common Stock offered hereby and the
total consideration, and the average price per share paid by the existing
stockholders and new investors, at an assumed initial public offering price of
$12.00 per share, and before deducting the underwriting discount and estimated
offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 6,584,693 72.5% $26,600,000 47.0% $ 4.04
New investors................... 2,500,000 27.5 30,000,000 53.0 $12.00
--------- ----- ----------- -----
Total......................... 9,084,693 100.0% $56,600,000 100.0%
========= ===== =========== =====
</TABLE>
Following completion of this Offering, the Company will have outstanding
options to acquire a total of 1,528,188 shares of Common Stock at exercise
prices ranging from $0.67 to $4.83 per share and a weighted average exercise
price of $2.35 per share, 300,000 shares of Common Stock issuable upon the
exercise of an outstanding warrant at an exercise price of $3.67 per share
issued in connection with the Acquisition, and warrants to acquire Preferred
Stock convertible into an aggregate of 95,610 shares of Common Stock at a
weighted average price of $6.22 per share of Common Stock. The exercise of a
material number of these options or warrants would have the effect of
increasing the pro forma net tangible book value dilution per share to new
investors in this Offering. See "Capitalization," "Management--Employee
Benefit Plans," "Description of Capital Stock."
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company set forth below
should be read in conjunction with the Consolidated Financial Statements of
the Company, including the Notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The statement of
operations data for the years ended December 31, 1993, 1994, 1995, 1996 and
1997 and the balance sheet data as of December 31, 1993, 1994, 1995, 1996 and
1997 have been derived from, and are qualified by reference to, the Company's
financial statements audited by Arthur Andersen LLP, independent public
accountants. The unaudited pro forma consolidated financial statements and
notes thereto are provided for informational purposes only and do not purport
to be indicative of the results that would have actually been obtained had the
transactions been completed on the dates indicated or that may be expected to
occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees..................... $ 715 $ 2,568 $ 5,232 $ 6,425 $13,506
Services fees.................... 245 836 1,737 3,984 7,786
Maintenance fees................. 94 417 1,221 2,647 4,696
------- ------- ------- ------- -------
Total revenues................... 1,054 3,821 8,190 13,056 25,988
Cost of revenues:
License fees..................... 12 98 291 416 1,205
Services fees.................... 225 860 1,421 2,904 5,402
Maintenance fees................. 189 277 655 1,350 1,973
------- ------- ------- ------- -------
Total cost of revenues........... 426 1,235 2,367 4,670 8,580
Operating expenses:
Research and development......... 1,364 2,130 3,882 5,777 7,190
Sales and marketing.............. 541 2,718 6,636 7,191 9,515
General and administrative....... 879 2,895 3,292 3,076 4,061
------- ------- ------- ------- -------
Total operating expenses......... 2,784 7,743 13,810 16,044 20,766
------- ------- ------- ------- -------
Operating loss.................... (2,156) (5,157) (7,987) (7,658) (3,358)
Interest expense (income), net.... 14 (17) 2 6 274
Minority interest................. 0 0 (60) (215) (478)
------- ------- ------- ------- -------
Net loss.......................... $(2,170) $(5,140) $(8,049) $(7,879) $(4,110)
======= ======= ======= ======= =======
Basic and diluted net loss per
share............................ $ (2.23) $ (5.65) $ (6.19) $ (5.74) $ (2.97)
======= ======= ======= ======= =======
Weighted average common shares
outstanding(1)................... 975 910 1,300 1,373 1,386
======= ======= ======= ======= =======
Pro forma basic and diluted net
loss............................. $ (0.67)
=======
Pro forma weighted average common
shares outstanding(1)............ 6,147
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------------------------- DECEMBER
1993 1994 1995 1996 1997 1997(2)
------ ------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $1,488 $ 492 $ 3,333 $ 3,279 $ 7,213 $7,012
Working capital
(deficit)............... 1,178 (1,424) (2,555) (3,422) (453) (654)
Total assets............. 1,981 1,506 5,865 8,525 14,681 16,961
Long-term debt, net of
current portion......... 190 143 93 1,093 497 1,431
Redeemable convertible
preferred stock......... 4,075 7,688 13,075 19,075 25,112 --
Total stockholders'
deficit................. (2,961) (8,732) (15,927) (23,837) (27,910) (1,200)
</TABLE>
- --------
(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of weighted average common shares outstanding.
(2) Pro forma balance sheet data gives effect to the following transactions as
if such transactions occurred as of the date presented: the Acquisition
and the Conversion. See "Certain Transactions" and Note 11 of Notes to
Financial Statements.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in November 1991 to develop, market, license and
support financial applications. In 1997, the Company introduced a series of
additional modules and product enhancements. Specifically, in the first
quarter of 1997, the Company introduced its human resource applications, which
included the Personnel, Benefits and Payroll modules. In 1997, the Company
introduced its Financial Statement Accelerator module, a distributed
management reporting solution, and a 32-bit version of its financial
applications (the "Denver Release"), which included two new modules,
Purchasing Control Solution/Graphical Architect. Total license revenues from
these new products in 1997 were $5.7 million. The Company intends to release a
32-bit version of its human resources applications toward the end of 1998. The
Company currently markets its products in the United States and Canada through
its direct sales force and has licensed its client/server applications to more
than 195 customers in a variety of industry segments, including insurance,
financial services, communications, retail, printing and publishing,
transportation and manufacturing. The Company also offers fee-based
implementation, training and upgrade services and on-going maintenance and
support of its products for a 12-month renewable term.
Through 1997, the Company recognized revenue in compliance with Statement of
Position ("SOP") 91-1 "Software Revenue Recognition." Commencing in 1998, the
Company adopted SOP 97-2 "Software Revenue Recognition." The adoption of this
SOP is not expected to have a significant impact on the Company's consolidated
financial statements. Under SOP-91-1 revenues from software licenses have been
recognized upon delivery of the product if there are no significant
obligations on the part of the Company following delivery and collection of
the related receivable is deemed probable by management. Revenues from service
fees relate to implementation, training and upgrade services performed by the
Company and have been recognized as the services are performed. Maintenance
fees relate to customer maintenance and support and have been recognized
ratably over the term of the software support agreement, which is typically 12
months. A majority of the Company's customers renew the maintenance and
support agreements after the initial term. To date, all of the Company's
customers have utilized the Company's implementation, training or upgrade
services, and approximately 92% of the Company's current customers are under
maintenance and support agreements. Revenues that have been prepaid or
invoiced, but that do not yet qualify for recognition under the Company's
policies are reflected as deferred revenues.
Cost of license fees include royalties and software duplication and
distribution costs. These costs are recognized by the Company as the
applications are shipped. Cost of services fees include personnel and related
costs incurred to provide implementation, training and upgrade services to
customers. These services were provided by the Services Subsidiary beginning
in March 1995 and prior to that time by third-party contractors. These costs
are recognized as the services are performed. Cost of maintenance fees include
personnel and related costs incurred to provide the ongoing support and
maintenance of the Company's products. These costs are recognized as incurred.
Research and development expenses consist primarily of personnel costs and
subcontractor fees and amortization of acquired software. The Company accounts
for software development costs under Statement of Financial Accounting
Standards ("SFAS") No. 86 "Accounting For the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed." Research and development expenses are
charged to expense as incurred until technological feasibility is established,
after which remaining costs are capitalized. The Company defines technological
feasibility as the point in time at which the Company has a working model of
the related product. Historically, the costs incurred during the period
between the achievement of technological feasibility and the point at which
the product is available for general release to customers have not been
material. Therefore, the Company has charged all software development costs to
expense as incurred.
Sales and marketing expenses consist primarily of salaries, commissions and
benefits to sales and marketing personnel, travel, tradeshow participation,
public relations and other promotional expenses. General and
22
<PAGE>
administrative expenses consist primarily of salaries for financial,
administrative and management personnel and related travel expenses, as well
as occupancy, equipment and other administrative costs.
The Company has net operating loss carryforwards ("NOLs") of approximately
$26.4 million at December 31, 1997, which begin expiring in 2007. The Company
established a valuation allowance equal to the NOLs and all other deferred tax
assets. The benefits from these deferred tax assets will be recorded when
realized which will reduce the Company's effective tax rate for future taxable
income, if any. Due to changes in the Company's ownership structure, the
Company's use of its NOLs as of February 16, 1996 of $15.8 million will be
limited to approximately $1.6 million in any given year to offset future
taxes. If the Company does not realize taxable income in excess of the
limitation in future years, certain NOLs will be unrealizable. NOLs generated
from February 16, 1996 through December 31, 1996 of $6.5 million and from
January 1, 1997 through December 31, 1997 of $4.1 million may be further
limited as a result of the Offering.
AFFILIATE RELATIONSHIPS
In March 1995, the Company and Tech Ventures, which is controlled by Joseph
S. McCall, formed the Services Subsidiary to provide implementation, training
and upgrade services exclusively for the Company's customers. On February 5,
1998, Tech Ventures sold its 20.0% interest in the Services Subsidiary to the
Company in exchange for 225,000 shares of the Company's Common Stock, a
warrant to purchase an additional 300,000 shares of Common Stock at a price of
$3.67 per share, and a non-interest bearing promissory note in the principal
amount of $1.1 million. The purchase of the remaining 20.0% of the Services
Subsidiary will be accounted for as a purchase and will result in goodwill in
the amount of $2.6 million that will be amortized over 15 years. The pro forma
effect of this transaction as of and for the year ended December 31, 1997 is
reflected in the pro forma financial statements included elsewhere in this
Prospectus. The consolidated financial information included herein includes
the accounts of the Company and the Services Subsidiary. See "Certain
Transactions."
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996 1997
------ ----- ----- -----
<S> <C> <C> <C> <C>
Revenues:
License fees.............. 67.2% 63.9% 49.2% 52.0%
Services fees............. 21.9 21.2 30.5 30.0
Maintenance fees.......... 10.9 14.9 20.3 18.0
------ ----- ----- -----
Total revenues.......... 100.0 100.0 100.0 100.0
------ ----- ----- -----
Cost of revenues:
License fees.............. 2.6 3.6 3.2 4.6
Services fees............. 22.5 17.3 22.3 20.8
Maintenance fees.......... 7.2 8.0 10.3 7.6
------ ----- ----- -----
Total cost of revenues.. 32.3 28.9 35.8 33.0
------ ----- ----- -----
Operating expenses:
Research and development.. 55.7 47.4 44.2 27.7
Sales and marketing....... 71.1 81.0 55.1 36.6
General and
administrative........... 75.8 40.2 23.6 15.6
------ ----- ----- -----
Total operating
expenses............... 202.6 168.6 122.9 79.9
------ ----- ----- -----
Operating loss.............. (134.9) (97.5) (58.7) (12.9)
Interest (income) expense... (0.4) 0.0 0.0 1.1
Minority interest........... 0.0 (0.8) (1.6) (1.8)
------ ----- ----- -----
Net loss.................... (134.5)% (98.3)% (60.3)% (15.8)%
====== ===== ===== =====
Gross margin on license
fees....................... 96.2% 94.4% 93.5% 91.1%
Gross margin on services
fees....................... (2.9) 18.2 27.1 30.6
Gross margin on maintenance
fees....................... 33.6 46.4 49.0 58.0
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES
Total Revenues. Total revenues increased 99.1% to $26.0 million in 1997 from
$13.1 million in 1996. This increase was attributable to substantial increases
in license fees, services fees and maintenance fees.
License Fees. License fees increased 110.2% to $13.5 million, or 52.0% of
total revenues, in 1997 from $6.4 million, or 49.2% of total revenues, in
1996. These increases in license fees resulted primarily from an increase in
the number of licenses sold, reflecting a continuing increase in the demand
for the Company's existing and new applications, and to a lesser extent, to
the increase in the average customer transaction size.
Services Fees. Services fees increased 95.4% to $7.8 million, or 30.0% of
total revenues, in 1997 from $4.0 million, or 30.5% of total revenues, in
1996. The increase in services fees was primarily due to increased demand for
professional services associated with the increase in the number of licenses
sold.
Maintenance Fees. Maintenance fees increased 77.4% to $4.7 million, or 18.0%
of total revenues in 1997 from $2.7 million or 20.3% of total revenues in
1996. The increase in maintenance fees was primarily due to the signing of
license agreements with new customers and the renewal of maintenance with
existing customers.
24
<PAGE>
COST OF REVENUES
Total Cost of Revenues. Cost of revenues increased 83.7% to $8.6 million, or
33.0% of total revenues, in 1997 from $4.7 million, or 35.8% of total
revenues, in 1996. The increase in the cost of revenues was primarily due to
an increase in personnel and related expenses and increased royalty expenses.
The decrease as a percentage of total revenues primarily reflects increased
utilization of personnel.
Cost of License Fees. Cost of license fees increased to $1.2 million, or
8.9% of total license fees, in 1997 compared to $416,000, or 6.5% of total
license fees, in 1996. The increase as a percentage of total license fees is
primarily attributable to increases in royalty expense on new products
introduced in 1997, components of which are licensed from third parties.
Cost of Services Fees. Cost of services fees increased 86.0% to $5.4
million, or 69.4% of total services fees, in 1997 compared to $2.9 million, or
72.9% of total services fees, in 1996. The increase in the cost of services
fees was primarily attributable to an increase in the personnel and related
costs to provide the implementation, training and upgrade services. Cost of
services fees as a percentage of total services fees decreased due to
increased utilization of personnel.
Cost of Maintenance Fees. Cost of maintenance fees increased 46.1% to $2.0
million, or 42.0% of total maintenance fees, in 1997 compared to $1.4 million,
or 51.0% of total maintenance fees, in 1996. The increase in the cost of
maintenance fees was primarily due to an increase in personnel and related
costs required to provide support and maintenance. Cost of maintenance fees as
a percentage of total maintenance fees decreased primarily due to more
productive use of personnel to support the maintenance customer base.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 24.5% to $7.2 million, or 27.7%
of total revenues, in 1997 from $5.8 million, or 44.2% of total revenues, in
1996. Research and development expenses increased primarily due to increased
personnel and contractor fees related to the effort required to develop the
Denver Release, which was released in September 1997. During the first half of
1997, the Company began to reduce development personnel and third-party
consultant costs as this project approached completion. The decrease in
research and development as a percentage of revenue from 1996 compared to 1997
is primarily due to the completion of the Denver Release, coupled with the
economies of scale realized through the growth in the Company's revenue. The
Company intends to continue to devote substantial resources toward research
and development efforts.
SALES AND MARKETING
Sales and marketing expenses increased 32.3% to $9.5 million in 1997 from
$7.2 million in 1996. As a percentage of total revenues, sales and marketing
expenses decreased to 36.6% in 1997 from 55.1% in 1996. The increase in
expenses was primarily attributable to the costs associated with additional
sales and marketing personnel and promotional activities. In January 1997, the
Company divided its U.S. and Canadian sales territory into east and west
regions and hired a second vice president of sales. In addition, the Company
hired two regional sales managers and several additional sales representatives
in early 1997. During 1997, the Company also incurred substantial marketing
expenditures to design and implement a promotional campaign, including
marketing collateral, trade shows and seminar presentations intended to
promote the Company's new market positioning. The decrease in sales and
marketing as a percentage of revenues from 1996 compared to 1997 reflects the
higher productivity of the Company's sales force.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 32.0% to $4.1 million in 1997
from $3.1 million in 1996. As a percentage of total revenues, general and
administrative expenses decreased to 15.6% in 1997 from 23.6% in 1996. The
increase in general and administrative expenses was primarily attributable to
increases in
25
<PAGE>
personnel and related costs. Also, the Company incurred increased rent and
equipment expense associated with the relocation of its headquarters in August
1997. In 1997, the Company recorded $58,000 in compensation expense related to
stock options granted. The Company believes that its general and
administrative expenses will continue to increase in future periods to
accommodate anticipated growth and expenses associated with its
responsibilities as a public company.
INCOME TAXES
As a result of the operating losses incurred since the Company's inception,
the Company has not recorded any provision or benefit for income taxes in 1997
and in 1996. See Notes to Consolidated Financial Statements.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES
Total Revenues. Total revenues increased 59.4% to $13.1 million in 1996 from
$8.2 million in 1995. This increase was attributable to substantial increases
in license fees, services fees and maintenance fees.
License Fees. License fees increased 22.8% to approximately $6.4 million in
1996, from $5.2 million in 1995. The increase reflected an increase in the
number of product licenses sold during the period. As a percentage of total
revenues, license fees decreased to 49.2% in 1996 from 63.9% in 1995. This
decrease was primarily attributable to the deferral of revenues on contracts
signed in 1996 related to the Denver Release to 1997.
Services Fees. Services fees increased 129.4% to $4.0 million, or 30.5% of
total revenues, in 1996 from $1.7 million, or 21.2% of total revenues, in
1995. These increases were attributable to increasing demand for services
associated with the Company's increasing customer base coupled with the
maturation of the Services Subsidiary that was created in March of 1995.
Maintenance Fees. Maintenance fees increased 116.8% to $2.7 million, or
20.3% of total revenues, in 1996 from $1.2 million, or 14.9% of total
revenues, in 1995. These increases resulted primarily from the signing of
license agreements with new customers and the renewal of maintenance with
existing customers.
COST OF REVENUES
Total Cost of Revenues. Cost of revenues increased 97.3% to $4.7 million, or
35.8% of total revenues, in 1996 from $2.4 million, or 28.9% of total
revenues, in 1995. These increases were primarily due to an increase in
personnel and related expenses.
Cost of License Fees. Cost of license fees increased 43.0% to $416,000 in
1996 from $291,000 in 1995. The increase was primarily attributable to an
increase in royalty expense. As a percentage of total license fees, cost of
license fees increased to 6.5% in 1996 from 5.6% in 1995.
Cost of Services Fees. Cost of services fees increased 104.4% to $2.9
million, or 72.9% of total services fees, in 1996 from $1.4 million, or 81.8%
of total services fees, in 1995. The increase in absolute dollars was
primarily attributable to an increase in personnel and related costs required
to provide the implementation, training and upgrade services. The cost of
services fees as a percentage of total services fees decreased due to
increased utilization of personnel coupled with the Company's Services
Subsidiary being operational for all of 1996.
Cost of Maintenance Fees. Cost of maintenance fees increased 106.1% to $1.4
million, or 51.0% of total maintenance fees, in 1996 from $655,000, or 53.6%
of total maintenance fees, for 1995. The increase in absolute dollars was
primarily attributable to an increase in personnel and related costs to
provide support and maintenance services to the Company's growing customer
base. Cost of maintenance fees as a percentage of
26
<PAGE>
total maintenance fees decreased primarily due to more productive use of
personnel supporting the Company's maintenance customer base.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 48.8% to $5.8 million in 1996
from $3.9 million in 1995. This increase reflects increased personnel and
related expenses and third-party contractor fees as the Company increased
product development personnel to develop new products, including the Denver
Release and the prior releases of the Company's financial applications. As a
percentage of total revenues, research and development expenses decreased to
44.2% in 1996 from 47.4% in 1995. This decrease was attributable to the
economies of scale realized through substantial increases in total revenues.
SALES AND MARKETING
Sales and marketing expenses increased by 8.4% to $7.2 million in 1996 from
$6.6 million in 1995. Sales and marketing expenses increased primarily as a
result of increased sales and marketing personnel and related costs. As a
percentage of total revenues, sales and marketing expenses decreased to 55.1%
in 1996 from 81.0% in 1995. This decrease primarily reflects the higher
productivity of the Company's sales force.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased 6.6% to $3.1 million, or 23.6%
of total revenues, in 1996 from $3.3 million, or 40.2% of total revenues, in
1995. The decrease reflects lower general and administrative costs associated
with the closing of the United Kingdom office and allocations of costs to the
Services Subsidiary for administrative services performed on its behalf.
INCOME TAXES
As a result of the operating losses incurred since the Company's inception,
the Company has not recorded any provision or benefit for income taxes in 1996
or 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES
Total Revenues. Total revenues increased 114.3% to $8.2 million in 1995 from
$3.8 million in 1994. This increase was attributable to substantial increases
in license fees and maintenance fees related to in large part to the Company's
expanded marketing efforts.
License Fees. License fees increased 103.7% to $5.2 million in 1995 from
$2.6 million in 1994. The increase was due to an increase in the number and
productivity of the direct sales force. The number of customers to which the
Company licensed its products doubled from 1994 to 1995. As a percentage of
total revenues, license fees decreased to 63.9% in 1996 from 67.2% in 1995.
This decrease reflects the fact that maintenance fees increased at a faster
rate than license fees during these periods.
Services Fees. Services fees increased 107.8% to $1.7 million in 1995 from
$836,000 in 1994. The dollar amount increase in services fees reflected the
increasing demand for implementation, training and upgrade services associated
with the growth in the Company's customer base and the formation of the
Services Subsidiary in March of 1995. As a percentage of total revenues,
services fees decreased to 21.2% in 1995 from 21.9% in 1994.
Maintenance Fees. Maintenance fees increased 192.8% to $1.2 million, or
14.9% of total revenues, in 1995 from $417,000, or 10.9% of total revenues, in
1994. These increases were primarily due to the signing of license agreements
associated with the increase in sales of the Company's applications and
renewals of maintenance with existing customers.
27
<PAGE>
COST OF REVENUES
Total Cost of Revenues. Cost of revenues increased 91.7% to $2.4 million, or
28.9% of total revenues, in 1995, from $1.2 million, or 32.3% of total
revenues, in 1994. The increase was primarily attributable to an increase in
personnel and related expenses. The decrease as a percentage of total revenues
reflects increased utilization of personnel.
Cost of License Fees. Cost of license fees increased 196.9% to $291,000, or
5.6% of total license fees, in 1995 from $98,000, or 3.8% of total license
fees, in 1994. These increases were primarily attributable to an increase in
licenses on which the Company pays a royalty fee.
Cost of Services Fees. Cost of services fees increased 65.2% to $1.4 million
in 1995 from $860,000 in 1994. This increase was primarily attributable to an
increase in personnel and related expenses required to provide implementation,
training and upgrade services. As a percentage of total services fees
revenues, cost of services fees decreased to 81.8% in 1995 from 102.9% in
1994. This decrease reflected the increased productivity of the services
personnel in connection with the formation of the Services Subsidiary in March
of 1995. In 1994, the Company used third-party contractors to perform
implementation, training and upgrade services which resulted in increased
services cost.
Cost of Maintenance Fees. Cost of maintenance fees increased 136.5% to
$655,000, or 53.6% of total maintenance fees, in 1995 from $277,000, or 66.4%
of total maintenance fees, in 1994. The increase in absolute dollars was
attributable to an increase in personnel and related costs required to provide
customer support and maintenance services. As a percentage of total
maintenance fees, cost of maintenance fees decreased primarily due to more
productive use of personnel supporting the Company's maintenance customer
base.
RESEARCH AND DEVELOPMENT
Total research and development expenses increased 82.3% to $3.9 million in
1995 from $2.1 million in 1994. The increase resulted from increased personnel
and related costs required in the development of the Company's products. As a
percentage of total revenues, research and development expenses decreased to
47.4% in 1995 from 55.7% in 1994. This decrease was primarily attributable to
the economies of scale realized through a significant increase in revenues for
the period.
SALES AND MARKETING
Sales and marketing expenses increased 144.2% to $6.6 million, or 81.0% of
total revenues, in 1995 from $2.7 million, or 71.1% of total revenues, in
1994. These increases resulted from the costs associated with investigating
market opportunities in the United Kingdom, expanded marketing efforts and an
increase in the direct sales force.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased by 13.7% to $3.3 million in
1995 from $2.9 million in 1994. The increase in general and administrative
expenses was primarily attributable to increased personnel, rent and equipment
expenses. As a percentage of total revenues, general and administrative
expenses decreased to 40.2% in 1995 from 75.8% in 1994. This decrease was
primarily attributable to the economies of scale realized through a
significant increase in revenues.
INCOME TAXES
As a result of the operating losses incurred since the Company's inception,
the Company has not recorded any provision or benefit for income taxes in 1995
or 1994. See Notes to Consolidated Financial Statements.
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<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statement of
operations data for each of the eight quarters of fiscal 1996 and 1997. The
information for each of these quarters is derived from unaudited consolidated
financial statements and, in the opinion of management, includes all
adjustments consisting of only normal and recurring adjustments necessary for
a fair presentation of that information. The results of operations for any
quarter and any quarter-to-quarter trends are not necessarily indicative of
the results to be expected for any future period.
<TABLE>
<CAPTION>
1996 1997
-------------------------------------- ------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fees.......... $ 288 $2,341 $ 1,568 $ 2,228 $ 1,938 $ 2,790 $4,298 $4,480
Services fees......... 759 927 1,056 1,242 1,611 1,665 2,064 2,446
Maintenance fees...... 518 579 631 919 897 1,020 1,251 1,528
------- ------ ------- ------- ------- ------- ------ ------
Total revenues...... 1,565 3,847 3,255 4,389 4,446 5,475 7,613 8,454
------- ------ ------- ------- ------- ------- ------ ------
Cost of revenues:
License fees.......... 25 114 105 172 178 200 478 349
Services fees......... 597 612 745 950 1,142 1,211 1,382 1,667
Maintenance fees...... 285 282 314 469 428 422 510 613
------- ------ ------- ------- ------- ------- ------ ------
Total cost of
revenues........... 907 1,008 1,164 1,591 1,748 1,833 2,370 2,629
------- ------ ------- ------- ------- ------- ------ ------
Operating expenses:
Research and
development.......... 1,231 1,344 1,413 1,789 1,927 2,147 1,606 1,510
Sales and marketing... 1,482 1,667 1,633 2,409 2,243 2,362 2,354 2,556
General and
administrative....... 569 684 821 1,002 864 924 978 1,295
------- ------ ------- ------- ------- ------- ------ ------
Total operating
expenses........... 3,282 3,695 3,867 5,200 5,034 5,433 4,938 5,361
------- ------ ------- ------- ------- ------- ------ ------
Operating (loss)
income................. (2,624) (856) (1,776) (2,402) (2,336) (1,791) 305 464
Interest expense
(income)............... (2) (9) 7 10 0 91 132 51
Minority interest....... (32) (63) (62) (58) (98) (91) (133) (156)
------- ------ ------- ------- ------- ------- ------ ------
Net (loss) income....... $(2,654) $ (910) $(1,845) $(2,470) $(2,434) $(1,973) $ 40 $ 257
======= ====== ======= ======= ======= ======= ====== ======
<CAPTION>
1996 1997
-------------------------------------- ------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
------- ------- -------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fees.......... 18.4% 60.9% 48.2% 50.8% 43.6% 51.0% 56.5% 53.0%
Services fees......... 48.5 24.0 32.4 28.3 36.2 30.4 27.1 28.9
Maintenance fees...... 33.1 15.1 19.4 20.9 20.2 18.6 16.4 18.1
------- ------ ------- ------- ------- ------- ------ ------
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------ ------- ------- ------- ------- ------ ------
Cost of revenues:
License fees.......... 1.6 3.0 3.2 3.9 4.0 3.7 6.3 4.1
Services fees......... 38.2 15.9 22.9 21.6 25.7 22.1 18.1 19.7
Maintenance fees...... 18.2 7.3 9.7 10.7 9.6 7.7 6.7 7.3
------- ------ ------- ------- ------- ------- ------ ------
Total cost of
revenues........... 58.0 26.2 35.8 36.2 39.3 33.5 31.1 31.1
------- ------ ------- ------- ------- ------- ------ ------
Operating expenses:
Research and
development.......... 78.6 34.9 43.4 40.8 43.3 39.2 21.1 17.9
Sales and marketing... 94.7 43.4 50.2 54.9 50.5 43.1 30.9 30.2
General and
administrative....... 36.4 17.8 25.2 22.8 19.4 16.9 12.8 15.3
------- ------ ------- ------- ------- ------- ------ ------
Total operating
expenses........... 209.7 96.1 118.8 118.5 113.2 99.2 64.8 63.4
------- ------ ------- ------- ------- ------- ------ ------
Operating (loss)
income............... (167.7) (22.3) (54.6) (54.7) (52.5) (32.7) 4.1 5.5
Interest expense
(income)............. (0.1) (0.2) 0.2 0.2 0.0 1.7 1.7 0.6
Minority interest..... (2.0) (1.6) (1.9) (1.4) (2.2) (1.6) (1.8) (1.9)
------- ------ ------- ------- ------- ------- ------ ------
Net (loss) income... (169.6)% (23.7)% (56.7)% (56.3)% (54.7)% (36.0)% 0.6% 3.0%
======= ====== ======= ======= ======= ======= ====== ======
</TABLE>
29
<PAGE>
The Company has experienced, and is expected to continue to experience,
significant fluctuations in quarterly operating results caused by many
factors, including, but not limited to: (i) changes in the demand for the
Company's products; (ii) the timing, composition and size of orders from the
Company's customers, including the tendency for significant bookings to occur
in the fourth quarter; (iii) lengthy sales cycles; (iv) spending patterns and
budgetary resources of its customers; (v) the success of the Company in
generating new customers; (vi) introductions or enhancements of products, or
delays in the introductions or enhancements of products, by the Company or its
competitors; (vii) changes in the Company's pricing policies or those of its
competitors; (viii) the Company's ability to anticipate and effectively adapt
to developing markets and rapidly changing technologies; (ix) the Company's
ability to attract, retain and motivate qualified personnel; (x) changes in
the mix of products sold; (xi) the publication of opinions about the Company
and its products, or its competitors and their products, by industry analysts
or others; and (xii) changes in general economic conditions. These factors
make the estimation and forecast of revenues difficult on a quarterly basis
and increase the potential margin for error in performance forecasts derived
from such estimates. For example, the Company realized lower than expected
revenues in the first quarter of 1996 as a result of the signing of an
unusually high number of contracts that contained contingencies requiring
deferral of revenue until the second quarter. The Company plans to continue
increasing the dollar amount of its product development and sales expenses on
a quarterly basis in an effort to increase its market share. These increases
will be based in part on the estimation and forecasting of future revenues. As
a result, the estimation of quarterly results of operations is difficult and
should not be relied upon as any indication of future performance. See "Risk
Factors--Fluctuations in Quarterly Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the private sale
of equity securities, credit facilities and a credit line for equipment
purchases. The Company had a working capital deficit of $453,000 at December
31, 1997 primarily attributable to the current portion of deferred revenue of
$5.7 million at December 31, 1997. As of December 31, 1997, the Company's cash
balance was $7.2 million.
Cash used in operating activities was approximately $11,000, $2.8 million,
and $4.7 million during 1997, 1996, and 1995, respectively. Cash used by
operations during each of these periods was primarily attributable to net
losses and an increase in accounts receivables, partially offset in each
period by increases in deferred revenues, accounts payable and noncash charges
such as depreciation and amortization.
Cash used in investing activities was approximately $1.2 million, $3.0
million, and $914,000 during 1997, 1996, and 1995, respectively. Cash used in
1996 included $2.0 million to purchase a nonexclusive software license for the
Company's human resource applications. The balance of cash used in 1996 as
well as in the other periods was used to acquire property and equipment.
Cash provided by financing activities was approximately $5.2 million, $5.7
million, and $8.5 million during 1997, 1996, and 1995, respectively. During
1997, 1996, and 1995, the Company received $6.0 million, $6.0 million, and
$5.9 million, respectively, of net proceeds from the sale of Preferred Stock.
In March 1997, the Company entered into a loan agreement and a master
leasing agreement for an equipment line of credit in the amount of $1.0
million (the "Equipment Line") with a leasing company. The Equipment Line
bears interest at rates negotiated with each loan or lease schedule (generally
22.0% to 22.5%) and is collateralized by all of the equipment purchased with
the proceeds thereof. As of December 31, 1997, the principal balance on the
Equipment Line payable was $655,000.
The Company has a revolving working capital line of credit with Silicon
Valley Bank. Borrowings outstanding under the line are limited to the lesser
of $3.0 million or 80% of license and implementation services revenue accounts
receivable plus 65% of maintenance revenue accounts receivable. Interest on
this line is at rates which range from prime plus 2.75% to prime plus 3.0% and
are collateralized by all of the assets of the
30
<PAGE>
Company. The Company's line of credit is renewable annually, subject to 60
days notice of termination prior to each annual renewal after April 30, 1998.
As of December 31, 1997, the Company had no outstanding balance and had $1.9
million available for future borrowings under this agreement.
In both June and August 1997, the Company received $1.0 million in bridge
loans from existing investors. In September 1997, the $2.0 million in bridge
loans discussed above were converted into 212,141 shares of Series F Preferred
Stock. In September 1997, the Company received $4.0 million of net proceeds
from the issuance of 416,668 shares of Series F Preferred Stock to certain
investors for $9.60 per share. The proceeds of this sale have been applied by
the Company to general working capital requirements and the payment of loans
outstanding.
The Company had available NOLs of approximately $26.4 million as of December
31, 1997 to reduce future income tax liabilities. These NOLs expire from 2007
through 2012 and are subject to review and possible adjustment by the
appropriate taxing authorities. Pursuant to the Tax Reform Act of 1986, the
utilization of NOLs for tax purposes may be subject to an annual limitation if
a cumulative change of ownership of more than 50% occurs over a three-year
period. As a result of this limitation, the Company will be limited to the use
of its NOLs in any given year. The Company had net deferred tax assets of
approximately $10.4 million at December 31, 1997 comprised primarily of net
operating loss carryforwards. The Company has fully reserved for these
deferred tax assets by recording a valuation allowance of $10.4 million.
The Company believes that the net proceeds from this Offering, together with
its current cash balances, cash provided by future operations and available
borrowings under its lines of credit, will be sufficient to meet its working
capital and anticipated capital expenditure requirements for at least the next
12 months. Although operating activities may provide cash in certain periods,
to the extent the Company experiences growth in the future its operating and
investing activities may require significant cash. Consequently, any such
future growth may require the Company to obtain additional equity or debt
financing.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 requires companies to display,
with the same prominence as other financial statements, the components of
other comprehensive income. SFAS No. 130 requires that an enterprise classify
items of other comprehensive income by their nature in a financial statement
and display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section of
the balance sheet. SFAS No. 130 is effective for the Company's fiscal year
ending December 15, 1998. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company does not
expect that SFAS No. 130 will require significant revisions of prior
disclosures.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. SFAS No.
131 requires that an enterprise disclose certain information about operating
segments. SFAS No. 131 is effective for financial statements for the Company's
fiscal year ending December 31, 1998. The Company will evaluate the need for
such disclosures at that time.
The American Institute of Certified Public Accountants has issued Statement
of Position 97-2, "Software Revenue Recognition." SOP 97-2 supersedes SOP 91-1
and is effective for the Company for transactions entered into after December
31, 1997. The Company will adopt SOP 97-2 in the first quarter of 1998. The
adoption of the standards is not expected to have a significant impact on the
Company's consolidated financial statements.
31
<PAGE>
BUSINESS
INTRODUCTION
SQL Financials International, Inc. ("SQL Financials" or the "Company")
develops, markets and supports client/server financial software applications
that reduce the total cost of ownership by minimizing the time, costs and
risks associated with implementing, changing and upgrading applications.
Almost all of the Company's products are sold as application suites. On
occasion, the Company will sell individual applications to its existing
customers.
The Company's products are based on a flexible, open architecture called
Active Architecture(TM) which allows for seamless, rapid changes and upgrades
without modifying the source code. The Company's software provides
organizations with the broad functionality of custom-designed applications
without the high total cost of ownership traditionally associated with such
applications. By providing broad functionality, a flexible open architecture,
and minimized implementation and modification time, the Company addresses the
needs of a wide range of organizations while giving end users more control of
their work environment.
The Company licenses its products and services primarily through a direct
sales force in North America. At March 31, 1998, the Company had more than 200
customers including leading organizations such as Amtrak, Blue Cross/Blue
Shield of Alabama, Chartwell Re Holdings Corporation, First Data Corporation,
Land's End, Inc., A.C. Nielsen Company, T. Rowe Price Associates, Inc., Shaw
Industries, Inc., Toronto-Dominion Bank, and United Technologies.
The Company's software license revenues accounted for 51.9%, 49.2% and 63.9%
of gross revenues for 1997, 1996 and 1995, respectively. Services revenues
accounted for 30.0%, 30.5% and 21.2% of gross revenues for 1997, 1996 and
1995, respectively. Maintenance revenues accounted for 18.1%, 20.3% and 14.9%
of gross revenues for 1997, 1996 and 1995, respectively.
INDUSTRY BACKGROUND
Increasing global competition has driven organizations of all sizes to
improve operating efficiencies, reduce costs, speed time to market and improve
customer satisfaction. To achieve these objectives, organizations have
utilized information technology ("IT") systems to automate repetitive
processes, to facilitate communications throughout various departments and to
process increasingly sophisticated and detailed information. Organizations
therefore face the challenge of providing this critical information to a broad
group of end users to give them better control of their work environment and
to increase productivity and performance.
Recent advances in computing and communications, including the wide-spread
adoption of distributed computing, and the proliferation of third-party
enterprise software applications, have enabled organizations to provide
relevant information directly to the desktop. Organizations have deployed
enterprise client/server applications addressing the full range of functions
across the enterprise, including "front office" related functions such as
sales force automation, call center management and customer support and help
desk activities, and "back office" operations such as distribution,
manufacturing, production and supply chain planning and execution activities.
At the core of the enterprise software system are the organization's financial
applications that serve as a critical point of integration for all enterprise
applications and enable users to improve core business processes, monitor,
analyze and report business results, and make more informed decisions faster.
According to International Data Corporation, the market for enterprise-level
accounting, human resource and payroll client/server applications exceeded
$3.0 billion in 1996, and is projected to grow at a compound annual growth
rate of 30% through the year 2001 to over $12.0 billion.
Traditionally, organizations have had two alternatives when deploying
enterprise financial applications: either a highly complex custom-designed
application to meet the organization's specific requirements, typically
developed in a "legacy" environment; or an off-the-shelf application designed
to be implemented more rapidly in a distributed computing environment, at a
perceived lower cost of ownership, although often lacking the depth of
functionality of the custom-designed application.
While custom-designed applications have provided the desired degree of
functionality, their size and complexity generally require very lengthy
design, development and implementation efforts. Maintaining,
32
<PAGE>
updating and upgrading these applications requires substantial internal
resources and generally requires the use of outside consultants. In addition,
these applications have limited flexibility to support diverse and changing
operations or to respond effectively to evolving business demands and
technologies. The high total cost of ownership and complexity associated with
developing and maintaining custom-designed applications have limited their
utilization to organizations with significant resources.
In recent years, organizations have increasingly deployed off-the-shelf
client/server financial applications to leverage their investment in
client/server technologies and provide end users with information that gives
them greater control over their work environment. However, traditional off-
the-shelf applications often require organizations to re-engineer established
business practices to accommodate application constraints or to customize the
applications with labor-intensive reprogramming to fit their needs. These
requirements significantly challenge resource-constrained organizations and
fail to provide the desired lower total cost of ownership.
Limitations of both custom-designed and off-the-shelf applications result in
higher total cost of ownership to the organization. The largest components of
such cost are the necessary labor and programming resources associated with
implementation and maintenance. According to the Gartner Group, labor-related
services, including implementation and post-implementation services, comprise
approximately 71% of the five-year total cost of ownership for client/server
applications, with the acquisition cost of software compromising only 17% of
the total cost of ownership and hardware and networking costs comprising the
balance.
Today, organizations acquiring or replacing their financial applications
seek broader functionality, better integration with existing systems and
applications, greater flexibility to change and upgrade, and a lower total
cost of ownership. Key to meeting these expectations are solutions that are
flexible, easy to implement, change and upgrade, provide information on demand
and, most importantly, put users in control.
THE SQL FINANCIALS SOLUTION
The Company offers a highly integrated suite of applications that matches
the functionality of custom-designed applications without the high total cost
of ownership traditionally associated with such applications. By providing
broad functionality, a flexible open architecture, minimized implementation,
modification and ongoing support time, and enhanced user control, the Company
addresses the needs of a broad range of organizations. The Company's
applications offer the following key benefits:
Broad Functionality. The Company's highly integrated suite of financial
applications covers the full range of financial and accounting functions,
including general accounting, expense accounting, revenue accounting and human
resources. The Company's applications are particularly suited to address the
financial, accounting and reporting needs of non-industrial firms. Through its
Graphical Architects modules, the Company provides additional capabilities,
including enhanced interaction with external software systems, user
personalization, job scheduling, analysis capabilities and Internet
connectivity.
Flexible, Open Architecture. The Company's applications are based on a
flexible, open architecture to fit in with the components of an organization's
existing IT infrastructure. These applications work with the popular
Microsoft, Oracle and Sybase databases and run on any operating system and
hardware platforms compatible with these databases, enabling customers to
easily migrate to alternative computing technologies. The flexibility of the
Company's applications, together with the ability to modify the functionality
without changing the source code, results in seamless, rapid changes or
upgrades. The openness of the architecture allows easy integration with third-
party technologies, including Microsoft BackOffice and Arbor Essbase, as well
as products from third-party financial reporting software companies.
Minimized Implementation, Modification and Ongoing Support Time. The
implementation of the Company's software can typically be achieved in less
than six months, depending on the number of modules being implemented, and
modifications can be made directly by the end user at the time of, or
subsequent to, implementation. In addition, the time, costs and risks
associated with changing and upgrading applications are minimized because
implementation of the Company's applications is done without any modification
to the underlying source code. The Company believes that this results in
implementation and post-implementation services costs well below the industry
average.
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<PAGE>
Enhanced End User Control. The Company's applications are designed to put
users in control by: (i) providing the flexibility to quickly set up
applications and personalize user interfaces; (ii) providing end users the
ability to directly tailor and change applications during or subsequent to
implementation; (iii) allowing users to upgrade in a minimal amount of time
without software development tools or significant IT personnel involvement;
(iv) allowing integration with other native or external applications in the
users' work environment; and (v) delivering information on demand and in the
form desired.
STRATEGY
The Company's objective is to become the leading provider of financial
applications to non-industrial organizations. The key elements of the
Company's strategy are as follows:
Extend Technology Leadership. The Company believes that extending technology
leadership, rapidly creating additional features and incorporating new
technologies are important competitive advantages in its marketplace. The
Company believes its Active Architecture technology is a key differentiator
that provides a significant advantage over competing products. In addition,
the Company believes it was one of the first software developers to utilize
object wrappers in financial applications to facilitate tailoring and
integration with other applications. The Company intends to continue to
identify and develop new and emerging technologies for its applications.
Leverage Expertise in Financial Applications. The Company intends to
leverage its expertise in financial applications to design, develop and offer
other financial and financially-related applications focused on meeting the
needs of non-industrial customers. For example, the Company recently
introduced several new applications, including Purchasing Control, Personnel,
Payroll and Benefits, as well as two new reporting solutions. In addition, the
Company intends to release additional applications, such as Project
Accounting, Order Entry, Inventory and Treasury.
Capitalize on Middle Market Opportunities. The Company focuses its sales and
marketing efforts on value buyers in mid-sized non-industrial organizations,
including divisions of larger companies, which represent the fastest growing
segment of the financial applications market. In its targeted industries,
financial and human resource applications typically represent the
organization's most critical systems. The Company believes that its flexible
user-controlled applications are well suited for rapidly growing mid-sized
organizations and value buyers that demand highly functional and scalable
financial applications without the high total cost of ownership traditionally
associated with financial applications.
Leverage Installed Customer Base. The Company believes that its installed
customer base represents a significant potential market for future sales of
its products. The Company continually uses its customer relationships: (i) to
sell new products and cross-sell products to multiple offices, divisions and
departments of a customer's organization; (ii) as a reference to gain new
customers; and (iii) to focus its efforts on selected vertical markets as a
means of expanding its market share.
Expand Sales and Marketing Channels. The Company intends to expand its
direct sales force by hiring additional experienced sales personnel. The
Company also intends to establish indirect distribution channels and
relationships with product vendors and consulting companies, as well as
increase its international market penetration by establishing relationships
with strategic partners with an international presence. The Company believes
that expanding its marketing relationships will provide increased access to
various geographic markets and potential customers.
Continue to Provide High Quality Customer Service. By providing superior
implementation, support and training services directly to its customers,
rather than through third-party resellers and system integrators, the Company
can achieve a high level of customer satisfaction, strong customer references
and long-term relationships. Direct customer service also allows for immediate
feedback which facilitates software improvements. The Company intends to
continue to expand its customer service and maintenance staff and to make
additional investments in its support infrastructure.
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TECHNOLOGY
The Company's applications are based on an extensible, object-oriented,
proprietary architecture called "Active Architecture." The Active Architecture
technology is designed to achieve the following benefits: (i) flexible, high-
end functionality; (ii) the ability to modify the functionality without
changing the source code; (iii) the ability to easily integrate applications
into a customer's IT infrastructure; (iv) the ability to rapidly implement
changes and upgrade applications; (v) reduced total cost of ownership; and
(vi) users in control. Active Architecture is comprised of three elements: the
Core Components, the Graphical Architects modules and the System Manager
module.
Core Components. The core functionality for the Company's applications is
defined through a set of Core Components, the building blocks of the financial
and human resource applications. The Core Components perform financial and
accounting functions in the context of legal and regulatory requirements and
generally accepted accounting principles. Examples of these Core Components
include general ledger posting, accounts payable vouching, account structure
management and payroll processing. The Company's fundamental premise is that
users should not need to reprogram the Core Components. Contained within the
overall architectural framework is the ability to modify and seamlessly
upgrade the Company's applications while continuing to maintain the process
and data security, integrity and reliability of the Core Components. End users
can accommodate their business-specific requirements and technology changes,
such as integrating external software systems, user personalization, job
scheduling, analysis capabilities, Internet connectivity and application
management through the Graphical Architect modules which require no source
code programming.
Graphical Architects. The Company has developed Graphical Architects modules
that allow organizations to quickly and easily adapt to business-specific
requirements and changes in technology. The Company provides the Business
Controls/Graphical Architect as a standard component with all of its
applications and licenses other Graphical Architects modules with additional
functionality. Through Business Controls an organization can centrally
administer its business rules and policies and apply them across all financial
applications. This central control allows for consistency of management
policies and reduced set-up time in each of the application areas. Business
Controls also allows organizations to define and manage their chart of
accounts, analysis codes, default account segments and overrides, accounting
periods, inter-company transactions, tax management, accounting calendar,
cross-validation rules and multiple currencies.
System Manager. System Manager supports the Active Architecture technology
by integrating, synchronizing and managing all components of the application.
System Manager offers a visual point-and-click interface and is designed to
reduce systems and database administration efforts and the time required to
update external applications, as well as upgrades to the Company's application
itself. Through System Manager, the user orchestrates software installation,
database initialization, and software and database upgrades. These tasks are
simplified by System Manager's automated process which does not require
scripts or other programming. In addition, System Manager provides a single
point of control for security across all of the Company's applications.
Security information is automatically maintained and updated during the
upgrades.
The Company's applications incorporate a multi-tiered, client/server
architecture that supports Microsoft Windows 95 and/or NT clients, including
Netscape and Microsoft Internet Explorer, and most popular UNIX (AIX, HP-UX,
Solaris, VMS, etc.) and Windows NT servers running Microsoft SQL Server,
Oracle, and Sybase database management systems over a variety of network
topologies. For the year ended December 31, 1997, the Company derived 79.2%
and 20.8%, respectively, of its license fees from sales of its products to
customers who use Windows NT based-services and UNIX servers. Integration of
the Company's applications with these databases is achieved with a single
version of the source code, allowing users to replace or upgrade their
hardware and database systems with minimal impact to the customer's
application. The Company currently offers both 16-bit and 32-bit versions of
its financial applications and 16-bit versions of its human resource
applications for the Windows 3.1, Windows 95, and Windows NT platforms. The
Company expects to offer 32-bit versions of its human resource applications
during 1998. The various technologies upon which the Active Architecture has
been built include Microsoft Visual C++ and the Microsoft Foundation Classes,
ActiveX, OLE/COM and Centura.
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<PAGE>
PRODUCTS
The Company's product family includes a full suite of financial and human
resource applications designed to meet the needs of a broad range of
organizations.
APPLICATIONS
General Ledger, the Company's flagship application, delivers a comprehensive
solution including ledger accounting, consolidation and allocations, multi-
level segment accounts, automatic entry balancing, multiple financial
calendars within a single organization, recurring entries, average daily
balances and budgeting and profit sharing.
Accounts Payable controls vendor information, invoicing procedures and
payment activities, while providing for an unlimited number of bank accounts,
processing foreign currency gains and losses, and automatically reconciling
and balancing inter-company accounts and multiple payment methods.
Purchasing Control streamlines purchasing processes with end-user
requisitioning, quick access to contracts and price lists, automation of
receiving and matching processes and vendor management.
Accounts Receivable streamlines payment applications, provides management
and reporting of receivables activities, manages customer information and
inter-relationships, tracks the collection process, processes foreign currency
gains and losses and provides historical information.
Revenue Accounting combines invoice entry and billing applications, provides
user-defined rules for revenue recognition, automatically creates multi-line
tax distributions for multiple taxing authorities, calculates shipping charges
for specific lines of an invoice, supports a multi-catalog pricing structure
as well as user-defined pricing contracts and tracks customer deposits and
down payments.
Fixed Assets tracks and maintains asset investments and facilitates
compliance with tax and accounting regulations through user-defined
depreciation scheduling, which can be segmented by organization, asset or
book.
Personnel manages employment, compensation, career/succession planning,
position control, health and safety, applicant management, recruiting,
training, government compliance and business event notification.
Benefits manages benefit and accrual planning and enables control of auto
enrollment, flexible benefits, flexible spending accounts, cafeteria, defined
contributions, beneficiaries, eligibility, COBRA administration and leave
accrual processing.
Payroll manages control of payment and tax processing functions, streamlines
payroll processing, manages on-demand checks, direct deposit and earnings and
deductions.
GRAPHICAL ARCHITECTS
The Company licenses a series of modules, its Graphical Architects, that are
designed to extend, enhance, integrate and change the look-and-feel of the
Company's core applications. Through a visual point-and-click interface, the
Graphical Architects modules allow users to personalize and configure the
Company's applications without any source code programming. In addition to
Business Controls, which is a standard component of all applications,
Graphical Architects modules:
Data Exchange/Graphical Architect defines sources of data for import and
export purposes through a metadata interface for logical mapping of data
between the Company's applications and the customer's other internal systems
which simplifies implementation and streamlines changes to external data
sources.
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Workload/Graphical Architect enables users to manage and schedule tasks
effectively with job scheduling, resource allocation, process and report
distribution, and e-mail notification. Users can schedule tasks to run on
separate application servers at the most efficient processing time.
Solution/Graphical Architect allows users to personalize the look-and-feel
and the functions of their applications and facilitates the integration of the
Company's applications with other applications without changing the source
code.
Analysis/Graphical Architect provides a suite of applications that address
an organization's need for information on demand. Analysis/Graphical Architect
provides users with the following functions:
<TABLE>
<S> <C>
Quick Find Online access with extensive selection criteria to quickly
locate information.
- -----------------------------------------------------------------------------------
Quick Reports Report printing of online query results.
- -----------------------------------------------------------------------------------
Quick Graphs Graphical representations of online query results.
- -----------------------------------------------------------------------------------
Standard Reports Templates to simplify users' report definitions based upon
the organization's requirements.
- -----------------------------------------------------------------------------------
Financial Statement Flexible financial reporting system enabling sophisticated
Generator financial statements without any programming.
- -----------------------------------------------------------------------------------
Drill Down Analysis Intra-application, inter-application, and open drill down
into all supporting detail and information sources,
including information originated in third-party
applications.
- -----------------------------------------------------------------------------------
Financial Statement Integration of Financial Statement Generator with Arbor
Accelerator Software's Essbase for high performance reporting.
- -----------------------------------------------------------------------------------
FRx for Windows Flexible distributed management reporting solution,
utilizing FRx from FRx Software Corporation, which delivers
full drill down analysis without being connected to the
network.
- -----------------------------------------------------------------------------------
Document Manager Centralized report repository to store reports and make them
available to other users in the organization eliminating
redundancy and improving resource efficiency.
</TABLE>
Workflow/Graphical Architect allows users to define procedures and policies
(events) that trigger responses from the system. Workflow/Graphical Architect
allows users to extend the applications to conform to an organization's
business processes and policies, such as an accounting application
automatically generating approval requests for purchases over a certain dollar
amount.
Internet/Graphical Architect allows organizations to quickly deploy their
entire suite of financial and human resource applications to the World Wide
Web and tailor it specifically to the unique needs of each Web user.
Internet/Graphical Architect provides native Internet implementation of
information access-oriented applications such as invoice or payment status,
drill down inquiries, report viewing, and account balances.
CUSTOMERS
The Company sells its products to organizations seeking financial and human
resource applications that provide high levels of functionality and
flexibility, with minimal implementation time. As of March 31, 1998, the
Company's products were licensed to more than 200 customers in the United
States and Canada, representing a cross-section of industries, including
insurance, business and financial services, communications, retail, printing
and publishing, transportation and manufacturing. The Company's products are
generally licensed to end users under nonexclusive, nontransferable licenses
for the customer's internal operations.
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<PAGE>
CUSTOMER CASE STUDIES
While each customer engagement differs, the following examples illustrate
the types of business needs the Company has addressed:
FIRST DATA CORPORATION. First Data Corporation ("FDC") is a global leader in
payment systems, electronic commerce and information management products and
services. FDC and its principal operating units process the information that
allows millions of consumers to pay for goods and services by credit, debit or
smart card at the point of sale or over the Internet; by check or wire money.
In 1996, FDC processed approximately six billion transactions. FDC employs
40,000 people worldwide and serves clients throughout the United States, the
United Kingdom, Australia, Mexico, Germany, Asia Pacific and Spain through its
agent network to more than 120 countries around the world. FDC made a
strategic decision to phase out the mainframe and to standardize its financial
applications throughout the organization. Because the FDC companies were using
numerous disparate systems, the time and cost of implementation as well as
overall functionality were key requirements. FDC selected SQL Financials'
General Ledger, Accounts Payable, Accounts Receivable and Revenue Accounting
applications as its new corporate standard. FDC completed the implementation
of seven companies in only 15 months. The SQL Financials' Data
Exchange/Graphical Architect dramatically improved FDC's ability to manage the
conversion efforts from the various legacy systems as well as provided a quick
way to build the many interfaces necessary to integrate the new financial
systems. Data Exchange also enabled FDC to enhance its EDI capabilities and
integrate with its new laser check software. The new systems have enabled FDC
to streamline its processes and enable users to control the reporting and
information analysis. FDC has also licensed and plans to implement the SQL
Financials' Financial Statement Accelerator and Solution/Graphical Architect
products.
SHAW INDUSTRIES. Shaw Industries, Inc. ("Shaw") is the largest tufted carpet
manufacturer in the world, with approximately $3.5 billion in sales per year.
The need for immediate access to information drove Shaw's decision to replace
its legacy financial applications. Shaw also placed a high priority on the
ability to quickly implement and upgrade its applications. After conducting a
detailed evaluation of client/server vendors, Shaw selected SQL Financials'
General Ledger. Shaw reported minimized implementation time despite a
simultaneous year end closing. The new financial application enabled Shaw to
utilize the existing chart of accounts, to provide online immediate analysis
of its financial data, and put users in control of the new accounting system.
Shaw produces more than 1000 reports each monthly financial closing. One of
the primary benefits of the new system is the ability to easily accommodate
reporting reorganizations--a time consuming task that was accomplished
manually with the previous system. Shaw is currently implementing Fixed Assets
and Financial Statement Accelerator.
TORONTO-DOMINION BANK. Toronto-Dominion Bank ("TD Bank") is the 12th largest
bank in North America with assets of Canadian $163 billion at October 31, 1997
and worldwide corporate lending and investment banking activities. In the
United States, TD Bank provides corporate lending and investment banking
services from New York, and discount brokerage services through its wholly
owned subsidiary, Waterhouse Investor Services. With the objective of
achieving high productivity while carefully managing costs, TD Bank's
Corporate & Investment Banking Group decided on a single global client/server
general ledger. Its new General Ledger system required the following key
functional requirements: robust and flexible financial and management
reporting, sophisticated allocations, strong consolidations and multi-currency
features, an intuitive user interface and a flexible multi-segmented chart of
accounts. After an extensive evaluation, the Company's General Ledger was
selected as the standard general ledger solution. The Company's products will
enable TD Bank to implement a standard chart of accounts worldwide and
simplify the consolidation process, which should offer TD Bank a reduction in
training across offices. The Company's General Ledger has also reduced the
steps and time required to consolidate global information for management. To
address high volume reporting needs, TD Bank plans to
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<PAGE>
implement Financial Statement Accelerator, which should reduce the time
required to run reports from hours to minutes.
SALES AND MARKETING
The Company sells its software and services primarily through its direct
sales force. As of January 31, 1998, the Company's direct sales force
consisted of 39 sales professionals and 9 marketing personnel, located in 11
domestic offices and one office located in Canada. The Company expects to
increasingly develop indirect channels in order to enhance its market
penetration and implementation capabilities. International revenues were
approximately 3% of total revenues for the year ended December 31, 1997, and
the Company expects that revenues from international customers will account
for a growing portion of the Company's total revenues. The sales cycle for the
Company's software averages between four to seven months.
The Company's marketing strategy is to position the Company as the leading
provider of applications to non-industrial organizations by providing
applications with a high level of functionality and flexibility with minimal
implementation time. In support of this strategy, the Company engages in a
full range of marketing programs focused on creating awareness and generating
qualified leads. These programs include developing and maintaining business
partners and participating in joint marketing programs, such as participating
in the Microsoft Solution Provider Program, as well as public relations,
telemarketing, developing databases of targeted customers, and conducting
advertising and direct mail campaigns. In addition, the Company participates
in trade shows and seminars and maintains a World Wide Web home page which is
integrated with the Company's sales, marketing, recruiting and fulfillment
operations.
IMPLEMENTATION SERVICES
The Company provides dedicated implementation services for the Company's
customers. The Company believes that the provision of superior implementation
services in conjunction with ease of implementation is integral to its success
in achieving a high level of customer satisfaction. By providing these
implementation services, the Company is able to minimize implementation time
by helping customers to implement an application module in an average of four
months, generally at a cost equal to or below the cost of the licensed
software. As of January 31, 1998, the Company employed 64 personnel providing
implementation services, which are typically offered to the Company's
customers on a time and materials basis.
The Company is also developing marketing relationships with companies
sharing a commitment to client/server implementations that deliver high
functionality and flexibility, while minimizing the time required to
implement, change and upgrade them. These companies include: Deloitte & Touche
Management Services and Solutions, The Client Server Factory and Grant
Thornton LLP.
CUSTOMER SERVICE AND MAINTENANCE
The Company believes that superior customer service and support, including
product support and maintenance, training, and consulting services, are
critical to achieve and maintain customer satisfaction. The Company's customer
service and support functions include the Company's call center, distribution
services, production support and account management, all of which are
integrated in a single group. The Company's customer service organization
provides a single point of contact for customers from execution of the license
agreements through post-implementation. Each of the Company's customers has
entered into an annual maintenance contract for the first year of use,
renewable on an annual basis. Of the 135 customers who entered into license
agreements with the Company before March 31, 1997, 126 customers or 93.3% have
renewed their maintenance contracts. As of January 31, 1998, the Company
employed 37 technical post-sales support personnel providing software
maintenance and support, and hotline access. In addition to telephone support,
the Company also offers support by electronic mail, electronic bulletin board
and facsimile. The Company intends to continue to expand its customer service
and maintenance staff and to make additional investments in its support
infrastructure.
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<PAGE>
RESEARCH AND DEVELOPMENT
The Company's success is in part dependent on its ability to continue to
meet customer and market requirements with respect to functionality,
performance, technology and reliability. The Company invests, and intends to
continue to invest, substantially in its research and development efforts. As
of January 31, 1998, the Company's research and development operation included
50 full-time employees, primarily located in Atlanta. In addition, the Company
has from time-to-time supplemented, and plans to continue to supplement, its
core resource pool through outside contractors and consultants when necessary.
The Company's research effort is currently focused on identifying new and
emerging technologies and engineering processes, as well as possible
technology alliances. The primary area of focus within the research effort
involves distributed component computing and associated technologies and
architectures, especially with respect to both Internet and intranet
transaction processing.
The Company's development effort is focused primarily on the product
delivery cycle and its associated technologies and software life-cycle
processes. The development operation consists of various functional and
technological teams who are responsible for bringing the various products that
the Company delivers to market. These teams consist of software engineering,
documentation, and quality assurance personnel. The specific responsibilities
of the development operation include: (i) enhancing the functionality and
performance within the currently available product line; (ii) developing new
products and/or integrating with strategic third-party products to strengthen
the product line; (iii) porting the product line to remain current and
compatible with new operating systems, databases, and tools; (iv) enhancing
the adaptability and extensibility of the product line through the release of
new and enhanced Graphical Architects; and (v) managing and continuously
improving the overall software development process. The Company continually
utilizes customer feedback in the product design process in order to meet
changing business requirements and is committed to developing technologies
which provide highly functional, integrated solutions in a rapid and efficient
manner.
Research and development expenditures were approximately $3.9 million, $5.8
million, $7.2 million for 1995, 1996, and 1997, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
COMPETITION
The market for the Company's products is highly competitive and subject to
rapid technological change. Although the Company has experienced limited
competition to date from products with comparable capabilities, the Company
expects competition to increase in the future. The Company currently competes
principally based on ease of use and reduced time of implementation, which are
a result of: (i) the breadth of its products' features; (ii) the automated,
scalable and cost-effective nature of its products; and (iii) the Company's
knowledge, expertise and service ability gained from close interaction with
customers. While the Company believes that it currently competes favorably
overall with respect to these factors, there can be no assurance that the
Company will be able to continue to do so.
The Company competes directly or indirectly with a number of competitors
that have significantly greater financial, selling, marketing, technical and
other resources than the Company, including the following companies:
PeopleSoft, Lawson and Oracle. In 1997, J.D. Edwards & Company introduced
financial applications for use on Windows NT or Unix servers, and additional
competitors may enter this market, thereby further intensifying competition.
These competitors may be able to devote greater resources to the development,
promotion, sale and support of their products than the Company. Moreover,
these companies may introduce additional products that are competitive with or
better than those of the Company or may enter into strategic relationships to
offer better products than those currently offered by the Company. There can
be no assurance that the Company's products would effectively compete with
such new products.
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<PAGE>
To remain competitive, the Company must continue to invest in research and
development, selling and marketing, and customer service and support. In
addition, as the Company enters new markets and utilizes different
distribution channels, the technical requirements and levels and bases of
competition may be different than those experienced in the Company's current
market. There can be no assurance that the Company will be able to
successfully compete against either current or potential competitors in the
future. See "Risk Factors--Competition."
PROPRIETARY RIGHTS AND LICENSING
The Company's success depends significantly on its internally developed
intellectual property and intellectual property licensed from others. The
Company relies primarily on a combination of copyright, trademark and trade
secret laws, as well as confidentiality procedures and licenses arrangements
to establish and protect its proprietary rights in its software products.
The Company has no patents, and existing trade secret and copyright laws
afford only limited protection of the Company's proprietary rights. The
Company has registered or applied for registration for certain copyrights and
trademarks, and will continue to evaluate the registration of additional
copyrights and trademarks as appropriate. The Company believes that, because
of the rapid pace of technological change in the software industry, the
intellectual property protection of its products is a less significant factor
in the Company's success than the knowledge, abilities and experience of the
Company's employees, the frequency of its product enhancements, the
effectiveness of its marketing activities and the timeliness and quality of
its support services. See "Risk Factors--Proprietary Rights and Licensing."
The Company enters into license agreements with each of its customers. The
Company's license agreements provide for the customer's non-exclusive right to
use the object code version of the Company's products. The Company's license
agreements prohibit the customer from disclosing to third parties or reverse
engineering the Company's products and disclosing the Company's other
confidential information. In certain rare circumstances, typically for the
earliest releases of the Company's products, the Company has granted its
customers a source code license, solely for the customer's internal use.
The Company has in the past liscensed and may in the future license on a
non-exclusive basis third-party software from third parties for use and
distribution with the Company's financial and human resource applications.
Additionally, the Company's human resource applications are based on software
acquired under a non-exclusive object code and source code license from a
third party. The Company has entered into agreements with its third party
licensors with customary warranty, software maintenance and infringement
indemnification terms.
EMPLOYEES
As of January 31, 1998, the Company had a total of 223 full-time employees,
all except six of whom were based in the United States. Of the total, 64 were
employed in implementation services, 50 were in research and development, 39
were in sales, 37 were in customer support, 24 were in finance, administration
and operations, and 9 were in marketing. The Company believes its future
performance depends in significant part upon the continued service of its key
engineering, technical support and sales personnel and on its ability to
attract or retain qualified employees. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting or retaining such personnel in the future. None of the Company's
employees are represented by a labor union or are subject to a collective
bargaining agreement. The Company has not experienced any work stoppages and
considers its relations with its employees to be good. See "Risk Factors--
Management of Growth;" "--Dependence Upon Key Personnel; Ability to Hire and
Retain Personnel."
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FACILITIES
The Company's corporate office and principal facility is located in Suwanee,
Georgia, where the Company leases approximately 41,000 square feet of space.
The lease commenced on June 15, 1997 and expires on July 15, 2004. The lease
requires annual payments of $386,000 for the first 12-month period with an
increase of 3% in each 12-month period after the first year. This facility
accommodates research and development, sales, finance, administration and
operations, customer support and marketing. The Company also leases 11
facilities, primarily for regional sales offices, elsewhere in the United
States and Canada, providing for aggregate annual lease payments of
approximately $218,000. Expiration dates on sales office leases range from
April 1998 to March 1999. The Company anticipates leasing additional space
during the next 12 months to meet its needs as a result of significant growth
in personnel.
LEGAL PROCEEDINGS
The Company is not currently a party to any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Stephen P. Jeffery........ 42 Chairman, Chief Executive Officer, President and
Director
William M. Curran, Jr..... 35 Vice President, Sales--East
William A. Fielder III.... 39 Chief Financial Officer and Treasurer
Sally M. Foster........... 43 Vice President, Customer Support
David M. Funderburke...... 44 Vice President, Development
Robert C. Holler.......... 34 Vice President, Research
Steven M. Hornyak......... 32 Vice President, Marketing
Alain Livernoche.......... 38 Vice President, Sales--West
Arthur G. Walsh, Jr....... 50 Vice President, Human Resources and Secretary
Joseph S. McCall.......... 48 Director
Tench Coxe(1)(2).......... 40 Director
William S. Kaiser(1)(2)... 42 Director
Donald L. House........... 56 Director
Said Mohammadioun......... 50 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
STEPHEN P. JEFFERY joined the Company in November 1994 as Vice President of
Marketing and was elected Vice President of Sales and Marketing in June 1995.
He was elected President of the Company in October 1995, a member of the Board
of Directors in October 1997, Chairman of the Board in December 1997 and Chief
Executive Officer of the Company in February 1998. Prior to joining the
Company, Mr. Jeffery was employed by Hewlett-Packard Company, where he served
as the manager of Hewlett-Packard's client/server solutions and partner
programs as well as in a variety of sales and marketing management positions
in the U.S. and Europe for 15 years. Mr. Jeffery also served in sales with IBM
prior to joining Hewlett-Packard.
WILLIAM M. CURRAN, JR. joined the Company in February 1996 as Regional Sales
Manager for the Southern Region. In August 1997, Mr. Curran was elected Vice
President of Sales for the Eastern region. Prior to joining the Company, Mr.
Curran was employed by Geac Computer Corp. Ltd (formerly Dun & Bradstreet
Software) ("Geac") from November 1989 until February 1996 as a Senior Account
Executive where he was the top sales performer for the past 6 years. From June
1984 until November 1989, Mr. Curran served in a variety of sales positions
with Unisys Corporation.
WILLIAM A. FIELDER III. joined the Company in March 1998, as Chief Financial
Officer and Treasurer. Prior to joining the Company, Mr. Fielder served as
Vice President and Chief Financial Officer of Gray Communications Systems,
Inc. from July 1993 to March 1998. From April 1991 to July 1993, Mr. Fielder
served as Controller of Gray Communications Systems, Inc. which was the chief
financial officer position of that company.
SALLY M. FOSTER joined the Company in March 1997 as Vice President of
Customer Service. Prior to joining the Company, Ms. Foster served in several
positions at Geac, from August 1988 until March 1997, most recently as Vice
President/Director of Global Business Operations. From August 1985 until
August 1988, Ms. Foster served as the Division Operations Manager for the
General Motors Corporation, Electronic Data Systems Ltd. based in London,
England.
DAVID M. FUNDERBURKE joined the Company in August 1996 as Vice President of
Development, having effectively served in this role since April 1996. Mr.
Funderburke served as President, Chief Operating Officer and Manager of the
Services Subsidiary from March 1995 until July 1997. From February 1989 until
March 1995, he was Vice President and Chief Operating Officer of McCall
Consulting Group, Inc., where he managed
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implementations of the Company's products and consulting projects for other
McCall Consulting clients. From November 1984 until February 1989, Mr.
Funderburke was Director of Information Services with Trammell Crow & Company,
the largest commercial real estate developer in the U.S. Earlier, he was
employed with Andersen Consulting for eight years, where he served in several
roles, including the management of financial systems development projects.
ROBERT C. HOLLER joined the Company in June 1993 as the group leader for all
technology development. In January 1995, Mr. Holler was elected Vice President
of Development and in May 1996, he was elected Vice President of Research.
Before joining the Company, he served from 1989 to 1993 as a consultant with
McCall Consulting Group, where he managed the initial implementations of the
Company's products. Earlier, he was employed with Andersen Consulting as a
consultant.
STEVEN M. HORNYAK joined the Company in December 1994 as an Account
Executive and was promoted to Regional Sales Manager for the Northeast region.
In August 1997, Mr. Hornyak was elected Vice President of Marketing. Prior to
joining the Company, Mr. Hornyak served in a variety of sales and consulting
roles for Oracle Corporation from June 1992 until December 1994. Prior to
that, he was employed by Price Waterhouse in its management consulting
services group.
ALAIN LIVERNOCHE joined the Company in January 1997 as Vice President of
Sales for the Western region. Prior to joining the Company, Mr. Livernoche was
employed by Geac from June 1985 until January 1997, where he served in several
sales roles, most recently as Regional Vice President and General Manager for
the Central United States and Canada. From May 1981 until June 1985,
Mr. Livernoche was employed by Andersen Consulting in Canada and Europe with
primary focus on evaluations and implementations of financial and human
resource software.
ARTHUR G. WALSH, JR. joined the Company in November 1992 as Chief Operating
Officer and Secretary. In October 1995, Mr. Walsh was elected Vice President
of Customer Service and Treasurer. Currently, Mr. Walsh serves as Vice
President of Human Resources and Secretary. From September 1989 until November
1992, he was Chief Operating Officer for Wilson & McIlvaine, a general
business Chicago law firm, where he was responsible for overall management of
the firm's business operations. Before that, Mr. Walsh was employed with
Andersen Consulting, from July 1974 until September 1989, where he served in a
variety of roles in Atlanta and Chicago, lastly as Director of Finance and
Administration for the Technical Services Organization in Chicago world
headquarters.
JOSEPH S. MCCALL co-founded the Company in November 1991 and has previously
served as its Chairman, President, and Chief Executive Officer and has been a
member of the Board of Directors since 1991. Mr. McCall currently serves as a
Director and consultant to the Company. Prior to founding the Company, Mr.
McCall founded McCall Consulting Group, Inc. in 1986, and he currently serves
as its President. Mr. McCall also formed Technology Ventures, LLC in 1994 and
currently serves as its sole manager. From 1975 to 1986, Mr. McCall managed
major systems integration and development projects and application software
evaluations and implementation engagements for Andersen Consulting.
TENCH COXE has served as a member of the Board of Directors of the Company
since September 1993. Mr. Coxe has served as a general partner of Sutter Hill
Ventures, a venture capital company located in Palo Alto, California, since
1989. From 1984 to 1987, Mr. Coxe served as Director of Marketing and in other
management positions with Digital Communications Associates. Mr. Coxe is
currently on the Board of Directors of Avant! Corporation and Edify
Corporation.
WILLIAM S. KAISER has served on the Board of Directors of the Company since
November 1992. Mr. Kaiser joined Greylock Management Corporation, a venture
capital company located in Boston, in 1986 and became a general partner in
1988. From 1983 to 1986, Mr. Kaiser served in a variety of marketing
management positions with Apollo Computer, primarily working with Apollo's
third-party suppliers. Mr. Kaiser is also on the Board of Directors of Avid
Technology, Inc. and Open Market, Inc.
44
<PAGE>
DONALD L. HOUSE served as Chairman of the Board of Directors of the Company
from January 1994 through December 1997, and as President from January 1993
through December 1993. From September 1991 until December 1992, Mr. House
served as President of Prentice Hall Professional Software, Inc., a subsidiary
of Simon and Schuster, Inc. From 1968 through 1987, Mr. House served in a
number of senior executive positions with Management Science America, Inc. Mr.
House is a director of Melita International Corporation, where he serves as
Chairman of the Audit Committee and a member of the Compensation Committee and
is a director of XcelleNet, Inc., where he serves as Chairman of its Audit and
Nominating Committees. Mr. House also serves as a member of the Board of
Directors of BT Squared Technologies, Inc., Intellimedia Commerce, Inc.,
Systems Techniques, Inc. and Telinet Technologies, LLC which are privately
held companies.
SAID MOHAMMADIOUN has served as a member of the Board of Directors of the
Company since March 1998. Mr. Mohammadioun has served as Chairman and Chief
Executive Officer of Synchrologic, Inc. since October 1996. From March 1995 to
September 1996, he was a private investor in small technology companies. Mr.
Mohammadioun was Vice President of Lotus Development Corp. from December 1990
to February 1995. Mr. Mohammadioun also serves on the Board of Directors of IQ
Software Corporation and FirstWave Technologies, Inc.
Executive officers of the Company are elected by the Board of Directors and
serve until their successors are duly elected and qualified. There are no
family relationships among any of the executive officers or directors of the
Company.
Concurrent with the effective date of this Offering, the Company's Board of
Directors will be divided into three classes, with the members of each class
of directors serving for staggered three-year terms. Messrs. McCall and Kaiser
will serve in the class the term of which expires in 1999; Messrs. Coxe and
House will serve in the class the term of which expires in 2000; and Messrs.
Jeffery and Mohammadioun will serve in the class the term of which expires in
2001. Upon the expiration of the term of each class of directors, directors
comprising such class of directors will be elected for a three-year term at
the next succeeding annual meeting of stockholders. The Company's classified
Board of Directors could have the effect of increasing the length of time
necessary to change the composition of a majority of the Board of Directors.
In general, at least two annual meetings of stockholders will be necessary for
stockholders to effect a change in a majority of the members of the Board of
Directors. See "Description of Capital Stock--Delaware Law and Certain
Provisions of the Company's Restated Certificate and By-laws."
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee consists of Messrs. Coxe and Kaiser. The Audit Committee
reviews, with the Company's independent auditors, the scope and timing of
their audit services and any other services they are asked to perform, the
auditor's report on the Company's financial statements following completion of
their audit and the Company's policies and procedures with respect to internal
accounting and financial controls. In addition, the Audit Committee will make
annual recommendations to the Board of Directors for the appointment of
independent auditors for the ensuing year.
The Compensation Committee consists of Messrs. Coxe and Kaiser. The
Compensation Committee will review and evaluate the compensation and benefits
of all officers of the Company, review general policy matters relating to
compensation and benefits of employees of the Company and make recommendations
concerning these matters to the Board of Directors. The Compensation Committee
also will administer the Company's stock option plans.
DIRECTOR COMPENSATION
Directors who are not employees of the Company (also referred to as "outside
directors") currently include Messrs. McCall (as of the closing date of the
Offering), Coxe, House, Kaiser and Mohammadioun, and do not receive an annual
retainer or any fees for attending regular meetings of the Board of Directors.
Directors are not reimbursed for out-of-pocket expenses incurred in attending
such meetings.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
earned by Joseph S. McCall, the Company's Chief Executive Officer at December
31, 1997 and the Company's four other most highly
45
<PAGE>
compensated executive officers who were serving as executive officers at the
end of 1997 (collectively, the "Named Executive Officers") for services
rendered in all capacities to the Company in 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
-------------------------- ------------
NUMBER OF
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(2) COMPENSATION
- --------------------------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Joseph S. McCall........ $ 151,350 $ 150,000 -- -- --
Chief Executive
Officer(3)
William M. Curran, $ 111,748 $ 197,910 -- 45,000 --
Jr. ...................
Vice President, Sales
Steven M. Hornyak....... $ 111,760 $ 130,822 -- 51,000 $53,394(4)
Vice President,
Marketing
Stephen P. Jeffery...... $ 175,000(6) $ 92,621 -- 75,000 --
President(5)
Alain Livernoche........ $ 136,752 $ 91,599 -- 60,000 --
Vice President, Sales
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission,
the compensation set forth in the table does not include medical, group
life insurance or other benefits which are available to all salaried
employees of the Company, and certain perquisites and other benefits,
securities or property that do not exceed the lesser of $50,000 or 10% of
the person's salary and bonus shown in the table.
(2) The Company did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive payments during fiscal
1997 to its executive officers. Options granted to the Named Executive
Officers were granted at fair market value on the date of grant as
determined by the Board of Directors.
(3) Mr. McCall resigned as the Company's Chief Executive Officer on February
5, 1998.
(4) One time payment for relocation expenses.
(5) Mr. Jeffrey was elected as the Company's Chief Executive Officer effective
as of February 5, 1998.
(6) Includes $14,583 in deferred compensation earned in 1997.
46
<PAGE>
The following table sets forth all individual grants of stock options during
fiscal year 1997, to each of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM(2)
OPTIONS TO EMPLOYEES IN EXERCISE OR BASE -----------------
NAME GRANTED(1) FISCAL YEAR PRICE PER SHARE EXPIRATION DATE 5% 10%
---- ---------- ---------------- ---------------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Joseph S. McCall........ -- -- -- -- -- --
Stephen P. Jeffery...... 75,000 9.3% $3.67 11/10/04 $112,054 $261,134
William M. Curran, Jr... 15,000 1.9 2.00 07/24/04 12,213 28,462
30,000 3.7 3.67 11/10/04 44,822 104,454
Alain Livernoche........ 15,000 1.9 1.00 04/13/04 6,107 14,231
15,000 1.9 2.00 07/24/04 12,213 28,462
30,000 3.7 3.67 11/10/04 44,822 104,454
Steven M. Hornyak....... 6,000 .7 1.00 01/01/04 6,107 14,231
15,000 1.9 1.00 05/23/04 12,213 28,462
30,000 3.7 3.67 11/10/04 44,822 104,454
</TABLE>
- --------
(1) All options were incentive stock options and were granted pursuant to the
Company's 1992 Stock Option Plan at an exercise price not less than fair
market value on the date of grant as determined by the Board of Directors
of the Company. Options vest in installments over a period of four years
with 20% of the options vested 12 months from the date of grant, 40%
vested 24 months after the date of grant, 70% vested 36 months after the
date of grant and 100% vested 48 months after the date of grant. The
options expire seven years after the date of grant.
(2) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration
of their term, assuming that the stock price on the date of grant
appreciates at the specified annual rates of appreciation, compounded
annually over the term of the option. These numbers are calculated based
on rules promulgated by the Securities and Exchange Commission. The actual
realizable value of the options based on the price to the public in this
Offering will substantially exceed the potential realizable value shown in
the table.
47
<PAGE>
The following table provides information regarding exercisable and
unexercisable stock options held as of December 31, 1997 by each of the Named
Executive Officers. There were no options exercised by the Named Executive
Officers in 1997.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR-END OPTIONS AT YEAR-END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Joseph S. McCall........... 61,762 -- $185,493 $ --
Stephen P. Jeffery......... 37,500 225,000 110,125 415,500
William M. Curran, Jr...... 3,000 57,000 8,410 58,790
Alain Livernoche........... -- 60,000 -- 62,200
Steven M. Hornyak.......... 2,340 57,660 6,808 75,192
</TABLE>
- --------
(1) There was no public trading market for the Common Stock as of December 31,
1997. Accordingly, these values have been calculated by determining the
difference between the estimated fair market value of the Company's Common
Stock underlying the option as of December 31, 1997 ($3.67 per share, as
determined by the Board of Directors) and the exercise price per share
payable upon exercise of such options. In determining the fair market
value of the Company's Common Stock, the Board of Directors considered
various factors, including the Company's financial condition and business
prospects, its operating results, the absence of a market for its Common
Stock and the risks normally associated with technology companies.
EMPLOYEE BENEFIT PLANS
1992 Stock Option Plan. The Company adopted its 1992 Stock Option Plan (the
"1992 Stock Option Plan") on November 22, 1992. The aggregate number of shares
reserved for issuance under the 1992 Stock Option Plan is 1,652,700 shares. As
of January 31, 1998, options to purchase 1,411,185 shares of Common Stock were
outstanding under the 1992 Stock Option Plan at exercise prices ranging from
$0.67 to $3.67 per share and a weighted average exercise price of $2.14 per
share. Options vest in installments over a period of four years with 20% of
the options vested 12 months from the date of grant, 40% vested 24 months from
the date of grant, 70% vested 36 months from the date of grant and 100% vested
48 months after the date of grant. As of January 31, 1998, 36,825 shares of
Common Stock have been issued pursuant to the exercise of options granted
under the 1992 Stock Option Plan. The purpose of the 1992 Stock Option Plan is
to provide incentives for key employees, officers, consultants and directors
to promote the success of the Company, and to enhance the Company's ability to
attract and retain the services of such persons. The majority of all options
granted under the 1992 Stock Option Plan are intended to qualify as "incentive
stock options" under Section 422 of the Internal Revenue Code of 1985 as
amended (the "Code").
The 1992 Stock Option Plan is administered by the Compensation Committee of
the Board of Directors. The Compensation Committee has the authority to
determine exercise prices applicable to the options, the eligible officers,
directors, consultants or employees to whom options may be granted, the number
of shares of the Company's Common Stock subject to each option and the extent
to which options may be exercisable.
1998 Stock Incentive Plan. In February 1998, the Board of Directors adopted
and the stockholders approved the SQL 1998 Stock Incentive Plan (the "1998
Stock Plan"). Under the 1998 Stock Plan, the Board of Directors, or the
Compensation Committee of the Board of Directors, has the flexibility to
determine the type and amount of awards to be granted to eligible
participants. The 1998 Stock Plan is intended to secure for the Company and
its stockholders the benefits arising from ownership of the Company's Common
Stock by
48
<PAGE>
individuals employed or retained by the Company who will be responsible for
the future growth of the enterprise. The 1998 Stock Plan is designed to help
attract and retain superior personnel for positions of substantial
responsibility with the Company (including advisory relationships where
appropriate), and to provide individuals with an additional incentive to
contribute to the Company's success.
The Board or the Compensation Committee may make the following types of
grants under the 1998 Stock Plan, each of which will be an "Award": (i)
incentive stock options ("ISOs"); (ii) nonqualified stock options ("NSOs");
(iii) restricted stock awards ("Restricted Stock Awards"); (iv) stock
appreciation rights ("SARs"); and (v) restricted units ("Restricted Units").
Officers, key employees, employee directors, consultants and other independent
contractors or agents of the Company or its subsidiaries who are responsible
for or contribute to the management growth or profitability of the Company's
business will be eligible for selection by the Board of Directors or the
Compensation Committee to participate in the 1998 Stock Plan, provided,
however, that ISOs may be granted only to a person who is an employee of the
Company or its subsidiaries.
The Company has authorized and reserved for issuance an aggregate of 200,000
shares of its Common Stock under the 1998 Stock Plan, to be automatically
increased to 1,000,000 shares of Common Stock upon the completion of this
Offering. The aggregate number of shares of Common Stock that may be granted
through Awards under the 1998 Stock Plan to any employee in any calendar year
may not exceed 200,000 shares. The shares of Common Stock issuable under the
1998 Stock Plan will be authorized but unissued shares. If any of the Awards
granted under the 1998 Stock Plan expire, terminate or are forfeited for any
reason before they have been exercised, vested or issued in full, the unused
shares subject to those expired, terminated or forfeited Awards will again be
available for purposes of the 1998 Stock Plan. The 1998 Stock Plan will
continue in effect until February 2008 unless sooner terminated under the
general provisions of the 1998 Stock Plan.
The 1998 Stock Plan will be administered by the Board of Directors or upon
its delegation to the Compensation Committee of the Board of Directors, by the
Compensation Committee, consisting of not less than two directors of the
Company who are "non-employee directors" (within the meaning of SEC Rule 16b-3
promulgated pursuant to the Securities Exchange Act of 1934, as amended), so
long as non-employee director administration is required under Rule 16b-3, and
who are "outside directors" (as defined in Section 162(m) of the Code), so
long as outside directors are required by the Code. Subject to the foregoing
limitations, as applicable, the Board of Directors may from time to time
remove members from the Compensation Committee, fill all vacancies on the
Compensation Committee, however caused, and may select one of the members of
the Compensation Committee as its chairman. The Compensation Committee may
hold meetings at such times and places as they may determine, will keep
minutes of their meetings, and may adopt, amend and revoke rules and
procedures in accordance with the terms of the 1998 Stock Plan.
401(k) Retirement Savings Plan. The Company maintains a Section 401(k)
Retirement Savings Plan (the "401(k) Plan"). The 401(k) Plan is intended to be
a tax-qualified defined contribution plan under Section 401(k) of the Code. In
general, Company employees who have completed six consecutive months of
service with the Company and are over 21 years of age may elect to participate
in the 401(k) Plan. Under the 401(k) Plan, participants may elect to defer a
portion of their compensation, subject to certain Code limitations. In
addition, at the discretion of the Board of Directors and subject to certain
Code limitations, the Company may make profit sharing contributions into the
401(k) Plan. The Company currently does not match contributions. A separate
account is maintained for each participant in the 401(k) Plan, which account
is 100% vested. Distributions from the 401(k) Plan may be in the form of a
lump-sum payment in cash or property or in the form of an annuity.
AGREEMENTS WITH EMPLOYEES
In February 1998, the Company entered into an agreement with Joseph S.
McCall whereby Mr. McCall resigned as the Company's Chief Executive Officer
and as Chairman, Chief Executive Officer and Manager of the Services
Subsidiary. Mr. McCall agreed to remain an employee of the Company at his
current salary, including incentive compensation, until the completion of this
Offering, at which time he will become as consultant to the Company for a
period of one year pursuant to the terms of an Independent Contractor
49
<PAGE>
Agreement. For his consulting services, the Company will pay Mr. McCall the
sum of $125,000 over the one year period, with the ability to earn an
additional $100,000 in incentive compensation if certain revenue targets are
met by the Company. Mr. McCall has agreed to continue to serve on the
Company's Board of Directors for at least six months following the termination
of his employment. In recognition of his past services, Mr. McCall's agreement
to allow the termination of the common stock voting trust agreement, and his
resignation as CEO, the Company agreed to pay Mr. McCall a lump sum of
$225,000 on or before June 30, 1998 and will pay Mr. McCall as severance an
additional $75,000 payable in semi-monthly installments over a one year period
beginning on the effective date of the termination of his employment with the
Company.
The Company generally enters into confidentiality and nondisclosure
agreements with its employees. Pursuant to the terms of these agreements,
employees agree to confidentiality restrictions, employee and customer
nonsolicitation covenants and assignment of inventions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee reviews and approves compensation and
benefits for the Company's key executive officers, administers the Company's
stock option plan and makes recommendations to the Board regarding such
matters. No member of the Compensation Committee serves as a member of the
board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of the Board or Compensation
Committee.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated By-Laws of the Company (the "Restated By-Laws") and the Amended
and Restated Certificate of Incorporation of the Company (the "Restated
Certificate") provide that the directors and officers of the Company shall be
indemnified by the Company to the fullest extent authorized by Delaware law,
as it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
the Company. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Company pursuant to the
Restated By-Laws, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. The Company has obtained insurance which
insures the directors and officers of the Company against certain losses and
which insures the Company against certain of its obligations to indemnify such
directors and officers. In addition, the Restated Certificate provides that
the directors of the Company will not be personally liable for monetary
damages to the Company for breaches of their fiduciary duty as directors,
unless they violated their duty of loyalty to the Company or its stockholders,
acted in bad faith, knowingly or intentionally violated the law, authorized
illegal dividends or redemptions or derived an improper personal benefit from
their action as directors. Such limitations of personal liability under the
Delaware Business Corporation Law do not apply to liabilities arising out of
certain violations of the federal securities laws. While non-monetary relief
such as injunctive relief, specific performance and other equitable remedies
may be available to the Company, such relief may be difficult to obtain or, if
obtained, may not adequately compensate the Company for its damages.
There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company where indemnification by the Company
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of January 31, 1998, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by:
(i) each person known by the Company to be the beneficial owner of more than
5% of the Company's Common Stock; (ii) each of the Company's directors; (iii)
each Named Executive Officer who is a beneficial
50
<PAGE>
owner of the Company's Common Stock (see "Management--Executive
Compensation"); and (iv) all executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON
STOCK OUTSTANDING(2)
NUMBER OF SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------ ---------------- ---------- ----------
<S> <C> <C> <C>
Joseph S. McCall(3).............. 1,594,835 23.9% 4.3%
William S. Kaiser(4)............. 1,003,120 13.9 10.0
Greylock Limited Partnership(5).. 1,003,120 13.9 10.0
Hancock Venture Partners IV--Di-
rect Fund L.P.(6)............... 870,153 12.3 8.9
Tench Coxe(7).................... 753,176 10.7 7.7
Sutter Hill Ventures, a Califor-
nia Limited Partnership(7)...... 753,176 10.7 7.7
Highland Capital Partners II Lim-
ited Partnership(8)............. 594,678 8.6 6.2
Technology Crossover Management,
L.L.C.(9)....................... 576,465 8.4 6.0
Chase Venture Capital Associates,
L.P.(10)........................ 312,501 4.6 3.3
Spitfire Capital Partners,
L.P. (11)....................... 312,501 4.6 3.3
Donald L. House.................. 76,249 1.2 *
Stephen P. Jeffery(12)........... 43,800 * *
Steven M. Hornyak(13)............ 3,990 * *
William M. Curran, Jr.(13)....... 3,000 * *
Alain Livernoche................. -- -- --
All executive officers and direc-
tors as a group (12 persons).... 3,684,253 53.6% 25.6%
</TABLE>
- --------
* Indicates less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by
that person that are currently exercisable or that are or may become
exercisable within 60 days of January 31, 1998 are deemed outstanding.
Such shares, however, are not deemed outstanding for the purposes of
computing the percentage ownership of any other person. Except as
indicated in this footnote, each stockholder named in the table has sole
voting and investment power with respect to the shares set forth opposite
such stockholder's name.
(2) Percentage includes all outstanding shares of Common Stock and assumes
the Conversion and the Warrant Exercise.
(3) Includes (i) 1,401,823 shares of Common Stock (all of the outstanding
Common Stock of the Company) which is subject to the Voting Trust
Agreement under which Mr. McCall serves as sole trustee and exercises
sole voting control; and 131,250 shares of Common Stock issuable upon
exercise of a warrant. The Voting Trust Agreement terminates upon the
closing of this Offering.
(4) Includes (i) 975,156 shares of Common Stock issuable upon conversion of
shares of Preferred Stock owned by Greylock Limited Partnership; and (ii)
27,966 shares of Common Stock issuable upon exercise of warrants. Mr.
Kaiser has voting control over the securities of the Company owned by
Greylock Limited Partnership.
(5) Consists of (i) 975,156 shares of Common Stock issuable upon conversion
of shares of Preferred Stock; and (ii) 27,966 shares of Common Stock
issuable upon conversion of shares of Preferred Stock subject to
outstanding warrants owned by Greylock Limited Partnership whose general
partners are Howard E. Cox, Roger Evans, William Helman, Robert
Henderson, William Kaiser, Henry McCance and Dave Strohm. Greylock
Limited Partnership's address is One Federal Street, Boston,
Massachusetts 02110.
(6) Includes (i) 812,853 shares of Common Stock issuable upon conversion of
shares of Preferred Stock owned by Hancock Venture Partners IV--Direct
Fund L.P. ("Hancock"); (ii) 13,795 shares of Common Stock owned by
Hancock; and (iii) 42,781 shares of Common Stock issuable upon conversion
of shares of
51
<PAGE>
Preferred Stock owned by Falcon Ventures II, L.P. ("Falcon"); and 726
shares of Common Stock issuable upon conversion of shares of Preferred
Stock subject to outstanding warrants owned by Falcon. Falcon is an
affiliate of Hancock. Hancock's address is One Financial Center, Boston,
Massachusetts 02111.
(7) Includes (i) 491,692 shares of Common Stock held by Sutter Hill Ventures,
a California Limited Partnership ("Sutter Hill"); (ii) 22,183 shares of
Common Stock held by Mr. Coxe; and (iii) 240,456 shares of Common Stock
held of record for 11 other individuals and entitles associated with
Sutter Hill. Mr. Coxe is a Managing Director of the General Partner of
Sutter Hill and shares voting and investment power with respect to the
shares of Common Stock held by Sutter Hill. Mr. Coxe disclaims beneficial
ownership of the shares held by Sutter Hill and individuals and entities
associated with Sutter Hill, except as to the shares held of record in
his name and as to his partnership interest in Sutter Hill. Sutter Hill's
address is 755 Page Mill Road, Suite A-200, Palo Alto, California 94304-
1005.
(8) Includes 578,104 shares of Common Stock issuable upon conversion of
shares of Preferred Stock owned by Highland Capital Partners II, Limited
Partnership whose general partner is Highland Management Partners II,
Limited Partnership. Highland Capital's address is One International
Place, Boston, Massachusetts 02110.
(9) Includes (i) 525,249 shares of Common Stock issuable upon conversion of
shares of Preferred Stock owned by Technology Crossover Ventures L.P.
("TCVLP"); (ii) 8,914 shares of Common stock issuable upon conversion of
shares of Preferred Stock subject to outstanding warrants owned by TCVLP;
(iii) 41,596 shares of Common Stock owned by Technology Crossover
Ventures, C.V. ("TCVCV"); and (iv) 706 shares of Common Stock issuable
upon conversion of shares of Preferred Stock subject to outstanding
warrants owned by TCVCV. Technology Crossover Management, L.L.C. is the
sole general partner of TCVLP and the sole investment general partner of
TCVCV. Technology Crossover Ventures' address is 575 High Street, Suite
400, Palo Alto, California 94301.
(10) Consists of 312,501 shares of Common Stock issuable upon conversion of
shares of Preferred Stock. Chase Venture Capital Associates, L.P.'s
address is 380 Madison Avenue, 12th Floor, New York, New York 10017. The
managing general partner of Chase Venture Capital Associates, L.P. is
Jeffrey C. Walker.
(11) Consists of 312,501 shares of Common Stock issuable upon conversion of
shares of Preferred Stock. Spitfire Capital Partners, L.P.'s general
partner is MS Spitfire L.L.C. Spitfire Capital Partners, L.P.'s address
is 600 Montgomery Street, San Francisco, California 94111.
(12) Includes 42,700 shares of Common Stock issuable upon the exercise of
options.
(13) Consists of 3,000 shares of Common Stock issuable upon the exercise of
options.
52
<PAGE>
CERTAIN TRANSACTIONS
In March 1995, the Company issued 450,000 shares of Common Stock to Tech
Ventures, an entity controlled by Joseph S. McCall, the Company's Chief
Executive Officer at that time and a member of the Company's Board of
Directors, in exchange for certain intellectual property rights, intangible
assets and $10,000 cash. Following the acquisition, the Company and Tech
Ventures formed the Services Subsidiary. The Company contributed the acquired
intellectual property rights, intangible assets and $10,000 cash to the
Services Subsidiary in exchange for an 80% interest in the Services
Subsidiary. Tech Ventures acquired the remaining 20% interest in the Services
Subsidiary in exchange for a $75,000 promissory note bearing interest at
7.74%, payable annually, with the principal due in a lump sum payment in March
2000 (the "Tech Ventures Note").
During 1996 and 1997, McCall Consulting Group, Inc. ("MCG"), an entity owned
by Tech Ventures, provided to the Company: (i) temporary services by
administrative employees; (ii) third-party consulting services in connection
with several product development projects; (iii) the lease of office equipment
and office space in the Company's prior headquarters facility; and (iv)
services in connection with the Company's sales process. The Company paid MCG
approximately $1.6 million and $1.4 million, respectively, during 1997 and
1996 for these services. In February 1998, the Company entered into an
Independent Contractor Agreement with MCG providing for the performance of
services by MCG for the Company and the assignment to the Company of the
intellectual property rights associated with the performance of such services.
The Company currently uses, and intends to continue to use, personnel from MCG
to provide these, and possibly other, services. In addition, in February 1998,
the Company granted to Tech Ventures and MCG a royalty-free license to use its
current products as well as certain of the Company's future products to be
designated by the Company, and agreed to provide to MCG without charge ongoing
support services as long as Tech Ventures owns at least 100,000 shares of the
Common Stock of the Company and has not modified the software. This license
agreement may be terminated by the Company if a competitor of the Company
acquires any interest in either MCG or Tech Ventures.
On February 5, 1998, Tech Ventures sold its 20% interest in the Services
Subsidiary to the Company in exchange for 225,000 shares of the Company's
Common Stock, a warrant to purchase an additional 300,000 shares of Common
Stock, at an exercise price of $3.67 per share and a non-interest bearing two-
year promissory note in the principal amount of $1.1 million, giving the
Company 100% ownership of the Services Subsidiary. The Company granted Tech
Ventures certain registration rights and agreed to register in this Offering
the 497,700 shares of Common Stock owned by Tech Ventures (comprised of
272,700 of the 450,000 shares originally issued to Tech Ventures in March 1995
and 225,000 issued on February 5, 1998) and to maintain the effectiveness of
such registration for a period of two years. Tech Ventures has agreed not to
sell any of its shares for a period of 180 days after the effective date of
this Offering. In addition, immediately prior to the purchase and sale, the
Services Subsidiary distributed approximately $241,000 to Tech Ventures as the
accumulated unpaid profits earned by the Services Subsidiary prior to February
5, 1998. The Company also agreed to pay Tech Ventures a monthly sum equal to
20% of the net profits of the Services Subsidiary until the earlier of (i) the
completion of this Offering, or (ii) a sale of the Company. All of the
material terms of the purchase were agreed upon by Tech Ventures and the
Company in January 1998, including the number of shares to be issued to Tech
Ventures which was based on a valuation of the Company's Common Stock at a
price of $4.67 per share conducted by an independent appraiser. The
transaction was approved by the Company's Board of Directors and consummated
on February 5, 1998. The purchase of the 20% interest in the Services
Subsidiary has been accounted for in the first quarter of 1998 based on a
separate and independent valuation of the Common Stock issued in the
transaction performed by Willamette Management Associates at $4.67 per share.
In February 1998, the Services Subsidiary also paid Tech Ventures
approximately $33,000 as consideration for the termination of the Management
Services Agreement entered into between the parties in March 1995, and Tech
Ventures paid in full to the Services Subsidiary the remaining principal
balance and accrued interest of approximately $33,000 due under the Tech
Ventures Note.
In February 1998, the Company entered into certain severance and related
agreements with Joseph S. McCall in connection with his resignation as the
Company's Chief Executive Officer. In connection therewith, the Company agreed
to pay Mr. McCall $225,000 before June 30, 1998, severance in the amount of
$75,000
53
<PAGE>
payable over a one year period beginning upon the consummation of this
Offering, and entered into an Independent Contractor Agreement whereby Mr.
McCall will serve as a consultant to the Company for one year for $125,000 in
compensation, with the ability to earn an additional $100,000 in incentive
compensation. See "Management--Agreements with Employees."
Tech Ventures provided recruiting services to the Company from January 1996
through January 1997 in the amount of $339,302. In addition, pursuant to a
Management Services Agreement, Tech Ventures received $25,000 for certain
administrative services rendered to the Services Subsidiary during each of
1997 and 1996.
On October 26, 1995, Tech Ventures received a warrant to purchase 87,500
shares of the Company's Series C Preferred Stock resulting from the conversion
and simultaneous cancellation of 87,500 shares of Series C Preferred Stock
held by Tech Ventures and the simultaneous amendment of a promissory note
payable by Tech Ventures to the Company which had been made by Tech Ventures
as payment for its original shares of Series C Preferred Stock. Upon the
consummation of this Offering, this warrant will expire. Tech Ventures has
informed the Company that it intends to exercise this warrant concurrent with
the closing of this Offering, which will result in 131,250 shares of Common
Stock after conversion.
The Company believes that all transactions set forth above were made on
terms no less favorable to the Company than would have been obtained from
unaffiliated third parties.
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of the Offering and the filing of the Company's
Restated Certificate, the authorized capital stock of the Company will consist
of 25,000,000 shares of Common Stock, $.0001 par value per share, and
5,000,000 shares of preferred stock, $.0001 par value per share (the
"Preferred Stock").
COMMON STOCK
As of the date of this Prospectus, there were shares of Common Stock
issued and outstanding and held of record by stockholders. Following
completion of this Offering, the Company will have 9,047,914 shares of Common
Stock issued and outstanding, comprised of: (i) 1,404,070 shares issued and
outstanding prior to this Offering; (ii) 2,500,000 shares issued by the
Company in connection with this Offering; (iii) 4,787,594 shares issued to
holders of the Company's Preferred Stock which automatically converts into
Common Stock upon the effective date of this Offering; (iv) 131,250 shares of
Common Stock issued to Tech Ventures in connection with the Warrant Exercise;
and (v) 225,000 shares to be issued to Tech Ventures in connection with the
Acquisition.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities and subject to the prior rights of any outstanding Preferred
Stock. Holders of the Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Common Stock are,
and the shares offered by the Company in this Offering will be, when issued
and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future.
54
<PAGE>
PREFERRED STOCK
Upon the effective date of this Offering, all outstanding shares of
Preferred Stock will be converted into shares of Common Stock. Thereafter, the
Board of Directors will be authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 5,000,000 shares of Preferred Stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change of control of the Company. The Company has no present plans to issue
any shares of Preferred Stock.
The Company believes that the Preferred Stock will provide the Company with
increased flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs that might arise. Having
such authorized shares available for issuance will allow the Company to issue
shares of Preferred Stock without the expense and delay of holding a special
stockholders' meeting. The authorized shares of Preferred Stock, as well as
shares of Common Stock, will be available for issuance without further action
by stockholders of the Company, unless such action is required by applicable
law or the rules of any stock exchange or quotation system on which the
Company's securities may be listed or quoted.
DELAWARE LAW AND CERTAIN PROVISIONS OF THE COMPANY'S RESTATED CERTIFICATE AND
BY-LAWS
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder's becoming an
interested stockholder; (ii) upon consummation of the transaction which
resulted in the stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned
(x) by persons who are directors and also officers and (y) by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder.
Section 203 defines business combinations to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as an entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
The Company's Restated Certificate provides that, upon the effective date of
this Offering, the Company's Board of Directors will be classified into three
classes of directors. See "Management--Executive Officers and Directors."
55
<PAGE>
These and other provisions could have the effect of making it more difficult
to acquire the Company by means of a tender offer, proxy contest or otherwise
or to remove the incumbent officers and directors of the Company. These
provisions may discourage certain types of coercive takeover practices and
encourage persons seeking to acquire control of the Company to first negotiate
with the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Union
National Bank of North Carolina, N.A.
LISTING
Application has been made to have the Common Stock approved for listing on
the Nasdaq National Market under the symbol "SQLF."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 9,047,914 shares of
Common Stock outstanding (assuming no exercise of outstanding stock options).
Of these shares, the 2,500,000 shares sold in this Offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares purchased by "affiliates" of the Company, as that term
is defined in Rule 144 ("Rule 144") under the Securities Act ("Affiliates"),
may generally only be sold in compliance with the limitations of Rule 144
described below.
LOCK-UP AGREEMENTS
All officers and directors of the Company and substantially all of the
stockholders of the Company, who in the aggregate hold 1,403,920 of the
1,404,070 outstanding shares of Common Stock, have agreed, pursuant to the
lock-up agreements, that they will not, without the prior written consent of
NationsBanc Montgomery Securities LLC, offer, sell, contract to sell or
otherwise dispose of, directly or indirectly, any shares of Common Stock
beneficially owned by them for a period of 180 days after the date of this
Prospectus.
SALES OF RESTRICTED SHARES
Concurrently with this Offering, the Company has registered 629,625 issued
and outstanding shares of its Common Stock. Such shares will be freely
tradable upon the effectiveness of this Offering, subject only to provisions
of the Lock-up Agreements. The remaining shares of issued and outstanding
Common Stock are deemed "Restricted Shares" under Rule 144 promulgated under
the Securities Act. Of the Restricted Shares, 150 shares will be available for
sale immediately after the date of this Prospectus in accordance with Rule
144(k) under the Securities Act. An additional shares will be available
for sale beginning 180 days after the date of this Prospectus in accordance
with Rule 144 or Rule 701 under the Securities Act and upon expiration of the
Lock-up Agreement. The remaining Restricted Shares will be available for
resale within one year from the date of this Prospectus in accordance with
Rule 144 or Rule 701 under the Securities Act. Certain security holders have
the right to have their Restricted Shares registered by the Company under the
Securities Act as described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated with those of others), including an Affiliate, who
has beneficially owned Restricted Shares for at least one year is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of (i) one percent of the then outstanding shares of Common
Stock (approximately 90,479 shares immediately after this Offering) or (ii)
the average weekly trading volume in the Common Stock on the Nasdaq National
Market during the four calendar weeks preceding the date on which notice of
such sale is filed. Sales under Rule 144 are also subject to certain
limitations on manner of sale, notice requirements, and availability of
current public information about the Company. In addition, under Rule 144(k),
a person who is not an Affiliate and has not
56
<PAGE>
been an Affiliate for at least three months prior to the sale and who has
beneficially owned Restricted Shares for at least two years may resell such
shares without compliance with the foregoing requirements. In meeting the one
and two year holding periods described above, a holder of Restricted Shares
can include the holding periods of a prior owner who was not an Affiliate.
Rule 701 under the Securities Act provides that the shares of Common Stock
acquired on the exercise of currently outstanding options may be resold by
persons, other than Affiliates, beginning 90 days after the date of this
Prospectus, subject only to the manner of sale provisions of Rule 144, and by
Affiliates under Rule 144 without compliance with its one-year minimum holding
period, subject to certain limitations.
STOCK OPTIONS
As of January 31, 1998, options to purchase a total of 1,411,185 shares of
Common Stock were outstanding and 1,137,844 of the shares issuable pursuant to
such options are not yet exercisable. An additional 204,690 shares of Common
Stock are available for future grants under the Company's 1992 Stock Option
Plan and 1,000,000 shares of Common Stock will be available for future grants
under the Company's 1998 Stock Plan upon closing of this Offering. See
"Management--Stock Option Plans and Warrants."
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register all shares of Common Stock subject to
outstanding stock options and Common Stock issuable pursuant to the Company's
stock option plans. The Company expects to file these registration statements
approximately 60 days following the closing of this Offering, and such
registration statements are expected to become effective upon filing. Shares
covered by these registration statements will thereupon be eligible for sale
in the public markets, subject to the Lock-up Agreements, to the extent
applicable. After the completion of the Offering, the Company intends to file
a registration statement on Form S-8 to register all shares of Common Stock
issuable pursuant to its 1998 Stock Plan. An additional 277,578 shares
issuable upon the exercise of vested employee and consultant stock options
will become eligible for sale after the Company has filed the registration
Statement on Form S-8.
REGISTRATION RIGHTS
After the consummation of this Offering, the holders of approximately
shares of Common Stock (the "Registrable Securities") or their transferees
(the "Holders"), will be entitled to certain demand and/or piggy-back
registration rights with respect to the Registrable Securities. These rights
are provided under agreements between the Company and the holders of the
Registrable Securities. Such agreements provide that certain of the Holders
are entitled, upon the request of the Holders of % of the Registrable
Securities, commencing on the earlier of (i) , 199 and (ii) the date which
is 90 days after the date of this Prospectus, to require the Company to use
its best efforts to register their Registrable Securities under the Securities
Act (the "Demand Registration Rights"). In addition, all of the Holders are
entitled, subject to certain limitations, to require the Company to use its
best efforts to include their shares of Common Stock in future registration
statements filed by the Company under the Securities Act (the "Piggyback
Registration Rights"). Except for the 629,625 shares being registered
concurrently with this Offering, the Holders of the Piggy-back Registration
Rights have waived their rights to register their shares under the
Registration Statement containing this Prospectus. Certain of the Holders are
also entitled, upon the request of the Holders of % of the Registrable
Securities, to require the Company to use its best efforts to register their
shares of Common Stock on Form S-3 (the "S-3 Registration Rights"). The
Company is not required to effect more than two registrations under the Demand
Registration Rights. Registration of shares pursuant to the exercise of Demand
Registration Rights, S-3 Registration rights or Piggy-back Registration Rights
under the Securities Act would result in such shares becoming freely tradeable
without restriction under the Securities Act immediately upon the
effectiveness of such registration statement.
57
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities LLC, Piper Jaffray Inc. and UBS Securities
LLC (the "Representatives"), have severally agreed, subject to the terms and
conditions set forth in the Underwriting Agreement, to purchase from the
Company the number of shares of Common Stock indicated below opposite their
respective names at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters are committed to
purchase all of the shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
NationsBanc Montgomery Securities LLC...........................
Piper Jaffray Inc...............................................
UBS Securities LLC..............................................
---------
Total....................................................... 2,500,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters initially
propose to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share, and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the initial public offering,
the offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 375,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 2,500,000 shares to be
purchased by the Underwriters. To the extent that the Underwriters exercise
this option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this Offering.
Each director and executive officer and certain other stockholders of the
Company have agreed, subject to certain limited exceptions, that they will
not, without the prior written consent of NationsBanc Montgomery Securities
LLC (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including
without limitation any short sale), pledge, transfer, establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the Exchange
Act, or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock, or securities exchangeable or exercisable
for or convertible into shares of Common Stock, currently or hereafter owned
either of record or beneficially (as defined in Rule 13d-3 under the Exchange
Act) by such party, or publicly announce such party's intention to do any of
the foregoing, for a period of 180 days after the date of this Prospectus. In
addition, the Company has agreed in the Underwriting Agreement that, during
the period of 180 days after the date of this Prospectus, without the prior
written consent of NationsBanc Montgomery Securities LLC (which consent may be
withheld in its sole discretion), it will not, directly or indirectly, sell,
offer, contract or grant any option to sell, pledge, transfer or establish an
open "put equivalent position" within the meaning of Rule 16a-1(h) under the
Exchange Act, or otherwise dispose of or transfer, or announce the offering
of, or file any Registration Statement under the Securities Act in respect of,
any shares of the Company's Common Stock, options or warrants to acquire
shares of the Common Stock or securities exchangeable or exercisable for or
convertible into shares of Common Stock other than pursuant to the Company's
1992 Stock Option Plan or 1998 Stock Plan. NationsBanc Montgomery Securities
LLC may, in its sole discretion and at any time without notice, release all or
any portion of the securities subject to these lock-up agreements. See "Shares
Eligible for Future Sale."
58
<PAGE>
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their employees and controlling persons against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
In connection with this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock, including over-allotment, stabilizing transactions, syndicate
covering transactions and penalty bids. In an over-allotment, the Underwriters
would allot more shares of Common Stock to their customers in the aggregate
than are available for purchase by the Underwriters under the Underwriting
Agreement. A stabilizing transaction means the placing of any bid, or
effecting of any purchase, for the purpose of pegging, fixing or maintaining
the price of a security. In a syndicate covering transaction, the Underwriters
would place a bid or effect a purchase to reduce a short position created in
connection with this Offering. Pursuant to a penalty bid, NationsBanc
Montgomery Securities LLC, on behalf of the Underwriters would be able to
reclaim a selling concession from shares of Common Stock sold by such
Underwriter are purchased in syndicate covering transactions. These
transactions may result in price of the Common Stock originally being higher
than the price that might otherwise prevail in the open market. These
transactions may be effected on the Nasdaq National Market, in the over-the-
counter market or otherwise and, if commenced, may be discontinued at any
time.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales of Common Stock offered by this Prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the number
of shares of Common Stock offered hereby.
Spitfire Capital Partners, L.P., an affiliate of NationsBanc Montgomery
Securities LLC, purchased 208,334 shares of the Company's Series F Preferred
Stock, which shares of Preferred Stock will automatically convert into 312,501
shares of Common Stock concurrent with the effective date of this Offering.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiations between the Company and the
Representatives. Among the factors expected to be considered in such
negotiations are the history of, and prospects for, the Company and the
industry in which it competes, an assessment of the Company's management, its
past and present operations and financial performance, its past and present
earnings and the trend of such earnings, the prospects for future earnings of
the Company, the present state of the Company's development, the prevailing
market conditions at the time of the Offering, market valuations of publicly
traded companies that the Company and the Representatives believe to be
comparable to the Company, and other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Womble Carlyle Sandridge & Rice, PLLC, Atlanta,
Georgia. Certain legal matters in connection with this Offering will be passed
upon for the Underwriters by Morris, Manning & Martin, L.L.P., Atlanta,
Georgia.
EXPERTS
The consolidated financial statements included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall include all amendments, exhibits, schedules and supplements
thereto) on Form S-1 under the Securities Act with respect to
59
<PAGE>
the Common Stock offered hereby. This Prospectus omits certain information
contained in the Registration Statement, and reference is made to the
Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the Common Stock offered hereby.
Statements contained in this Prospectus regarding the contents of any
contract, agreement or other document filed as an exhibit to the Registration
Statement are not necessarily complete, and in each instance reference is made
to the copy of such contract, agreement or other document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Registration Statement, and the exhibits and
schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549, and at its regional offices in New
York (Seven World Trade Center, Suite 1300, New York, New York 10048) and in
Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661). Copies of all or any part thereof may be obtained from the
Commission at prescribed rates. In addition, the Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants (including the Company) that file
electronically with the Commission which can be accessed at
http://www.sec.gov.
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by its independent accounts and
quarterly reports containing unaudited summary financial statements for each
of the first three quarters of each fiscal year.
60
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets................................................ F-4
Consolidated Statements of Operations...................................... F-6
Consolidated Statements of Stockholders' Deficit........................... F-7
Consolidated Statements of Cash Flows...................................... F-8
Notes to Consolidated Financial Statements................................. F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SQL Financials International, Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of SQL
FINANCIALS INTERNATIONAL, INC. (a Delaware corporation) AND SUBSIDIARIES as of
December 31, 1996 and 1997 and the related consolidated statements of
operations, stockholders' deficit, and cash flows for each of the three years
in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SQL Financials
International, Inc. and subsidiaries as of December 31, 1996 and 1997 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
February 19, 1998
F-2
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-3
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
1996 1997 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................... $ 3,279 $ 7,213 $ 7,012
Accounts receivable, less allowance for
doubtful accounts of $634 and $338,
respectively.................................. 1,971 4,050 4,050
Accounts receivable--related party............. 19 2 2
Prepaids and other current assets.............. 90 492 492
------- ------- -------
Total current assets......................... 5,359 11,757 11,556
------- ------- -------
PROPERTY AND EQUIPMENT:
Furniture and equipment........................ 2,176 3,094 3,094
Leasehold improvements......................... 215 280 280
------- ------- -------
Total property and equipment................. 2,391 3,374 3,374
Less accumulated depreciation.................. (1,181) (1,867) (1,867)
------- ------- -------
Property and equipment, net.................. 1,210 1,507 1,507
------- ------- -------
OTHER ASSETS:
Intangible assets, net of accumulated
amortization of $561 and $1,127 in 1996 and
1997, respectively............................ 1,783 1,267 3,748
Deposits and other long-term assets............ 173 150 150
------- ------- -------
Total other assets........................... 1,956 1,417 3,898
------- ------- -------
Total assets................................. $ 8,525 $14,681 $16,961
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
1996 1997 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities..... $ 2,003 $ 4,598 $ 4,598
Accounts payable--related party.............. 279 54 54
Short term debt.............................. 958 0 0
Deferred revenue............................. 4,686 5,717 5,717
Current maturities of long-term debt......... 855 1,841 1,841
-------- -------- --------
Total current liabilities.................. 8,781 12,210 12,210
NONCURRENT LIABILITIES:
Deferred revenue............................. 3,333 4,480 4,480
Long-term debt, net of current maturities,
net of discount of $166 at December 31,
1997, pro forma............................. 1,093 497 1,423
Other noncurrent liabilities................. 63 49 49
-------- -------- --------
Total liabilities.......................... 13,270 17,236 18,162
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 10)
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY... 17 243 0
-------- -------- --------
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series A, 262,500 shares issued and
outstanding in 1996 and 1997, none pro forma
1997........................................ 1,050 1,050 0
Series B, 454,888 shares issued and
outstanding in 1996 and 1997, none pro forma
1997........................................ 3,025 3,025 0
Series C, 428,572 shares issued and
outstanding in 1996 and 1997, none pro forma
1997........................................ 3,000 3,000 0
Series D, 701,755 shares issued and
outstanding in 1996 and 1997, none pro forma
1997........................................ 6,000 6,000 0
Series E, 697,675 shares issued and
outstanding in 1996 and 1997, none pro forma
1997........................................ 6,000 6,000 0
Series F, 0 and 628,809 shares issued and
outstanding in 1996 and 1997, none pro forma
1997........................................ 0 6,037 0
-------- -------- --------
Total redeemable convertible preferred
stock..................................... 19,075 25,112 0
-------- -------- --------
STOCKHOLDERS' DEFICIT:
Preferred stock, $1 par value; 3,000,000 and
3,500,000 shares authorized in 1996 and
1997, respectively; 2,545,390 and 3,174,199
shares of redeemable convertible preferred
stock issued and outstanding in 1996 and
1997, respectively.......................... 0 0 0
Common stock, $.0001 par value; 6,750,000 and
9,000,000 shares authorized in 1996 and
1997, respectively; 2,185,348 and 1,467,160
shares issued in 1996 and 1997,
respectively; 6,453,443 shares issued pro
forma 1997.................................. 0 0 1
Additional paid in capital................... 472 438 26,600
Accumulated deficit.......................... (23,859) (28,019) (28,019)
Warrants..................................... 612 652 1,199
Less treasury stock, at cost................. (302) (2) (2)
Note from stockholder........................ (612) (612) (612)
Deferred compensation........................ (148) (367) (367)
-------- -------- --------
Total stockholders' deficit................ (23,837) (27,910) (1200)
-------- -------- --------
Total liabilities and stockholders'
deficit................................... $ 8,525 $ 14,681 $ 16,961
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-5
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
REVENUES:
License fees..................................... $ 5,232 $ 6,425 $13,506
Services fees.................................... 1,737 3,984 7,786
Maintenance fees................................. 1,221 2,647 4,696
------- ------- -------
Total revenues................................. 8,190 13,056 25,988
------- ------- -------
COST OF REVENUES:
License fees..................................... 291 416 1,205
Services fees.................................... 1,421 2,904 5,402
Maintenance fees................................. 655 1,350 1,973
------- ------- -------
Total cost of revenues......................... 2,367 4,670 8,580
------- ------- -------
OPERATING EXPENSES:
Research and development......................... 3,882 5,777 7,190
Sales and marketing.............................. 6,636 7,191 9,515
General and administrative....................... 3,292 3,076 4,061
------- ------- -------
Total operating expenses....................... 13,810 16,044 20,766
------- ------- -------
OPERATING LOSS..................................... (7,987) (7,658) (3,358)
INTEREST EXPENSE, net.............................. 2 6 274
MINORITY INTEREST.................................. (60) (215) (478)
------- ------- -------
NET LOSS........................................... $(8,049) $(7,879) $(4,110)
======= ======= =======
BASIC AND DILUTED NET LOSS PER SHARE............... $ (6.19) $ (5.74) $ (2.97)
======= ======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING......... 1,300 1,373 1,386
======= ======= =======
PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE..... $ (0.67)
=======
PRO FORMA WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING....................................... 6,147
=======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN ACCUMULATED TREASURY NOTE FROM DEFERRED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT WARRANTS STOCK AMOUNT STOCKHOLDER COMPENSATION DEFICIT
------ ------ ---------- ----------- -------- -------- ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December
31, 1994......... 1,710 $ 0 $ 7 $ (7,825) $ 0 (810) $(302) $(612) $ 0 $ (8,732)
Issuance costs,
redeemable
convertible
preferred stock,
Series D........ 0 0 0 (72) 0 0 0 0 0 (72)
Issuance of
common stock.... 465 0 310 0 0 0 0 0 0 310
Exercise of stock
options......... 6 0 4 0 0 0 0 0 0 4
Conversion of
redeemable
convertible
preferred stock
into warrants... 0 0 0 0 612 0 0 0 0 612
Net loss......... 0 0 0 (8,049) 0 0 0 0 0 (8,049)
----- --- ---- -------- ---- ---- ----- ----- ----- --------
BALANCE, December
31, 1995......... 2,181 0 321 (15,946) 612 (810) (302) (612) 0 (15,927)
Issuance costs,
redeemable
convertible
preferred stock,
Series E........ 0 0 0 (34) 0 0 0 0 0 (34)
Issuance of stock
options......... 0 0 148 0 0 0 0 0 (148) 0
Exercise of stock
options......... 4 0 3 0 0 0 0 0 0 3
Net loss......... 0 0 0 (7,879) 0 0 0 0 0 (7,879)
----- --- ---- -------- ---- ---- ----- ----- ----- --------
BALANCE, December
31, 1996......... 2,185 0 472 (23,859) 612 (810) (302) (612) (148) (23,837)
Issuance costs,
redeemable
convertible
preferred stock,
Series F........ 0 0 0 (50) 0 0 0 0 0 (50)
Issuance of
warrants........ 0 0 0 0 40 0 0 0 0 40
Unamortized debt
discount........ 0 0 (22) 0 0 0 0 0 0 (22)
Issuance of stock
options......... 0 0 277 0 0 0 0 0 (277) 0
Amortization of
deferred
compensation.... 0 0 0 0 0 0 0 0 58 58
Retirement of
treasury stock.. (735) 0 (300) 0 0 735 300 0 0 0
Exercise of stock
options......... 17 0 11 0 0 0 0 0 0 11
Net loss......... 0 0 0 (4,110) 0 0 0 0 0 (4,110)
----- --- ---- -------- ---- ---- ----- ----- ----- --------
BALANCE, December
31, 1997......... 1,467 $ 0 $438 $(28,019) $652 (75) $ (2) $(612) $(367) $(27,910)
===== === ==== ======== ==== ==== ===== ===== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.......................................... $(8,049) $(7,879) $(4,110)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 428 1,125 1,406
Minority interest............................... 60 216 478
Amortization of debt discount................... 0 0 18
Deferred compensation........................... 0 0 58
Loss on sale of property and equipment.......... 0 0 46
Changes in operating assets and liabilities:
Accounts receivable........................... (1,510) (352) (2,062)
Prepaids and other current assets............. 107 (31) (402)
Deposits and other long term assets........... (106) (22) 23
Accounts payable and accrued liabilities...... 1,676 3 2,370
Deferred revenue.............................. 2,644 4,180 2,178
Other noncurrent liabilities.................. 8 (53) (14)
------- ------- -------
Total adjustments........................... 3,307 5,066 4,099
------- ------- -------
Net cash used in operating activities....... (4,742) (2,813) (11)
------- ------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment............... (598) (958) (1,193)
Proceeds from sale of property and equipment...... 0 0 10
Purchases of intangible assets.................... (316) (2,000) (50)
------- ------- -------
Net cash used in investing activities....... (914) (2,958) (1,233)
------- ------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of redeemable convertible
preferred stock.................................. 5,927 5,966 5,987
Proceeds from issuance of common stock............ 314 3 11
Proceeds from notes payable and short term
borrowings, net.................................. 556 2,472 859
Repayments of notes payable and short term
borrowings....................................... (275) (490) (1,427)
Proceeds from preferred stock bridge financing.... 2,750 0 2,000
Repayment of preferred stock bridge financing..... (750) (2,000) (2,000)
Repayment of note receivable from holder of
minority interest................................ 0 0 38
Dividends paid to holder of minority interest..... (25) (234) (290)
------- ------- -------
Net cash provided by financing activities... 8,497 5,717 5,178
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 2,841 (54) 3,934
CASH AND CASH EQUIVALENTS, beginning of year........ 492 3,333 3,279
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year.............. $ 3,333 $ 3,279 $ 7,213
======= ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest............................ $ 126 $ 153 $ 330
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996, AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
SQL Financials International, Inc. (the "Company") was incorporated in the
state of Delaware on November 20, 1991. The Company develops, markets, and
supports client/server financial software applications and markets its
products under the trade name SQL Financials throughout the United States and
Canada. The Company provides installation and implementation services through
its majority-owned subsidiary, SQL Financial Services, Inc. (the "Services
Subsidiary") and is the sole owner of SQL Financials Europe, Inc.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of the Company and its
majority-owned subsidiaries. All intercompany transactions and balances have
been eliminated.
Minority Interest
Minority interest represents the 20% ownership interest in the Services
Subsidiary (Note 3).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
History of Operating Losses
The Company has incurred significant net losses in each year since its
formation. As of December 31, 1997, the Company had an accumulated deficit of
approximately $28.0 million. These losses have occurred, in part, because of
the substantial costs incurred by the Company to develop its products, expand
its product research, and hire and train its direct sales force. Although the
Company has achieved recent revenue growth and profitability for the quarters
ended September 30, 1997 and December 31, 1997, there can be no assurance that
the Company will be able to generate the substantial additional growth in
revenues that will be necessary to sustain profitability. The Company plans to
continue to increase its operating expenses in order to fund higher levels of
research and development, increase its sales and marketing efforts, broaden
its customer support capabilities and expand its administrative resources in
anticipation of future growth. To the extent that increases in such expenses
precede or are not offset by increased revenues, the Company's business,
results of operations and financial condition would be materially adversely
affected. The Company's financial prospects must be considered in light of the
risks, costs and difficulties frequently encountered by emerging companies,
particularly companies in the competitive financial software industry.
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year presentation.
F-9
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
The book values of cash, trade accounts receivable, trade accounts payable,
and other financial instruments approximate their fair values principally
because of the short-term maturities of these instruments. The fair value of
the Company's long-term debt is estimated based on current rates offered to
the Company for debt with similar terms and maturities. Under this method, the
Company's fair value of financial instruments was not materially different
from the stated value at December 31, 1996 and 1997.
Credit and Concentrations of Product Risk
The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. The credit risk is mitigated by
the large number of customers comprising the customer base.
Substantially all of the Company's product revenues are derived from sales
of its financial applications. Increased market acceptance of the Company's
product family is critical to the Company's ability to increase sales and
thereby sustain profitability. Any factor adversely affecting sales or pricing
levels of these applications will have a material adverse effect on the
Company's business, results of operations, and financial condition.
Revenue Recognition
Revenues from license fees are recognized upon delivery of the product if
there are no significant postdelivery obligations. Revenues from services fees
are recognized as the services are performed. Maintenance fees relate to
customer maintenance and support and are recognized ratably over the term of
the software support services agreement, which is typically 12 months.
Revenues that have been prepaid or invoiced but that do not yet qualify for
recognition under the Company's policies are reflected as deferred revenues.
Deferred Revenues
Deferred revenues at December 31, 1996 and 1997 were as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Deferred revenues:
Deferred license fees...................................... $1,662 $ 1,027
Deferred services fees..................................... 336 127
Deferred maintenance fees.................................. 6,021 9,043
------ -------
Total deferred revenues.................................. 8,019 10,197
Less current portion......................................... 4,686 5,717
------ -------
Noncurrent deferred revenues................................. $3,333 $ 4,480
====== =======
</TABLE>
The Company has in the past, and is expected in the future, to introduce
additional modules and product enhancements. As a result, deferred revenues
resulting from contracts executed in a prior period are recognized in the
quarter in which delivery of the new product occurs. This practice has, and
will in the future continue to cause fluctuations in revenues and operating
results from period to period.
F-10
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment consist of furniture, computers, other office
equipment, purchased software, and leasehold improvements. These assets are
depreciated on a straight-line basis over a two-, three-, or five-year life.
Improvements are amortized over the term of the lease. Depreciation expense
for the years ended December 31, 1995, 1996, and 1997 was $370,000, $640,000,
and $840,000, respectively.
Product Returns and Warranties
The Company provides warranties for its products after the software is
purchased for the period in which the customer maintains the Company's support
of the product. The Company generally supports only current releases and the
immediately prior releases of its products. The Company's license agreements
generally do not permit product returns by its customers.
Intangible Assets
Intangible assets include goodwill, and purchased software licensing rights.
Goodwill in the amount of approximately $290,000, resulting from the excess of
the purchase price over the value of the assets acquired and liabilities
assumed in the purchase of the 80% interest in the Services Subsidiary (Note
3) in 1995, is being amortized on a straight-line basis over a period of 60
months.
In 1996, the Company entered into a license and private label agreement to
purchase a nonexclusive and perpetual license for human resource, payroll, and
benefits software. The agreement allows the Company to modify and enhance the
software and to license these software products to its customers. The purchase
price of $2,000,000 is included in intangible assets and is being amortized on
a straight-line basis over the estimated useful life of 48 months.
Amortization expense related to the agreement for the years ended December 31,
1995, 1996, and 1997 was approximately $0, $417,000, and $500,000,
respectively. The amortization expense related to the agreement is included in
research and development expense in the accompanying consolidated statements
of operations.
Total amortization expense relating to all intangibles was $58,000,
$485,000, and $566,000 for the years ended December 31, 1995, 1996, and 1997,
respectively.
Capitalized Software Development Costs
Internal research and development expenses are charged to expense as
incurred. Computer software development costs are charged to research and
development expense until technological feasibility is established; after
which, remaining software production costs are capitalized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed." The
Company has defined technological feasibility as the point in time at which
the Company has a working model of the related product. Historically, the
internal development costs incurred during the period between the achievement
of technological feasibility and the point at which the product is available
for general release to customers have not been material. Accordingly, the
Company has concluded that the amount of internal development costs
capitalizable under the provisions of SFAS No. 86 was not material to the
financial statements for the years ended December 31, 1995, 1996, and 1997.
Therefore, the Company has charged all internal software development costs to
expense as incurred for the years ended December 31, 1995, 1996, and 1997.
The Company has in the past and may in the future purchase or license
software that may be modified and integrated with its products. If at the time
of purchase or license technological feasibility is met, the cost of the
software is capitalized and amortized over a period not to exceed its useful
life.
F-11
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Impairment of Long Lived and Intangible Assets
The Company periodically reviews the values assigned to long-lived assets,
including property and other assets, to determine whether any impairments are
other than temporary. Management believes that the long-lived assets in the
accompanying balance sheets are appropriately valued.
The Company periodically reviews the value assigned to goodwill and
intangible assets to determine whether events and circumstances have occurred
which indicate that the remaining estimated useful life of goodwill may
warrant revision or that the remaining balance of goodwill may not be
recoverable. The Company uses an estimate of undiscounted cash flows over the
remaining life of the goodwill and other intangible assets in measuring
whether the goodwill and other intangible assets are recoverable.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities include the following as of
December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Accounts payable.............................................. $ 261 $ 973
Accrued taxes, other than income taxes........................ 204 396
Accrued compensation, benefits, and commissions............... 865 1,636
Accrued other................................................. 673 1,593
------ ------
$2,003 $4,598
====== ======
</TABLE>
Historical and Pro Forma Net Loss Per Share
Historical basic and diluted net loss per share was computed in accordance
with SFAS No. 128, "Earnings per Share," using the weighted average number of
common shares outstanding. Historical basic and diluted net loss per share
does not include the impact of common stock equivalents, including redeemable
convertible preferred stock, as their effect would be antidilutive.
Pro forma basic and diluted loss per share was computed using historical
loss per share, adjusted to give effect to the conversion of the preferred
stock upon the closing of an initial public offering and the 225,000 shares
issued in the purchase of the remaining minority interest in the Services
Subsidiary (Note 11).
Net loss for basic and diluted earnings per share are the same for basic and
diluted earnings per share; therefore, no reconciliation of the numerator is
presented. The following is a reconciliation of the denominators used for
basic and diluted loss per share:
<TABLE>
<CAPTION>
PRO FORMA
1995 1996 1997 1997
----- ----- ----- ----------
<S> <C> <C> <C> <C>
Weighted Shares................................. 1,300 1,373 1,386 1,386
Conversion of Preferred Stock................... 0 0 0 4,761
----- ----- ----- -----
Total......................................... 1,300 1,373 1,386 6,147
===== ===== ===== =====
</TABLE>
Stock Based Compensation Plan
The Company accounts for its stock-based compensation plan under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Effective in fiscal year 1996, the Company adopted
F-12
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the disclosure option of SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 requires that companies which do not choose to
account for stock-based compensation as prescribed by the statement shall
disclose the pro forma effects on earnings and earnings per share as if SFAS
No. 123 had been adopted.
New Accounting Pronouncements
The American Institute of Certified Public Accountants has issued a
Statement of Position ("SOP") 97-2, "Software Revenue Recognition." SOP 97-2
supersedes SOP 91-1 "Software Revenue Recognition," and is effective for the
Company for transactions entered into after December 31, 1997. The Company
will adopt SOP 97-2 in the first quarter of 1998. The adoption of the
standards in the statement is not expected to have a significant impact on the
Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 is designed to improve the
reporting of changes in equity from period to period. SFAS No. 130 is
effective for the Company's fiscal year ending December 31, 1998. The Company
will adopt SFAS No. 130 for fiscal 1998. Management does not expect SFAS No.
130 to have a significant impact on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 requires that an enterprise disclose certain information about
operating segments. SFAS No. 131 is effective for financial statements for the
Company's fiscal year ending December 31, 1998. The Company does not expect
that SFAS No. 131 will require revision of prior disclosures.
2. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1995, 1996, and 1997, the Company
engaged in a number of transactions with McCall Consulting Group, Inc.
("McCall Consulting Group") and Technology Ventures LLC ("Technology
Ventures"), entities controlled by Joseph S. McCall, an officer and director
of the Company (the "Officer"). In the opinion of management, the rates, terms
and considerations of the transactions with related parties approximate those
with nonrelated entities.
During the years ended December 31, 1995, 1996 and 1997, McCall Consulting
Group provided the following for the Company: temporary help by administrative
employees and third-party contract labor services, the lease of office
equipment and office space and services in connection with the Company's sales
process.
During the years ended December 31, 1996 and 1997, Technology Ventures
provided recruiting and administrative services to the Company.
Expenses relating to services provided by McCall Consulting Group were as
follows for the years ended December 31, 1995, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Contract labor expense:
Implementation expense............................... $ 150 $ 0 $ 0
Research and development............................. 386 1,250 1,450
Commissions expense.................................... 495 0 0
Administrative services................................ 25 22 38
Office rental expense.................................. 0 96 71
Training............................................... 70 37 19
Software and equipment purchases and rental expense.... 0 24 33
------ ------ ------
Total.............................................. $1,126 $1,429 $1,611
====== ====== ======
</TABLE>
F-13
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amounts owed related to services provided by McCall Consulting Group were as
follows as of December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Accounts payable and accrued liabilities........................... $234 $52
==== ===
Accounts receivable................................................ $ 19 $ 2
==== ===
</TABLE>
Expenses relating to services provided by Technology Ventures were as
follows for the years ended December 31, 1995, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Recruiting services........................................... $ 0 $339 $ 0
Administrative services....................................... 19 23 23
--- ---- ---
Total....................................................... $19 $362 $23
=== ==== ===
</TABLE>
Amounts owed related to services provided by Technology Ventures were as
follows as of December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Accounts payable and accrued liabilities........................... $45 $ 2
=== ===
</TABLE>
3. SQL FINANCIAL SERVICES, INC.
On March 9, 1995, the Company issued 450,000 shares of common stock to
acquire certain intellectual property rights and tangible assets valued at
$300,000 from Technology Ventures, a related party controlled by the Officer.
Subsequent to the acquisition, the Company and Technology Ventures formed a
subsidiary, the Services Subsidiary, which is 80%-owned by the Company. The
Company contributed the acquired intellectual property rights and tangible
assets to the Services Subsidiary. Technology Ventures acquired the remaining
20% interest in the Services Subsidiary in exchange for a $75,000 note bearing
interest at 7.74%, payable annually, with the principal due in a lump sum
payment in March 2000. As of December 31, 1996 and 1997, the note was
reflected as a reduction of minority interest in consolidated subsidiary. The
Services Subsidiary provides implementation services for the Company's
software applications. The Services Subsidiary had income of approximately
$299,000, $1,080,000 and $2,390,000 for the years ended December 31, 1995,
1996 and 1997, respectively. The Services Subsidiary distributed dividends of
approximately $125,000, $1,169,000 and $1,448,000 during the years ended
December 31, 1995, 1996 and 1997, respectively, to the Company and the
related-party minority interest holder. Subsequent to December 31, 1997, the
minority interest in the Services Subsidiary was purchased by the Company. See
Note 11.
F-14
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INCOME TAXES
The Company files a consolidated tax return with its majority owned
subsidiaries. The components of the income tax provision (benefit) for the
years ended December 31, 1995, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal......................................... $ 0 $ 0 $ 0
State........................................... 0 0 0
------- ------- -------
0 0 0
------- ------- -------
Deferred:
Federal......................................... (2,542) (2,494) (1,287)
State........................................... (477) (468) (241)
------- ------- -------
(3,019) (2,962) (1,528)
------- ------- -------
Valuation allowance............................... 3,019 2,962 1,528
------- ------- -------
Total......................................... $ 0 $ 0 $ 0
======= ======= =======
</TABLE>
The following is a summary of the items which caused recorded income taxes
to differ from taxes computed using the statutory federal income tax rate for
the years ended December 31, 1995, 1996, and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Tax benefit at statutory rate........................ (34.0)% (34.0)% (34.0)%
Effect of:
State income tax, net.............................. (4.0) (4.0) (4.0)
Other.............................................. 0.5 0.4 1.1
Valuation allowance................................ 37.5 37.6 36.9
------ ------ ------
Provision (benefit) for income taxes................. 0.0 % 0.0 % 0.0%
====== ====== ======
</TABLE>
F-15
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets and liabilities are determined based on the difference
between the financial accounting and tax bases of assets and liabilities.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 8,306 $ 10,047
Allowance for doubtful accounts......................... 241 128
Deferred revenue........................................ 151 0
Depreciation and amortization........................... 167 326
Accrued liabilities..................................... 38 110
Other................................................... 5 3
------- --------
8,908 10,614
------- --------
Deferred tax liabilities:
Services Subsidiary..................................... (3) (181)
Amortization of purchased software...................... (5) (5)
------- --------
(8) (186)
------- --------
Net deferred tax assets before valuation allowance........ 8,900 10,428
Valuation allowance....................................... (8,900) (10,428)
------- --------
Net deferred tax assets................................... $ 0 $ 0
======= ========
</TABLE>
A valuation allowance is provided when it is determined that some portion or
all of the deferred tax assets may not be realized. Accordingly, since it
currently is more likely than not that the net deferred tax assets resulting
from the net operating loss carryforwards ("NOLs") and other deferred tax
items will not be realized, a valuation allowance has been provided in the
accompanying consolidated financial statements as of December 31, 1996 and
1997. The Company established the valuation allowance for the entire amount of
the deferred tax assets attributable to the NOL carryforwards, as well as for
the net deferred tax assets created as a result of temporary differences
between book and tax. The Company will recognize such income tax benefits when
realized. The NOLs at December 31, 1997 were approximately $26,439,000 and
expire at various dates through 2012.
The Company's ability to benefit from certain NOL carryforwards is limited
under Section 382 of the Internal Revenue Code when ownership of the Company
changed by more than 50%, as defined. The Company is limited to using the NOL
carryforwards of $15,800,000 generated prior to February 16, 1996. The
limitation does not permit the Company to use in excess of $1,600,000 of
certain NOL carryforwards per year. If the Company does not realize taxable
income in excess of the limitation in future years, certain NOLs will be
unrealizable. NOLs generated from February 16, 1996 through December 31, 1996
of $6,500,000 and NOLs generated from January 1, 1997 through December 31,
1997 of $4,139,000 may also be further limited as a result of the proposed
initial public offering.
F-16
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. DEBT
The Company's short- and long-term debt consists of the following as of
December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ -----
<S> <C> <C>
Notes payable to a bank, due in installments through December
31, 1997, secured by certain equipment, bearing interest at a
rate of prime plus 1.75% to 2%................................ $ 323 $ 0
Working capital line of credit with a bank expiring April 7,
1997, payable on demand, repaid with proceeds from the new
line-of-credit agreement, secured by all company assets,
bearing interest at a rate of prime plus 1%................... 635 0
Payable for purchased software licensing rights, payable in
installments over a two-year period through March 1998 at the
rate at which the Company licenses human resource, payroll and
benefits software to its customers............................ 1,855 1,632
Equipment notes payable to a leasing company, payable in
monthly installments of $27,000, with final principal
installments of $169,000 due March 2000 and August 2000,
secured by certain company assets, bearing interest at a
weighted average rate of 22.1%................................ 0 655
Note payable to a financing company, payable in monthly
installments of $1,500 through November 2000, secured by
certain company assets, bearing interest at 8%................ 0 51
Note payable to a former shareholder, secured by treasury
shares of common stock, bearing interest at 8%................ 93 0
------ -----
2,906 2,338
Less short-term debt........................................... 958 0
Less current portion of long-term debt......................... 855 1,841
------ -----
$1,093 $ 497
====== =====
</TABLE>
During 1997, the Company entered into a new line-of-credit agreement with a
bank bearing interest at prime (8.5% at December 31, 1997) plus 2.75% or 3%,
depending on certain terms, as defined. The new line-of-credit agreement with
the bank provides for maximum borrowings not to exceed the lesser of
$3,000,000 or 80% of eligible license and implementation services revenue
accounts receivable plus 65% of eligible maintenance revenue accounts
receivable and is collateralized by substantially all the Company's assets.
The Company had $0 outstanding under the line of credit and availability of
approximately $1,950,000 under the line of credit at December 31, 1997.
Under the provisions of the line-of-credit agreement, the Company must
comply with certain restrictive covenants. These covenants, among other
things, require the Company to maintain specified levels of profitability.
During 1997, the Company entered into debt and lease agreements with a
leasing company. The debt and lease agreements provide total borrowing
capability of up to $1,000,000 for equipment purchases. As of December 31,
1997, the Company had approximately $655,000 outstanding under these
agreements and $345,000 available for future equipment purchases.
During 1997, the Company paid all amounts outstanding under the note payable
to a former shareholder. In accordance with the agreement, the Company retired
the treasury shares provided as collateral for the note.
F-17
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate maturities of long-term debt at December 31, 1997 are as
follows (in thousands):
<TABLE>
<S> <C>
December 31:
1998................................................................ $1,841
1999................................................................ 256
2000................................................................ 241
------
$2,338
======
</TABLE>
6. ROYALTY AGREEMENTS
The Company is a party to royalty and other equipment manufacturer
agreements for certain of its applications. The Company incurred a total of
$227,000, $355,000 and $1,109,000 in royalty fees for the years ended December
31, 1995, 1996 and 1997, respectively, pursuant to these agreements. The
royalties and fees paid are included in cost of revenues--license fees in the
accompanying statements of operations.
During 1992, the Company entered into a royalty agreement with a former
stockholder. This agreement grants a 3.75% royalty on certain revenues of the
Company, less certain discounts or commissions, collected from any transfer,
sale, or licensing of specific modules of the software. The Company incurred
royalties of $135,000, $177,000 and $295,000 for the years ended December 31,
1995, 1996 and 1997, respectively, pursuant to this royalty agreement.
7. EMPLOYEE BENEFIT PLANS
The Company sponsors the SQL Financials 401(k) Plan (the "Plan"), a defined
contribution plan covering substantially all employees of the Company. Under
the Plan's deferred compensation arrangement, eligible employees who elect to
participate in the Plan may contribute between 2% and 20% of eligible
compensation, as defined, to the Plan. The Company, at its discretion, may
elect to provide for either a matching contribution or discretionary profit
sharing contribution or both. During the years ended December 31, 1995, 1996,
and 1997, the Company did not make matching or discretionary profit sharing
contributions to the Plan.
8. STOCK OPTION PLAN
The Company has a stock option plan for employees, consultants, and other
individual contributors to the Company which enables the Company to grant up
to 1,652,700 qualified and nonqualified incentive stock options (the "1992
Plan"). The qualified options are to be granted at an exercise price not less
than the fair market value at the date of grant. The nonqualified options are
to be granted at an exercise price of not less than 85% of the fair market
value at the date of grant. Fair market values are to be determined by the
board of directors. The stock option committee determines the period within
which options may be exercised, but no option may be exercised more than ten
years from the date of grant. The stock option committee also determines the
period over which the options vest. Options are generally exercisable for
seven years from the grant date and generally vest over a period of four years
at a rate of 20% for years one and two and 30% for years three and four. At
December 31, 1997, the Company had options outstanding to acquire 1,368,744
shares of common stock under the stock option plan and 256,794 shares
available for grant.
The stock option plan also provides for stock purchase authorizations and
stock bonus awards. As of December 31, 1997, no such awards have been granted
under the plan.
F-18
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company adopted the 1998 Stock Incentive Plan (the "1998 Plan") in the
first quarter of 1998. Under the 1998 Plan, the board of directors have the
flexibility to determine the type and amount of awards to be granted to
eligible participants, who must be employees of the Company or its
subsidiaries. The 1998 Plan provides for grants of incentive stock options,
nonqualified stock options, restricted stock awards, stock appreciation rights
and restricted units. The Company has authorized and reserved for issuance an
aggregate of 200,000 shares of common stock under the 1998 Plan, to be
automatically increased to 1,000,000 shares of common stock upon completion of
the offering. See Note 11. The aggregate number of shares of common stock that
may be granted through awards under the 1998 Plan to any employee in any
calendar year may not exceed 200,000 shares. No options have been granted
under the 1998 Plan. The 1998 Plan will continue in effect until February 2008
unless sooner terminated.
The Company applies the principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," in accounting for its plan. Accordingly, the
Company recognizes deferred compensation when the exercise price of the
options granted is less than the fair market value of the stock at the date of
grant, as determined by the board of directors. The deferred compensation is
presented as a component of equity in the accompanying balance sheets and is
amortized over the periods expected to be benefited, generally the vesting
period of the options.
During 1996 and 1997, the Company granted options with exercise prices below
the fair market value at the date of grant. The fair market value of the
Company's common stock was determined by an independent appraisal for the
period from August 1996 to December 1997. These independent appraisals
resulted in the following values:
<TABLE>
<CAPTION>
FAIR
PERIOD VALUE
------ -----
<S> <C>
August 28, 1996 through December 4, 1996.............................. $1.23
December 5, 1996 through July 23, 1997................................ 1.43
July 24, 1997 through November 9, 1997................................ 2.00
November 10, 1997 through December 31, 1997........................... 3.67
</TABLE>
Accordingly, the Company recorded deferred compensation of $148,000 and
$277,000 for options granted during the years ended December 31, 1996 and
1997, respectively. The Company amortizes deferred compensation over four
years, the vesting period of the options. The Company recognized $58,000 of
compensation expense related to option grants for the year ended December 31,
1997.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
For SFAS No. 123 purposes, the fair value of each option grant has been
estimated as of the date of grant using the Black Scholes option pricing model
with the following assumptions:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Dividend yield......................... 0% 0% 0%
Expected volatility.................... 70 70 65
Risk free interest rate at the date of
grant................................. 5.39%-7.60% 5.27%-6.69% 5.78%-6.82%
Expected life.......................... Five years Five years Four years
</TABLE>
Using these assumptions, the fair values of the stock options granted during
the years ended December 31, 1995, 1996, and 1997 are $76,000, $355,000, and
$699,000, respectively, which would be amortized over the vesting period of
the options. Had compensation cost been determined consistent with the
provisions of SFAS
F-19
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
No. 123, the Company's pro forma net loss and net loss per share in accordance
with SFAS No. 123 for the years ended December 31, 1995, 1996, and 1997 would
have been as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net loss:
As reported.................................... $(8,049) $(7,879) $(4,110)
Pro forma in accordance with SFAS No. 123...... (8,059) (7,911) (4,269)
Basic and diluted net loss per share:
As reported.................................... (6.19) (5.74) (2.97)
Pro forma in accordance with SFAS No. 123...... (6.20) (5.76) (3.08)
</TABLE>
Because SFAS No. 123 has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation cost may not be
representative of that expected in future years.
A summary of changes in outstanding options during the years ended December
31, 1995, 1996, and 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES PRICE EXERCISEPRICE
--------- ----------- -------------
<S> <C> <C> <C>
December 31, 1994..................... 220,326 $0.67 $0.67
Granted............................. 220,875 $0.67 $0.67
Canceled............................ (140,661) $0.67 $0.67
Exercised........................... (6,000) $0.67 $0.67
---------
December 31, 1995..................... 294,540 $0.67 $0.67
Granted............................. 559,830 $0.67-$1.00 $0.87
Canceled............................ (63,579) $0.67 $0.67
Exercised........................... (4,350) $0.67 $0.67
---------
December 31, 1996..................... 786,441 $0.67-$1.00 $0.81
Granted............................. 802,845 $1.00-$3.67 $2.96
Canceled............................ (203,730) $0.67-$3.67 $0.95
Exercised........................... (16,812) $0.67-$1.00 $0.68
---------
December 31, 1997..................... 1,368,744 $0.67-$3.67 $2.05
=========
Vested and exercisable at December 31,
1997................................. 264,369 $0.67-$1.00 $0.73
========= =========== =====
</TABLE>
F-20
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the exercise price range, weighted average
exercise price and remaining contractual lives by year of grant for the number
of options outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE WEIGHTED REMAINING
NUMBER PRICE AVERAGE CONTRACTUAL
YEAR OF GRANT OF SHARES RANGE PRICE LIFE (YEARS)
------------- --------- ---------- -------- ------------
<S> <C> <C> <C> <C>
1995 and prior:
Options granted at fair
value........................ 222,765 $ 0.67 $0.67 4.01
1996:
Options granted at fair
value........................ 134,895 0.67 0.67 5.42
Options granted at less than
fair value................... 249,489 1.00 1.00 5.93
1997:
Options granted at less than
fair value................... 209,625 1.00-2.00 1.45 6.40
Options granted at fair
value........................ 551,970 3.67 3.67 6.86
---------
Total....................... 1,368,744 0.67-3.67 2.05 6.01
=========
</TABLE>
Based on the appraised values, the weighted average grant date fair value of
options granted during the years ended December 31, 1996 and 1997 was $1.14
and $3.04, respectively.
Subsequent to December 31, 1997, the Company granted options to acquire
182,250 shares of common stock under the 1992 Plan to certain employees at an
average exercise price equal to $4.45.
9. STOCKHOLDERS' EQUITY
STOCKHOLDERS' AGREEMENT
All owners of the Company's common stock are parties to the Company's
stockholders' agreement. This agreement provides, among other things, for a
right of first refusal to the Company and then to all other stockholders of
the Company to purchase any selling stockholders' shares at a price equal to
that agreed to by a third party. The stockholders' agreement terminates upon
an initial public offering, with the exception of the registration rights of
the shares covered by the agreement.
All the holders of common stock are party to a stockholders' voting
agreement dated September 1, 1995 whereby the Officer is named voting trustee
and votes all common shares. As of December 31, 1997, the Officer controlled
the right to vote 22.6% of the Company's outstanding voting stock, after
dilution from the preferred stockholders. The stockholders' agreement naming
the Officer as voting trustee terminates upon the consummation of an initial
public offering (Note 11).
PREFERRED STOCK
The Company is authorized to issue 3,500,000 shares of preferred stock. Of
this authorized amount, the Company has issued and outstanding 262,500 of
Series A Preferred Stock ("Series A"), 454,888 of Series B Preferred Stock
("Series B"), 428,572 of Series C Preferred Stock ("Series C"), 701,755 of
Series D Preferred Stock ("Series D"), 697,675 of Series E Preferred Stock
("Series E"), and 628,809 of Series F Preferred Stock ("Series F") at December
31, 1997.
Preferred stockholders are entitled to participate in any dividends paid to
common stockholders and have the voting rights and powers of the common
stockholders, as defined. Preferred stockholders receive preferential
F-21
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
distributions in the event of liquidation of the Company for $4 per share of
Series A, $6.65 per share of Series B, $7 per share of Series C, $8.55 per
share of Series D, $8.60 per share of Series E, and $9.60 per share of Series
F, plus any unpaid declared dividends.
Each share of preferred stock is convertible at the option of the holder at
any time into the number of common shares which results from the effective
conversion rate, as defined. The conversion values at December 31, 1997 are $4
for Series A, $6.65 for Series B, $7 for Series C, $8.55 for Series D, $8.60
for Series E, and $9.60 for Series F. The conversion prices at December 31,
1997 are $2.67 for Series A, $4.43 for Series B, $4.67 for Series C, $5.70 for
Series D, $5.73 for Series E, $6.40 for Series F. Further, in accordance with
the Company's certificate of incorporation, the preferred stock will
automatically convert at the defined conversion rate if the Company
consummates an initial public offering with a price per share and gross
proceeds in excess of defined thresholds. The Company is in the process of
obtaining waivers in regards to these thresholds and redemption rights.
Certain quantities of all series of preferred shares may be put to the
Company by the preferred stockholders within 30 days following the preferred
redemption dates for an amount per share equal to the conversion value of the
preferred stock plus any declared but unpaid dividends. The preferred
redemption dates and the applicable quantities of shares eligible for
redemption, as defined in the certificate of incorporation, are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING VALUE OF
REDEEMABLE STOCK
CONVERTIBLE ELIGIBLE FOR
PREFERRED STOCK REDEMPTION
--------------- ------------
<S> <C> <C>
Preferred redemption dates:
September 30, 1998.......................... 33.3% $ 8,371
September 30, 1999.......................... 50.0 12,556
September 30, 2000.......................... 100.0 25,112
Date of termination of employment of the
Officer, as defined.......................... 100.0 25,112
</TABLE>
SERIES A
On November 24, 1992, pursuant to a stock purchase agreement, the Company
sold 250,000 shares of Series A to Greylock Limited Partnership ("Greylock")
for an aggregate sum of $1,000,000. Stock issuance costs of $62,000 were
incurred in connection with the sale of the preferred shares, resulting in net
proceeds of $938,000. Additionally, on June 30, 1993, pursuant to a stock
purchase agreement, the Company sold 12,500 shares of Series A for an
aggregate sum of $50,000.
SERIES B
On September 21, 1993, pursuant to a stock purchase agreement, the Company
sold a total of 454,888 shares of Series B at a price of $6.65 per share to
Greylock and additional third party investors. The aggregate proceeds from the
sale of this stock totaled $3,025,000. Stock issuance costs of $30,000 were
incurred in connection with the sale of the preferred shares, resulting in net
proceeds of $2,995,000.
SERIES C
On April 1, 1994, pursuant to a stock purchase agreement, the Company sold a
total of 428,572 shares of Series C at a price of $7 per share to certain
existing stockholders and additional third-party investors, resulting in
aggregate proceeds of $3,000,000. Stock issuance costs of $16,000 were
incurred, resulting in net proceeds of $2,984,000.
F-22
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On August 1, 1994, the Company sold 87,500 shares of Series C Preferred
Stock to Tech Ventures for a purchase price of $7.00 per share, the same price
per share as sold to the Series C investors in April 1994. Tech Ventures paid
the purchase price through the delivery of a secured promissory note. The note
was guaranteed by an officer of the Company who controlled Tech Ventures and
is secured by the assets of an entity controlled by such officer. As of
December 31, 1996 and 1997, the note was reflected as a reduction of
stockholders' equity in the accompanying balance sheets. The Company was
almost entirely dependent at the time on the implementation services of McCall
Consulting Group, a wholly owned subsidiary of Tech Ventures who was
performing substantially all of the implementation services for the Company's
software. In July of 1995 at the request of and as a financial accommodation
to Tech Ventures, the Company converted the 87,500 shares of Common Stock into
a warrant to purchase such shares on the same terms and conditions as set
forth in the promissory note. Based on its dependency on McCall Consulting
Group, the Company believed it in its best interest to maintain Tech Ventures'
long-term interest in the success of the Company through a continuing equity
interest. The note was amended effective July 31, 1995 so that the principal
amount is due and payable only upon the exercise of the warrant. The warrant
has been reflected in the statement of stockholders' deficit, with the
corresponding note as a reduction of stockholders' deficit. The warrant
expires on the earlier of August 1, 1999 or an initial public offering.
SERIES D
On January 24, 1995, the Company received an advance on a pending equity
financing arrangement. The Company issued promissory notes to certain existing
preferred stockholders totaling $750,000 at an interest rate of 6%. In
addition, the Company issued warrants to the above parties to purchase 17,544
shares of Series D at a price of $8.55 per share.
On February 21, 1995, the Company issued 701,755 shares of Series D for
$8.55 per share to certain existing preferred stockholders and additional
third party investors. Of the proceeds, $750,000 was used to repay the advance
on financing discussed above. Gross proceeds before stock issuance costs were
$6,000,000. Stock issuance costs of $73,000 were incurred, resulting in net
proceeds of $5,927,000.
On January 5, 1996, the Company entered into an agreement with its bank to
extend its old working capital line of credit. As part of the agreement, the
Company granted the bank a warrant to purchase 8,201 shares of Series D
convertible preferred stock at $8.55 per share. The warrant expires on January
4, 1999.
SERIES E
On February 15, 1996, the Company issued 697,675 shares of Series E for
$8.60 per share to certain existing preferred stockholders and additional
third party investors. Of the proceeds, $2,000,000 was used to repay an
advance on the financing received in 1995. Proceeds from the sale of this
stock, before stock issuance costs, were $6,000,000. Stock issuance costs of
$34,000 were incurred, resulting in net proceeds of $5,966,000.
On March 28, 1997, the Company entered into an agreement with its bank to
amend its working capital line of credit. As part of the agreement, the
Company granted the bank a warrant to purchase 8,721 shares of Series E
convertible preferred stock at $8.60 per share. The warrant expires on March
28, 2000.
SERIES F
On June 5, 1997 and August 5, 1997, the Company received advances on a
pending equity financing arrangement. The Company issued convertible
promissory notes to certain existing preferred stockholders totaling
approximately $2,000,000 and bearing interest at a rate of 8.5%. The notes
were convertible upon the consummation of a private equity offering providing
gross proceeds in excess of defined thresholds. In connection with the
issuance of the notes, the Company issued warrants to the above parties to
purchase 46,821 shares of Series F at a price of $9.60 per share. The value of
the warrants of $40,000 was recorded as a debt discount and was amortized over
the period in which the convertible notes were outstanding. For the year ended
December 31, 1997, the Company amortized $18,000 of the discount to interest
expense.
F-23
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On September 27, 1997, the Company issued 416,668 shares of Series F to
third party investors for $9.60 per share. Upon issuance of Series F to the
third party investors, the aforementioned convertible notes and accrued
interest were converted to 212,141 shares of Series F at $9.60 per share.
Gross proceeds before stock issuance costs were $6,037,000. Stock issuance
costs of $50,000 were incurred, resulting in net proceeds of $5,987,000.
10. COMMITMENTS AND CONTINGENCIES
LEASES
On March 20, 1997, the Company entered into an 85 month lease for office
space beginning on June 15, 1997. The lease requires annual payments of
$386,000 beginning July 1, 1997 for the first 12 month period with an increase
of 3% in each 12 month period after the first year. The Company is also
receiving the first month's rent free. The 3% escalation and the first month's
free rent are recognized on a straight line basis over the life of the lease.
Lease expenses relate to the lease of office space, telephone, and computer
equipment. Rents charged to expense were approximately $576,000, $749,000, and
$772,000 for the years ended December 31, 1995, 1996, and 1997, respectively.
Aggregate future minimum lease payments under noncancelable operating leases
as of December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
December 31:
1998................................................................ $ 616
1999................................................................ 501
2000................................................................ 513
2001................................................................ 526
2002................................................................ 491
Thereafter............................................................ 841
------
$3,488
======
</TABLE>
LETTERS OF CREDIT
At December 31, 1997, standby letters of credit of approximately $290,000
and $210,000 had been issued in accordance with provisions under certain of
the Company's lease and financing agreements. The letters of credit of
$290,000 and $210,000 expire in July 1998 and August 1998, respectively.
PRODUCT LIABILITY
As a result of their complexity, software products may contain undetected
errors or failures when first introduced or as new versions are released.
There can be no assurance that, despite testing by the Company and testing and
use by current and potential customers, errors will not be found in new
financial applications after commencement of commercial shipments or, if
discovered, that the Company will be able to successfully correct such errors
in a timely manner or at all. The occurrence of errors and failures in the
Company's products could result in loss of or delay in the market acceptance
of the Company's financial applications, and alleviating such errors and
failures could require significant expenditure of capital and other resources
by the Company. The consequences of such errors and failures could have a
material adverse effect on the Company's business, results of operations and
financial condition.
F-24
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LITIGATION
The Company is subject to litigation related to matters arising in the
normal course of business, including product liability. As of December 31,
1997, management is not aware of any unasserted, asserted, or pending material
litigation or claims against the Company.
11. SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING
The Company is planning an initial public offering (the "Offering") of its
common stock which is targeted for completion in the second quarter of 1998.
There can be no assurance that the Offering will be completed.
TRANSACTIONS WITH OFFICER
In February 1998, the Company entered into an agreement with the Officer
whereby the Officer resigned as the Company's chief executive officer and as
chairman, chief executive officer and manager of the Services Subsidiary. The
Officer agreed to remain an employee of the Company at his current salary,
including incentive compensation, until the completion of the Offering, at
which time he will become a consultant to the Company for a period of one year
pursuant to the terms of an independent contractor agreement. For his
consulting services, the Company will pay the Officer the sum of $125,000 over
the one year period, with the ability to earn an additional $100,000 in
incentive compensation if certain revenue targets are met by the Company. The
Officer has agreed to continue to serve on the Company's board of directors
for at least six months following the termination of his employment. In
recognition of past services to the Company, the termination of the voting
trust discussed in Note 9, and resignations of certain positions noted above,
the Company agreed to pay the Officer a lump sum of $225,000 on or before June
30, 1998 and will pay the Officer as severance an additional $75,000, payable
in semi monthly installments over a one year period beginning on the effective
date of the termination of his employment with the Company.
CONVERSION OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
In accordance with the Company's certificate of incorporation, all
redeemable convertible preferred shares will convert to common shares on the
closing date of the initial public offering if the initial public offering
meets certain defined thresholds. The unaudited pro forma consolidated balance
sheet as of December 31, 1997 assumes that the conversion occurred on December
31, 1997. The unaudited pro forma statement of operations for the year ended
December 31, 1997 assumes that the conversion of the shares occurred at the
beginning of the period. In the opinion of management, all adjustments
necessary to present fairly such unaudited pro forma balance sheet and
statement of operations have been made.
STOCK SPLIT
On February 19, 1998, the Company's board of directors approved a three-for-
two stock split on the Company's common stock to be affected in the form of a
stock dividend. All share and per share data in the accompanying financial
statements have been adjusted to reflect the split. The effect of the split is
presented retroactively within stockholders' deficit at December 31, 1994 by
transferring the par value for the additional shares issued from the
additional paid-in capital account to the common and preferred stock accounts.
ACQUISITION OF MINORITY INTEREST IN THE SERVICES SUBSIDIARY
On February 5, 1998, the Company purchased Technology Ventures' 20%
ownership in the Services Subsidiary for a purchase price of $2,555,750. In
exchange for the 20% interest in the Services Subsidiary, the
F-25
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company issued 225,000 shares of common stock to Technology Ventures and
granted Technology Ventures a warrant to purchase an additional 300,000 shares
of common stock at a purchase price of $3.67 per share. The warrant expires on
February 5, 2000. In addition, the Company agreed to pay Technology Ventures
the sum of $1,100,000 February 5, 2000 pursuant to a nonnegotiable,
noninterest-bearing subordinated promissory note (the "Note"). Technology
Ventures has agreed not to sell any of its shares for a period of 180 days
after the effective date of the Offering. In addition, prior to the purchase
and sale, the Services Subsidiary distributed approximately $241,000 to
Technology Ventures as the accumulated unpaid profits earned by the Services
Subsidiary prior to February 5, 1998. The Company also agreed to pay
Technology Ventures a monthly sum equal to 20% of the net profits of the
Services Subsidiary until the earlier of (i) the completion of the Offering or
(ii) a sale of the Company. Any payments made to Technology Ventures for this
20% of net profits of the Services Subsidiary will be recorded by the Company
as additional purchase price at the time of payment. All of the material terms
of the purchase and sale were agreed to by Technology Ventures and the Company
in January 1998, and the purchase and sale have been accounted for in the
first quarter of 1998 based on a valuation of the common stock issued in such
transaction at $4.67 per share at such time. In February 1998, the Services
Subsidiary also paid Technology Ventures approximately $33,000 as
consideration for the termination of a management services agreement entered
into between the parties in March 1995, and Technology Ventures paid in full
to the Services Subsidiary the remaining principal balance and all accrued
interest due under its $75,000 promissory note (the "Tech Ventures Note").
The purchase price of $2,556,000 was determined by including the following:
(i) 225,000 shares of common stock at $4.67 per share or $1,050,000, (ii) a
note payable of $1,100,000 discounted for no interest at 9.0% for two years
resulting in a net note payable of $926,000, (iii) cash paid of $33,000, and
(iv) a warrant valued at $547,000, determined using the Black Scholes Model
using expected volatility of 65%, an expected term of two years, and a risk
free rate of 5.5% to determine a value per share of $1.823 or a total value of
$547,000. The shares of common stock issued to Technology Ventures have been
included in the pro forma basic and diluted net loss per share for the year
ended December 31, 1997. The Company has accounted for the transaction using
the purchase method of accounting. The purchase price has been allocated to
assets acquired and liabilities assumed based on the fair market value at the
date of acquisition. Goodwill resulting from the transaction in the amount of
$2,481,000 will be amortized over 15 years. The Company will impute interest
on the note payable and recognize the interest over the term of the note, two
years. The unaudited pro forma consolidated balance sheet as of December 31,
1997 assumes the acquisition occurred on December 31, 1997. In the opinion of
management, all adjustments necessary to present fairly such unaudited pro
forma balance sheet and statement of operations have been made.
UNAUDITED PRO FORMA INFORMATION
The accompanying unaudited pro forma consolidated balance sheet as of
December 31, 1997 is based on the Company's historical balance sheet as of
December 31, 1997, as adjusted to reflect (i) the goodwill of $2,481,000 to be
recognized upon the acquisition of the minority interest in the Services
Subsidiary, (ii) the elimination of the minority interest of $243,000 related
to the 20% interest of Technology Ventures in the Services Subsidiary,
including the distribution of profits earned by the Services Subsidiary
through December 31, 1997 of $205,000, the repayment by Technology Ventures of
the outstanding principal balance of the Tech Ventures Note of $37,000, and
the elimination of Technology Ventures initial $75,000 capital contribution,
and (iii) the issuance of 4,761,283 shares of common stock by the Company upon
the conversion of all of the outstanding redeemable convertible preferred
stock on the effective date of the Offering. In the opinion
F-26
<PAGE>
SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of management, all adjustments necessary to present fairly such unaudited pro
forma balance sheet have been made. These unaudited pro forma consolidated
financial statements are provided for informational purposes only and do not
purport to be indicative of the results that would have actually been obtained
had the transactions been completed on the dates indicated or that may be
expected to occur in the future. The pro forma information does not give
effect to the proceeds expected to be received by the Company from completion
of the initial public offering.
F-27
<PAGE>
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- -------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
Offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been au-
thorized by the Company or the Underwriters. This Prospectus does not consti-
tute an offer to sell or a solicitation of an offer to buy any securities
other than the shares of Common Stock to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction in which such an offer or so-
licitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company or that the infor-
mation contained herein is correct as of any time subsequent to the date here-
of.
----------------
TABLE OF CONTENTS
----------------
<TABLE>
<S> <C>
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Conditions and Results
of Operations............................................................ 22
Business.................................................................. 32
Management................................................................ 43
Principal Stockholders.................................................... 50
Certain Transactions...................................................... 53
Description of Capital Stock.............................................. 54
Shares Eligible for Future Sale........................................... 56
Underwriting.............................................................. 58
Legal Matters............................................................. 59
Experts................................................................... 59
Additional Information.................................................... 59
Index to Combined Financial Statements.................................... F-1
</TABLE>
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in addi-
tion to the obligation of dealers to deliver a Prospectus when acting as Un-
derwriters and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,500,000 SHARES
[LOGO]
COMMON STOCK
----------------
PROSPECTUS
----------------
NationsBanc Montgomery Securities LLC
Piper Jaffray Inc.
UBS Securities
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
629,625 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.0001 PER SHARE)
This Prospectus relates to 629,625 shares (the "Shares") of Common Stock,
$.0001 par value per share (the "Common Stock"), of SQL Financials
International, Inc., a Delaware corporation (the "Company"), that may be
offered and sold from time to time by the selling stockholders named herein
(the "Selling Stockholders"). On the effective date of this offering under a
separate prospectus the Company is also offering in a firmly underwritten
public offering 2,500,000 shares of its Common Stock. In connection with this
firmly underwritten public offering, the Company has also granted to the
underwriters a 30-day option to purchase up to 375,000 additional shares of
Common Stock solely to cover over-allotment, if any. The proceeds from the
firmly underwritten public offering will be used by the Company for general
corporate purposes and working capital, which may include future acquisitions.
The Company will not receive any proceeds from the sale of the Shares by the
Selling Stockholders.
Pursuant to the Prospectus, the Shares may be sold by the Selling
Stockholders, from time to time while the Registration Statement to which this
Prospectus relates is effective, on the Nasdaq National Market or otherwise at
prices and terms prevailing at the time of sale, at prices and terms related
to such prevailing prices and terms, in negotiated transactions or at fixed
prices that may be higher or lower than prevailing prices at the time of sale.
Although the Selling Stockholders have advised the Company of the manner in
which they currently intend to sell the Shares pursuant to this Registration
Statement, the Selling Stockholders may choose to sell all or a portion of
such Shares from time to time in any manner described herein. The methods by
which the Shares may be sold by the Selling Stockholder include, without
limitation: (i) ordinary brokerage transactions, which may include long or
short sales, (ii) transactions which involve crosses or block trades or any
other transactions permitted by the Nasdaq National Market or such other
market on which the Common Stock is then quoted, (iii) purchases by a broker
or dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus, (iv) "at the market" to or through market makers
or into an existing market for the Common Stock, (v) in other ways not
involving market makers or established trading markets, including direct sales
to purchasers or sales effected through agents, (vi) through transactions in
the settlement options or swaps or other derivatives (whether exchange-listed
or otherwise), or (vii) any combination of any such methods of sale. In
effecting sales, brokers and dealers engaged by any of the Selling
Stockholders may arrange for other brokers or dealers to participate. Brokers
or dealers may receive commissions or discounts from the Selling Stockholders
to sell a specified number of Shares at a stipulated price per share, and, to
the extent such a broker or dealer is unable to do so acting as agent for the
Selling Stockholder, may purchase as principal any unsold shares at the price
required to fulfill such broker or dealer commitment to the Selling
Stockholder. Brokers or dealers who acquire shares as principals may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other brokers or dealers, including transactions of the nature
described above) in the over-the-counter market, in negotiated transactions or
otherwise, at market prices and terms prevailing at the time of sale, at
prices and terms related to such prevailing prices and terms, in negotiated
transactions or at fixed prices and in connection with the methods as
described above. The Shares may be sold directly by any of the Selling
Stockholders or by pledgees, donees, transferees or other successors in
interest. The Selling Stockholders and brokers and dealers through whom sales
of Shares may be effected may be deemed to be "underwriters," as defined under
the Securities Act of 1933, as amended (the "Securities Act"), and any profits
realized by them in connection with the sale of the Shares may be considered
to be underwriting compensation.
The agreements between the Company and the Selling Stockholders referenced
herein provides that the Company will indemnify the Selling Stockholders
against certain liabilities, including civil liabilities under the Securities
Act, or, if such indemnification is held by a court to be unavailable, will
contribute to the amount of such liabilities and expenses. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers, or persons controlling the Company pursuant
to the foregoing provisions, its certificate of incorporation or bylaws, the
Company has been informed that in the opinion the Commission such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
The Common Stock of the Company is quoted on the Nasdaq National Market
under the symbol "SQLF." On , 1998, the reported closing sales price of
the Common Stock on the Nasdaq National Market was $ per share.
The Company will bear all expenses (other than underwriting discounts and
selling commissions, state and local transfer taxes, and fees and expenses of
counsel or other advisors to the Selling Stockholders) in connection with the
registration of the Shares, which are estimated to be $ .
All dealers effecting transactions in the securities offered hereby may be
required to deliver a copy of this Prospectus. The names of any agent or
dealer and applicable commissions or discounts and other information with
respect to a particular offer may be required to be set forth in an
accompanying Prospectus Supplement.
Neither delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED.
SEE "RISK FACTORS" COMMENCING ON PAGE FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Date of this Prospectus is , 1998
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares of
Common Stock offered hereby.
SELLING STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information regarding the beneficial ownership of the Company's Common Stock
by each Selling Stockholder.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS (1) AFTER OFFERINGS (1)
------------------------- -------------------------
NUMBER OF NUMBER OF
SHARES OF PERCENT OF SHARES TO SHARES OF PERCENT OF
NAME AND ADDRESS COMMON STOCK COMMON STOCK BE SOLD COMMON STOCK COMMON STOCK
- ---------------- ------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Roy Armitage............ 1,005 * 1,005 -- --
1377 Lake James Drive
Virginia Beach, VA
23464
Judith Bassoul.......... 600 * 600 -- --
5265 Linnadine Way
Norcross, GA 30092
M. Alan Bond............ 6,000 * 6,000 -- --
980 Walther Blvd.
Apt. #1317
Lawrenceville, GA 30043
Scott J. Brady.......... 104,350 -- 89,100 15,250 *
6154 Poplar Bluff
Circle
Norcross, GA 30092
Michael P. Caffyn....... 1,005 * 1,005 -- --
2201 Bierce Drive
Virginia Beach, VA
23454
Gerald E. Cassidy....... 1,740 * 1,740 -- --
4940 Evergreen Valley
Way
Alpharetta, GA 30202
Gregory M. Corley....... 390 * 390 -- --
83 Waddell St., N.E.
Atlanta, GA 30307
Mary B. Flock........... 75 * 75 -- --
1511 S.W. Park Avenue,
#1303
Portland, OR 97201
Jeffrey A. Fourman...... 1,680 * 1,680 -- --
1212 N. Grove
Oak Park, IL 60302
Robert J. Fousch, Jr.... 45 * 45 -- --
4617 Howell Farms Drive
Acworth, GA 30101
Wesley C. Hewatt........ 45 * 45 -- --
5694 Kilrush Court
Mableton, GA 30126
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP OWNERSHIP
PRIOR TO AFTER
OFFERINGS (1) OFFERINGS (1)
-------------- --------------
NUMBER NUMBER
OF OF
SHARES PERCENT SHARES PERCENT
OF OF SHARES OF OF
COMMON COMMON TO BE COMMON COMMON
NAME AND ADDRESS STOCK STOCK SOLD STOCK STOCK
- ---------------- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Laurie Maceyko Hood....................... 150 * 150 -- --
110 Huntington Road, N.E.
Atlanta, GA 30309
Tracey D. Jackson......................... 900 * 900 -- --
510 Shale Court
Alpharetta, GA 30202
Jeffrey M. Kirby.......................... 600 * 600 -- --
21 Beacon Street
Apt. 5-S
Boston, MA 02108
John M. McCall............................ 7,500 * 7,500 -- --
3019 Blandwood Drive
Valdosta, GA 31601
Rudolph Russell McCall ................... 7,500 * 7,500 -- --
3019 Blandwood Drive
Valdosta, GA 31601
James Patrick McVey....................... 300 * 300 -- --
4037 Dream Catcher Drive
Woodstock, GA 30189
Denise L. Miles........................... 615 * 615 -- --
3346 Muscadine Trail
Kennasaw, GA 30144
Nader Oteifa.............................. 1,230 * 1,230 -- --
1789 Chestwood Drive
Virginia Beach, VA 23456
Ronnie D. Philpot......................... 342 * 342 -- --
212 Melrah Hill
Peachtree City, GA 30269
Gary J. Rogers............................ 8,400 * 8,400 -- --
17534 Charity Lane
Germantown, MD 20874
Janet V. Smith............................ 390 * 390 -- --
7315 Chattahoochee Bluff Drive
Atlanta, GA 30350
Noreen M. Snellman........................ 1,800 * 1,800 -- --
1100 Oakhavern Drive
Roswell, GA 30075
Nancy W. Swager........................... 33 * 33 -- --
5345 Myras Court
Cumming, GA 30040
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS (1) AFTER OFFERINGS (1)
------------------------- -------------------------
NUMBER OF SHARES NUMBER OF
SHARES OF PERCENT OF TO BE SHARES OF PERCENT OF
NAME AND ADDRESS COMMON STOCK COMMON STOCK SOLD COMMON STOCK COMMON STOCK
- ---------------- ------------ ------------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Technology Ventures,
L.L.C. (2)............ 928,950 497,700 431,250
Two Ravinia Drive,
Suite 1090
Atlanta, Georgia 30346
Attn: Joseph S. McCall
Charlyn Thompson....... 240 * 240 -- --
9975 Barston Court
Alpharetta, GA 30202
Michael P. Tuttle...... 240 * 240 -- --
1072 High Point Drive
Atlanta, GA 30306
</TABLE>
- --------
*Represents less than 1% of the outstanding Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by that
person that are currently exercisable or that are or may become
exercisable within 60 days of March 31, 1998 are deemed outstanding. Such
shares, however, are not deemed outstanding for the purposes of computing
the percentage ownership of any other person. Each Selling Stockholder
named in the table has sole voting and investment power with respect to
the shares set forth opposite such Selling Stockholder's name.
(2) Consists of warrants to purchase 431,250 shares of Common Stock, and
497,700 shares of Common Stock owned by Technology Ventures, L.L.C.
Technology Ventures, L.L.C. is controlled by Joseph S. McCall, a member of
the Company's board of directors. The Common Stock was issued to Tech Ventures
on February 5, 1998 in connection with the Company's purchase of Tech
Ventures' 20% ownership interest in SQL Financials Services L.L.C. Mr. McCall
founded the Company in November 1991 and has previously served as its
Chairman, President, and Chief Executive Officer and has been a member of the
Board of Directors since 1991. Mr. McCall currently serves as a Director and
consultant to the Company. Prior to founding the Company, Mr. McCall founded
McCall Consulting Group, Inc. in 1986 and he currently serves as its
President.
Alan Bond served as Vice President of Finance from May 1996 to December
1997. Gary Rogers served as Vice President of Sales from February, 1996 to
October, 1997.
All of Shares of Common Stock beneficially owned by the Selling Stockholders
may be offered and sold pursuant to this Prospectus.
PLAN OF DISTRIBUTION
Pursuant to the Prospectus, the Shares may be sold by the Selling
Stockholders, from time to time while the Registration Statement to which this
Prospectus relates is effective, on the Nasdaq National Market or otherwise at
prices and terms prevailing at the time of sale, at prices and terms related
to such prevailing prices and terms, in negotiated transactions or at fixed
prices. Although the Selling Stockholders have advised the Company of the
manner in which they currently intends to sell the Shares pursuant to this
Registration Statement, the Selling Stockholders may choose to sell all or a
portion of such Shares from time to time in any manner described herein. The
methods by which the Shares may be sold by the Selling Stockholders include,
without limitation: (i) ordinary brokerage transactions, which may include
long or short sales, (ii) transactions which involve crosses or block trades
or any other transactions permitted by the Nasdaq National Market, (iii)
purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus, (iv) "at the
4
<PAGE>
market" to or through market makers or into an existing market for the Common
Stock, (v) in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through
agents, (vi) through transactions in options or swaps or other derivatives
(whether exchange-listed or otherwise), or (vii) any combination of any such
methods of sale. In effecting sales, brokers and dealers engaged by any of the
Selling Stockholders may arrange for other brokers or dealers to participate.
Brokers or dealers may receive commissions or discounts from the Selling
Stockholders to sell a specified number of shares at a stipulated price per
share, and, to the extent such a broker or dealer is unable to do so acting as
agent for the Selling Stockholders, may purchase as principal any unsold
Shares at the price required to fulfill such broker or dealer commitment to
the Selling Stockholders. Brokers or dealers who acquire Shares as principals
may thereafter resell such Shares from time to time in transactions (which may
involve crosses and block transactions and which may involve sales to and
through other brokers or dealers, including transactions of the nature
described above) in the over-the-counter market, in negotiated transactions or
otherwise, at market prices and terms prevailing at the time of sale, at
prices and terms related to such prevailing prices and terms, in negotiated
transactions or at fixed prices and in connection with the methods as
described above. The Shares may be sold directly by the Selling Stockholders
or by pledgees, donees, transferees or other successors in interest.
The Company will maintain the effectiveness of the registration of the
Shares offered hereby until , 2000, two years from the effective date of
the Company's initial public offering or (ii) the date on which the Shares
offered hereby, in the opinion of counsel, may be sold by the Selling
Stockholders pursuant to Rule 144 of the Securities Act (without regard to
volume limitations). Any Shares which qualify for sale pursuant to Rule 144
under the Securities Act may be sold under that Rule rather than pursuant to
this Prospectus. There can be no assurance that the Selling Stockholders will
sell any or all of the Shares offered hereby.
The Company is bearing all of the costs relating to the registration of the
Shares including fees of counsel for the Company. Any commissions, discounts
or other fees payable to a broker, dealer, underwriter, agent or market maker
in connection with the sale of any of the Shares will be borne by the Selling
Stockholders.
Pursuant to the terms of the Acquisition Agreement dated February 5, 1998,
the Company has agreed to indemnify the Tech Ventures, a Selling Stockholder,
any person who controls Tech Ventures, and any underwriters for the Tech
Ventures, against certain liabilities and expenses arising out of or based
upon the information set forth in this Prospectus, and the Registration
Statement of which this Prospectus is a part, including liabilities under the
Securities Act, and if such indemnification is held by a court to be
unavailable, to contribute to the amount of such liabilities and expenses.
The Selling Stockholders and any brokers participating in such sales may be
deemed to be underwriters within the meaning of Section 2(11) of the
Securities Act. Any commissions paid or any discounts or concessions allowed
to any broker, dealer, underwriter, agent or market maker and, if any such
broker, dealer, underwriter, agent or market maker purchases any of the Shares
as principal, any profits received on the resale of such Shares, may be deemed
to be underwriting commissions or discounts under the Securities Act.
Because the Selling Stockholders may be deemed to be underwriters, the
Selling Stockholders will be subject to prospectus delivery requirements under
the Securities Act. Furthermore, in the event the Selling Stockholders are
deemed underwriters and a sale of shares is deemed to be a "distribution" or
part of a distribution of the Shares, such Selling Stockholders, any selling
broker or dealer and any "affiliated purchasers" may be subject to Regulation
M under the Exchange Act, which prohibits, with certain exceptions, any such
person from bidding for or purchasing any security which is the subject of
such distribution until his participation in that distribution is completed.
In addition, Regulation M prohibits, with certain exceptions, any "stabilizing
bid" or "stabilizing purchase" for the purpose of pegging, fixing or
stabilizing the price of Common Stock in connection with this Offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Womble Carlyle Sandridge & Rice, PLLC, Atlanta,
Georgia.
5
<PAGE>
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- -------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
Offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been au-
thorized by the Company. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities other than the shares of
Common Stock to which it relates or an offer to, or a solicitation of, any
person in any jurisdiction in which such an offer or solicitation would be un-
lawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company or that the information contained herein
is correct as of any time subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Dilution.................................................................. 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Conditions and Results
of Operations............................................................ 22
Business.................................................................. 32
Management................................................................ 43
Selling Stockholders......................................................
Certain Transactions...................................................... 53
Description of Capital Stock.............................................. 54
Shares Eligible for Future Sale........................................... 56
Plan of Distribution......................................................
Legal Matters............................................................. 59
Experts................................................................... 59
Additional Information.................................................... 59
Index to Combined Financial Statements.................................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
629,625 SHARES
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 13,440
National Association of Securities Dealers, Inc. fee.............. 5,275
Nasdaq National Market listing fee................................ 75,625
Accountants' fees and expenses.................................... *
Legal fees and expenses........................................... *
Blue Sky fees and expenses........................................ *
Transfer Agent's fees and expenses................................ 10,000
Printing and engraving expenses................................... 100,000
Miscellaneous..................................................... *
---------
Total Expenses.................................................. 1,400,000
=========
</TABLE>
- --------
* To be completed by amendment. All fees other than the SEC registration fee,
the NASD fee and the Nasdaq listing fee are estimated.
None of the expenses of issuance and distribution will be borne by the
Selling Stockholders.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Restated By-Laws of the Company (the "Restated By-Laws") and the
Restated Certificate of Incorporation (the "Restated Certificate") of the
Company provide that the directors and officers of the Company shall be
indemnified by the Company to the fullest extent authorized by Delaware law,
as it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
the Company. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Company pursuant to the
Restated By-Laws, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. The Company intends to obtain insurance
which insures the directors and officers of the Company against certain losses
and which insures the Company against certain of its obligations to indemnify
such directors and officers. In addition, the Restated Certificate of the
Company provides that the directors of the Company will not be personally
liable for monetary damages to the Company for breaches of their fiduciary
duty as directors, unless they violated their duty of loyalty to the Company
or its stockholders, acted in bad faith, knowingly or intentionally violated
the law, authorized illegal dividends or redemptions or derived an improper
personal benefit from their action as directors. Such limitations of personal
liability under the Delaware Business Corporation Law do not apply to
liabilities arising out of certain violations of the federal securities laws.
While non-monetary relief such as injunctive relief, specific performance and
other equitable remedies may be available to the Company, such relief may be
difficult to obtain or, if obtained, may not adequately compensate the Company
for its damages.
There is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company where indemnification by the Company
will be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
Section 8 of the Underwriting Agreement filed as Exhibit 1.1 hereto also
contains certain provisions pursuant to which certain officers, directors and
controlling persons of the Company may be entitled to be indemnified by the
Underwriters named therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has issued the securities set forth
below which were not registered under the Securities Act:
(i) On April 1, 1994, the Company issued 428,572 shares of Series C
Preferred Stock for $7.00 per share. Of the 428,572 shares of Series C
Preferred Stock, 87,500 shares were issued to Tech Ventures in exchange for
a promissory note payable by Tech Ventures in the amount of $612,500.
II-1
<PAGE>
(ii) On October 25, 1995, the Company issued a Warrant to Tech Ventures
to purchase 87,500 shares of Series C Preferred Stock at an exercise price
of $7.00 per share in exchange for the 87,500 shares of Series C Preferred
Stock held by Tech Ventures and amendment of the $612,500 promissory note
to the Company payable by Tech Ventures.
(iii) On February 21, 1995, the Registrant issued 15,000 shares of its
Common Stock to the Company's then-current common stockholders for $0.67
per share and 701,755 shares of its Series D Preferred Stock for $8.55 per
share. In addition, the Company issued warrants to purchase a total of
17,544 shares of its Series D Preferred Stock at an exercise price of $8.55
per share.
(iv) On January 5, 1996, the Registrant issued a warrant to purchase
5,848 shares of Series D Preferred Stock at an exercise price of $8.55 per
share. The warrant was issued to a lender in exchange for the lender's
agreement to extend the Company's working capital line of credit.
(v) On February 15, 1996, the Registrant issued 697,675 shares of its
Series E Preferred Stock for $8.60 per share. In addition, the Company
issued warrants to its lender to purchase 8,721 shares of its Series E
Preferred Stock at an exercise price of $8.60 per share.
(vi) On September 26, 1997, the Registrant issued 628,809 shares of
Series F Preferred Stock for $9.60 per share. Of the 628,809 shares of
Series F Preferred Stock, Spitfire Capital Partners, L.P., an affiliate of
NationsBanc Montgomery Securities LLC, acquired 208,334 shares of Series F
Preferred Stock for $9.60 per share.
(vii) On September 26, 1997, the Registrant issued warrants to purchase
46,821 shares of Series F Preferred Stock for $9.60 per share to certain
stockholders in connection with loans made to the Company.
(viii) On February 5, 1998, the Registrant issued 225,000 shares of
Common Stock and a warrant to purchase 300,000 shares of Common Stock at an
exercise price of $3.69 per share, to Technology Ventures LLC in exchange
for its 20% interest in SQL Financials Services, LLC.
(ix) On February 9, 15, 17, 18 and 19, 1998, the Company issued 17,544
shares of Series D Preferred Stock to certain existing stockholders upon
the exercise of existing warrants, at a price of $8.55 per share.
(x) Since March 31, 1995, the Registrant has issued stock options to
purchase an aggregate of 1,478,689 shares of its Common Stock under the
1992 Stock Option Plan at a weighted average exercise price of $3.81 per
share.
Except as described above, no underwriters were engaged in connection with
any of the foregoing issuances of securities. The sale and issuance of shares
listed above were exempt from registration under the Securities Act by virtue
of Sections 3(a), 3(b) and 4(a) of the Securities Act and in reliance on Rule
701 and Regulation D promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following is a list of exhibits filed as part of the
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* --Form of Underwriting Agreement.
2.1* --Acquisition Agreement between the Registrant and Technology
Ventures, LLC dated February 5, 1998.
2.2* --Non-Negotiable Subordinated Promissory Note to Technology
Ventures, LLC dated February 5, 1998.
2.3* --Warrant for purchase of 200,000 shares issued to Technology
Ventures, LLC dated February 5, 1998.
3.1* --Amended and Restated Certificate of Incorporation of the
Registrant dated September 26, 1997.
3.2* --Bylaws of the Registrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.3 --Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be effective upon the effectiveness of this
Offering.
3.4 --Form of Amended and Restated Bylaws of the Registrant, to be
effective upon the effectiveness of this Offering.
4.1 --See Exhibits 3.3 and 3.4 for provisions of the Amended and
Restated Certificate of Incorporation and Amended and Restated
Bylaws of the Registrant defining rights of the holders of Common
Stock of the Registrant.
4.2** --Specimen Stock Certificate.
5.1** --Opinion of Womble Carlyle Sandridge & Rice, PLLC, as to the
legality of the shares being registered.
10.1* --Amended and Restated Shareholders' Voting Agreement dated
September 1, 1995.
10.2* --Restated Shareholders Agreement dated September 1, 1995, as
amended.
10.3* --Stock Purchase Agreement dated February 15, 1996 (Series E).
10.4* --Stock Purchase Agreement dated September 26, 1997 (Series F).
10.5* --SQL 1992 Stock Option Plan, effective November 22, 1992.
10.6* --1998 Stock Incentive Plan, effective February 5, 1998 (with form
option agreement).
10.7* --Lease Agreement between the Registrant and Technology
Park/Atlanta, Inc. dated March 20, 1997.
10.8* --License and Private Label Agreement between the Registrant and
Personnel Data Systems, Inc. dated March 1, 1996 (with addendum).
10.9* --Loan and Security Agreement with Silicon Valley Bank dated March
28, 1997.
10.10* --Leasing Technologies International, Inc. Master Lease Agreement
dated March 13, 1997.
10.11* --Leasing Technologies International, Inc. Master Note and
Security Agreement dated March 20, 1997.
10.12 --Software License and Support Agreement between the Registrant
and McCall Consulting Group dated February 5, 1998.
10.13* --Agreement between the Registrant and Joseph S. McCall dated
February 5, 1998.
10.14* --Independent Contractor Agreement between the Registrant and
McCall Consulting Group, Inc. dated February 5, 1998.
10.15* --Independent Contractor Agreement between Registrant and Joseph
S. McCall dated February 5, 1998.
10.16* --Letter Agreement regarding Joseph McCall 1998 Compensation Plan
dated February 5, 1998.
11.1 --Statement re: Computation of Per Share Earnings.
21.1* --List of Subsidiaries.
23.1 --Consent of Arthur Andersen LLP.
23.3** --Consent of Womble Carlyle Sandridge & Rice, PLLC (included in
Exhibit 5.1).
23.4 --Consent of Willamette Management Associates.
24.1 --Powers of Attorney (included on signature page).
27.1 --Financial Data Schedule. (For SEC use only)
99.1 --Report of Independent Public Accountants on Financial Statement
Schedule.
</TABLE>
- --------
(b) Schedule II--Valuation and Qualifying Accounts
* Previously filed.
** To be filed by Amendment.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(ii) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(d) The Registrant hereby further undertakes:
(i) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(ii) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SUWANEE,
STATE OF GEORGIA ON THE 6TH DAY OF APRIL, 1998.
SQL Financials International, Inc.
By: ___________________________________
STEPHEN P. JEFFERY CHAIRMAN,
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS JOSEPH S. MCCALL AND STEPHEN P. JEFFERY, AND
EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND ANY SUBSEQUENT
REGISTRATION STATEMENTS PURSUANT TO RULE 462 UNDER THE SECURITIES ACT AND TO
FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH OF SAID
ATTORNEYS-IN-FACT OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE
TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.
SIGNATURE TITLE DATE
Chairman, Chief
Executive Officer April 6, 1998
(Principal
- ----------------------------------- Executive
STEPHEN P. JEFFERY Officer);
President and
Director
Chief Financial
Officer April 6, 1998
- ----------------------------------- (Principal
WILLIAM A. FIELDER III Financial and
Accounting
Officer)
* Director April 6, 1998
- -----------------------------------
JOSEPH S. MCCALL
* Director April 6, 1998
- -----------------------------------
WILLIAM S. KAISER
* Director April 6, 1998
- -----------------------------------
DONALD L. HOUSE
* Director April 6, 1998
- -----------------------------------
TENCH COXE
Director April 6, 1998
- -----------------------------------
SAID MOHAMMADIOUN
- -----------------------------------
* By Stephen P. Jeffery, attorney-in-fact
II-5
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
SQL FINANCIALS INTERNATIONAL, INC.
The undersigned, being the President of SQL FINANCIALS INTERNATIONAL,
INC., a Delaware corporation, hereby certifies that:
1.
(a) The name of the Corporation is SQL FINANCIALS INTERNATIONAL, INC.
(the "Corporation").
(b) The date of filing the original Certificate of Incorporation of
the Corporation with the Secretary of State of Delaware was November 20, 1991.
2.
This Amended and Restated Certificate of Incorporation amends and
restates the provisions of the Certificate of Incorporation, as amended, of the
Corporation and was duly adopted by written consent of the stockholders of the
Corporation in accordance with the provisions of Sections 228, 242 and 245 of
the General Corporation Law of the State of Delaware (the "Code"), and written
notice thereof was given to all non-participating stockholders in accordance
with Section 228(d) of the Code.
3.
The Certificate of Incorporation of the Corporation, as restated and
amended hereby, shall, upon its filing with the Secretary of State of the State
of Delaware, read in its entirety as follows:
ARTICLE 1: NAME
The name of this Corporation is:
SQL FINANCIALS INTERNATIONAL, INC.
ARTICLE 2: AGENT
The name and address in the State of Delaware of this Corporation's
registered office and initial agent for service of process (located in New
Castle County) are as follows:
<PAGE>
THE CORPORATION TRUST COMPANY
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
ARTICLE 3: PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE 4: SHARE STRUCTURE
(a) This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is 30,000,000
shares, of which 25,000,000 shares are Common Stock, $.0001 par value per share,
and 5,000,000 shares are Preferred Stock, $.0001 par value per share. The
rights and preferences of all outstanding shares of Common Stock shall be
identical. The holders of outstanding shares of Common Stock shall have the
right to vote on all matters submitted to a vote of the stockholders of the
Corporation, on the basis of one vote per share of Common Stock owned. Upon the
filing of this Amended and Restated Certificate of Incorporation (the "Effective
Date"), each share of Common Stock of the Corporation outstanding immediately
prior to the Effective Date shall be reconstituted as and converted into one and
one-half (12) shares of Common Stock. Certificates representing shares of
Common Stock outstanding prior to the Effective Date shall be deemed to
represent the number of shares of Common Stock into which such shares are
reconstituted and converted pursuant to the immediately preceding sentence.
(b) The Preferred Stock may be issued from time to time in one or more
series pursuant to a resolution or resolutions providing for such issue duly
adopted by the Board of Directors (authority to do so being hereby expressly
vested in the Board of Directors), and such resolution or resolutions shall also
set forth the voting powers, full or limited or none, of each such series of
Preferred Stock and shall fix the designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions of each such series of Preferred Stock. The Board of Directors
is further authorized to determine or alter the rights, preferences, privileges
and restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock and to fix the number of shares of any series of Preferred Stock
and the designation of any such series of Preferred Stock. The Board of
Directors, within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting any series, may increase or decrease (but not below the number of
shares in any such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series.
2
<PAGE>
ARTICLE 5: EXISTENCE
The Corporation shall have perpetual existence.
ARTICLE 6: DIRECTORS
Effective upon the Effective Date, the directors of the Corporation
shall be divided into three classes as nearly equal in size as is practicable,
hereby designated Class I, Class II and Class III. The term of office of the
initial Class I directors shall expire at the first regularly-scheduled annual
meeting of the stockholders following the Effective Date, the term of office of
the initial Class II directors shall expire at the second annual meeting of the
stockholders following the Effective Date and the term of office of the initial
Class III directors shall expire at the third annual meeting of the stockholders
following the Effective Date. At each annual meeting of stockholders, commencing
with the first regularly-scheduled annual meeting of stockholders following the
Effective Date, each of the successors elected as directors of a Class whose
term shall have expired at such annual meeting shall be elected to hold office
until the third annual meeting next succeeding his or her election and until his
or her respective successor shall have been duly elected and qualified. If the
number of directors is hereafter changed, any newly created directorships or
decrease in directorships shall be so apportioned among the classes as to make
all classes as nearly equal in number as is practicable, provided that no
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
ARTICLE 7: LIABILITY OF DIRECTORS
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same now exists or may hereafter be amended in a manner
more favorable to directors, a director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director.
ARTICLE 8: INDEMNIFICATION OF DIRECTORS
The Corporation shall indemnify to the full extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor of the Corporation.
ARTICLE 9: BALLOTING AT ELECTIONS
Election of directors need not be by written ballot except and to the
extent provided in the bylaws of the Corporation.
3
<PAGE>
ARTICLE 10: STOCKHOLDER PROPOSALS
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
ARTICLE 11: AMENDMENT OF BYLAWS
The Board of Directors of the Corporation is expressly authorized to
make, alter or repeal bylaws of the Corporation.
ARTICLE 12: CORPORATE BOOKS
The books of the Corporation may be kept (subject to any provision of
law) outside the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the bylaws of the Corporation.
ARTICLE 13: INCORPORATOR
The name and mailing address of the incorporator is as follows:
G. Donald Johnson, Esq.
Womble Carlyle Sandridge & Rice, PLLC
1275 Peachtree Street, N.E.
Suite 700
Atlanta, Georgia 30309
ARTICLE 14: AMENDMENTS
Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, the affirmative vote of the holders of at least
two-thirds (2/3) of the outstanding shares of Common Stock shall be required to
amend, alter, repeal or adopt any provision inconsistent with the provisions of
Article 4(b) or Articles 6, 7, 8 or 14 of this Amended and Restated Certificate
of Incorporation or adopt any provision electing not to be governed by Section
203 of the Delaware General Corporation Law. Notwithstanding the foregoing, no
repeal, alteration or amendment of this Amended and Restated Certificate of
Incorporation may be made unless the same is first approved by the affirmative
vote of a majority of the Board of Directors of the Corporation then in office.
[EXECUTION ON THE FOLLOWING PAGE]
4
<PAGE>
IN WITNESS WHEREOF, the undersigned has duly executed this Amended and
Restated Certificate of Incorporation on the day of , 1998.
---- -------
SQL FINANCIALS INTERNATIONAL, INC.
ATTEST: BY:
-------------------------------------
STEPHEN P. JEFFERY
President and Chief Executive Officer
- ----------------------------------
ARTHUR G. WALSH, JR., Secretary
[CORPORATE SEAL]
5
<PAGE>
EXHIBIT 3.4
Effective Date: _______________
AMENDED AND RESTATED
BY-LAWS
OF
SQL FINANCIALS INTERNATIONAL, INC.
ARTICLE I
---------
Corporate Offices
-----------------
Section 1. Principal and Registered Offices. The principal office of the
--------- --------------------------------
Corporation shall be located at such place as the Board of Directors may specify
from time to time. The registered office of the Corporation shall be located at
1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
Section 2. Other Offices. The Corporation may have offices at such other
--------- -------------
places, either within or without the State of Delaware, as the Board of
Directors may from time to time determine.
ARTICLE II
----------
Meetings of Stockholders
------------------------
Section 1. Place of Meeting. Meetings of stockholders shall be held at
--------- ----------------
the principal office of the Corporation or at such other place or places, either
within or without the State of Delaware, as shall be designated by the Board of
Directors. In the absence of any such designation, meetings of stockholders
shall be held at the principal executive office of the Corporation.
Section 2. Annual Meeting. The annual meeting of stockholders shall be
--------- --------------
held each year on a date and at a time designated by the Board of Directors. At
the annual meeting, directors shall be elected and any other proper business may
be transacted.
Section 3. Special Meeting. A special meeting of the stockholders for any
--------- ---------------
purpose or purposes may be called at any time by the Chairman of the Board or
the Chief Executive Officer, and shall be called by the Secretary at the written
request of, or by resolution adopted by, (a) a majority of the Board of
Directors or (b) the holders of a majority of all of the outstanding shares of
capital stock of the Corporation entitled to vote at such meeting, in which
case, such request shall state the purpose of the proposed meeting.
Section 4. Notice of Meetings. Written or printed notice, stating the
--------- ------------------
place, date and hour of the meeting and, in the case of a special meeting,
briefly describing the purpose or purposes of the meeting, shall be given not
less than ten (10) days nor more than sixty (60) days before the date of the
meeting, to each stockholder of record entitled to vote at the meeting. Such
notice shall be given either personally or by first-class mail or by telegraphic
or other written communication. Notices not personally delivered shall be sent
charges prepaid and shall be addressed to the stockholder at the address of such
stockholder appearing on the books of the Corporation or given by the
stockholder to the Corporation for the purpose of notice. Notice shall be
<PAGE>
deemed to have been given at the time when delivered personally or deposited in
the mail or sent by telegram or other means of written communication.
Section 5. Proxies. Each stockholder entitled to vote at a meeting of
--------- -------
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three (3) years from its
date, unless the proxy provides for a longer period. The revocability of a
proxy that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of the State of
Delaware (or any successor statute).
Section 6. Quorum. Except as otherwise provided by law, the holders of a
--------- ------
majority of the issued and outstanding shares of capital stock of the
Corporation entitled to vote at a meeting of stockholders, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at such meeting. In the absence of a quorum, the chairman of the meeting shall
have the power to adjourn the meeting in accordance with Article II, Section 7,
of these by-laws. If a quorum is initially present, the stockholders may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum, if any action taken is
approved by a majority of the stockholders initially constituting a quorum for
that meeting.
Section 7. Adjourned Meeting. When a meeting is adjourned to another time
--------- -----------------
and place, unless these by-laws otherwise require, notice need not be given of
the adjourned meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken. At the adjourned meeting, the Corporation
may transact any business that might have been transacted at the original
meeting. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 8. Voting of Shares. Each outstanding share of voting capital
--------- ----------------
stock of the Corporation shall be entitled to one vote on each matter submitted
to a vote at a meeting of the stockholders, except as otherwise provided in the
Certificate of Incorporation of the Corporation. Except as otherwise provided
by law, the Certificate of Incorporation of the Corporation or these by-laws, if
a quorum is present (a) directors shall be elected by a plurality of the votes
of the shares of capital stock of the Corporation present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors and (b) the affirmative vote of the holders of a majority of shares of
capital stock of the Corporation present in person or by proxy at the meeting
and entitled to vote on the subject matter shall be the act of the stockholders
of the Corporation in all matters other than the election of directors.
Section 9. Stockholder Nominations and Proposals. Nominations for
--------- -------------------------------------
election as a director and proposals for stockholder action may be made only by
stockholders of the Corporation of record at the time of the giving of notice
provided for herein and shall be made in writing and shall be delivered or
mailed to the Secretary of the Corporation (a) in the case of an annual meeting
of stockholders that is called for a date that is within thirty (30) days before
or after the anniversary date of the immediately preceding annual meeting of
stockholders, not less than sixty (60) days nor more than ninety (90) days prior
to such anniversary date and (b) in the case of an annual meeting of
stockholders that is called for a date that is not within thirty (30) days
before or after the anniversary date of the immediately preceding annual meeting
of stockholders, or in the case of a special meeting of stockholders, not later
than the close of business on the tenth (10th) day following the day on which
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the notice of meeting was mailed or public disclosure of the date of the meeting
was made, whichever occurs first. Such notification shall contain a written
statement of the stockholder's proposal and of the reasons therefor, his name
and address and number of shares owned, and, in the case of the nomination of a
director, nominations shall contain the following information to the extent
known by the notifying stockholder: (i) the name, age and address of each
proposed nominee; (ii) the principal occupation of each proposed nominee; (iii)
the nominee's qualifications to serve as a director; (iv) such other information
relating to such nominee as required to be disclosed in solicitation of proxies
for the election of directors pursuant to the rules and regulations of the
Securities and Exchange Commission; (v) the name and residence address of the
notifying stockholder; and (vi) the number of shares owned by the notifying
stockholder, and shall be accompanied by the nominee's written consent to being
named a nominee and serving as a director if elected. A stockholder making any
proposal shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended. Nominations or proposals not made in
accordance herewith may be disregarded by the chairman of the meeting in his
discretion, and upon his instructions all votes cast for each such nominee or
for such proposal may be disregarded.
Section 10. Action Without Meeting. Any action which the stockholders
---------- ----------------------
could take at a meeting may be taken without a meeting if one or more written
consents, setting forth the action taken, shall be signed, before or after such
action, by all the stockholders who would be entitled to vote upon the action at
a meeting. The consent shall be delivered to the Corporation for inclusion in
the minutes or filing with the corporate records. If by law, the Corporation is
required to give its nonvoting stockholders written notice of the proposed
action, it shall do so at least ten (10) days before the action is taken, and
such notice must contain or be accompanied by the same material that would have
been required by law to be sent to nonvoting stockholders in a notice of meeting
at which the proposed action would have been submitted to the stockholders for
action.
Section 11. Record Date for Stockholder Notice. The Board of Directors
---------- ----------------------------------
may fix a date as the record date for the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders. Such record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors and shall not be more than sixty (60) days
or less than ten (10) days prior to the date of such meeting. If no record date
is fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting unless the Board of Directors fixes a new record date
for the adjourned meeting.
Section 12. List of Stockholders. It shall be the duty of the Secretary
---------- --------------------
or other officer of the Corporation who shall have charge of the stock records,
either directly or through a transfer agent appointed by the Board of Directors,
to prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
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so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 13. Inspectors of Elections.
---------- -----------------------
(a) Appointment of Inspectors of Election. In advance of any meeting
-------------------------------------
of stockholders, the Board of Directors may appoint one or more persons, other
than nominees for office, as inspectors of election to act at such meeting or
any adjournment thereof. If inspectors of election are not so appointed, the
chairman of any such meeting may, and on the request of any stockholder or his
proxy shall, appoint inspectors of election at the meeting. In case any person
appointed as inspector fails to appear or fails or refuses to act, the vacancy
may be filled by appointment by the Board of Directors in advance of the
meeting, or at the meeting by the person acting as chairman.
(b) Duties of Inspectors. The inspectors of election shall determine
--------------------
the number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies and ballots, receive votes, ballots or consents,
count and tabulate all votes and ballots, determine the results, retain for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspectors, certify their determination of the number of
shares represented at the meeting and their count of all votes and ballots, and
do such acts as may be proper to conduct the election or vote with fairness to
all stockholders. The inspectors of election shall perform their duties
impartially, in good faith, to the best of their ability and as expeditiously as
is practical.
(c) Vote of Inspectors. If there are more than one inspectors of
------------------
election, the decision, act or certificate of a majority is effective in all
respects as the decision, act or certificate of all.
(d) Report of Inspectors. On request of the chairman of the meeting
--------------------
or of any stockholder or his proxy, the inspectors shall make a report in
writing of any challenge or question or matter determined by them and execute a
certificate of any fact found by them. Any report or certificate made by them
is prima facie evidence of the facts stated herein.
ARTICLE III
-----------
Board of Directors
------------------
Section 1. General Powers. The business and affairs of the Corporation
--------- --------------
shall be managed by or under the direction of the Board of Directors except as
otherwise provided by law, the Certificate of Incorporation of the Corporation
or these by-laws.
Section 2. Number, Term and Qualification. The Board of Directors of the
--------- ------------------------------
Corporation shall consist of at least three (3) but not more than seven (7)
members, which number shall be determined, from time to time, by resolution
adopted by the Board of Directors. The directors shall be classified, with
respect to the time for which they severally hold office, into three (3)
classes, as nearly equal in number as possible as determined by the Board of
Directors, with one class to be elected annually, at a meeting of the
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stockholders by a plurality of the votes of the shares present in person or by
proxy and entitled to vote on the election of directors.
The directors of the Corporation shall be divided into three classes as
nearly equal in size as is practicable, hereby designated Class I, Class II and
Class III. The term of office of the initial Class I directors shall expire at
the first regularly-scheduled annual meeting of the stockholders following the
effective date of these Bylaws (the "Effective Date"), the term of office of the
initial Class II directors shall expire at the second annual meeting of the
stockholders following the Effective Date and the term of office of the initial
Class III directors shall expire at the third annual meeting of the stockholders
following the Effective Date. At each annual meeting of stockholders, commencing
with the first regularly-scheduled annual meeting of stockholders following the
Effective Date, each of the successors elected as directors of a Class whose
term shall have expired at such annual meeting shall be elected to hold office
until the third annual meeting next succeeding his or her election and until his
or her respective successor shall have been duly elected and qualified. If the
number of directors is hereafter changed, any newly created directorships or
decrease in directorships shall be so apportioned among the classes as to make
all classes as nearly equal in number as is practicable, provided that no
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
Each director shall hold office until the next annual meeting of
stockholders at which his term expires and until his successor is elected and
qualified, or until his earlier death, resignation or removal pursuant to these
by-laws. Directors need not be residents of the State of Delaware or
stockholders of the Corporation.
Section 3. Removal. Except as provided in the Certificate of
--------- -------
Incorporation or under applicable law, directors may be removed from office only
with cause by a vote of the holders of a majority of the shares of capital stock
of the Corporation then entitled to vote at an election of directors.
Section 4. Resignation. Any director of the Corporation may resign at any
--------- -----------
time by giving written notice to the Chairman of the Board, the Chief Executive
Officer or the Secretary of the Corporation. Such resignation shall be
effective upon the giving of such notice or at such later time as shall be
specified therein. The acceptance of such resignation shall not be necessary to
make it effective.
Section 5. Vacancies. Any vacancies occurring on the Board of Directors
--------- ---------
for any reason (including death, resignation, disqualification, removal or other
causes) and any newly created directorships resulting from an increase in the
authorized number of directors may be filled only by vote of a majority of the
remaining members of the Board of Directors, even if less than a quorum, at any
meeting of the Board of Directors. Notwithstanding the immediately preceding
sentence, the Board of Directors may by resolution determine that any such
vacancies or newly created directorships shall be filled by the stockholders of
the Corporation. Any director elected in accordance with the foregoing
provisions shall hold office until the next annual meeting of stockholders and
until his successor is elected and qualified, or until his earlier resignation
or removal pursuant to these by-laws.
Section 6. Compensation. Directors and members of committees may receive
--------- ------------
such compensation, if any, for their services as such and may be reimbursed for
expenses of attendance at meetings of the Board of a committee as may be fixed
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or determined by resolution of the Board of Directors. Any director may serve
the Corporation in any other capacity and receive compensation therefor.
ARTICLE IV
----------
Meetings of Directors
---------------------
Section 1. Annual Meetings. The annual meeting of the Board of Directors
--------- ---------------
for the purpose of electing officers and transacting such other business as may
be brought before the meeting shall be held immediately following the annual
meeting of the stockholders at the place where such meeting is held. Notice of
annual meetings shall not be required.
Section 2. Regular Meetings. The Board of Directors may by resolution
--------- ----------------
provide for the holding of regular meetings of the Board on specified dates and
at specified times. If any date for which a regular meeting is scheduled shall
be a legal holiday, the meeting shall be held on the next business day that is
not a legal holiday. Regular meetings of the Board of Directors shall be held
at the principal executive office of the Corporation or at such other place as
may be determined by resolution of the Board of Directors. Notice of regular
meetings shall not be required.
Section 3. Special Meetings. Special meetings of the Board of Directors
--------- ----------------
may be called by or at the request of the Chairman of the Board, the Chief
Executive Officer, the Secretary or any two directors. Such meetings may be
held at the time and place designated in the notice of the meeting.
Section 4. Notice of Special Meetings. Notice of the time and place of
--------- --------------------------
special meetings shall be given to each director (a) in a writing mailed not
less than five days before such meeting addressed to the residence or usual
place of business of a director, (b) by telecopy or telegram sent not less than
two days before such meeting to the residence or usual place of business of a
director or (c) in person or by telephone delivered not less than one day before
such meeting. Attendance by a director at a meeting for which notice is
required shall constitute a waiver of notice, except where a director attends
the meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called. Except as otherwise
herein provided, neither the business to be transacted at, nor the purpose of,
any special meeting of the Board of Directors need be specified in the notice of
such meeting.
Section 5. Quorum. A majority of the number of directors fixed from time
--------- ------
to time by the Board of Directors shall constitute a quorum for the transaction
of business at a meeting of the Board of Directors. If a quorum is initially
present, the Board of Directors may continue to transact business,
notwithstanding the withdrawal of enough directors to leave less than a quorum,
if any action taken is approved by a majority of the directors initially
constituting a quorum for that meeting.
Section 6. Adjourned Meeting. A majority of the directors present,
--------- -----------------
whether or not constituting a quorum, may adjourn any meeting of the Board of
Directors to another time and place. Notice of the time and place of holding an
adjourned meeting of the Board of Directors need not be given unless the meeting
is adjourned for more than forty-eight (48) hours. If the meeting is adjourned
for more than forty-eight (48) hours, then notice of the time and place of the
adjourned meeting shall be given before the adjourned meeting takes place, in
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the manner specified in Article IV, Section 4 of these by-laws, to the directors
who were not present at the time of the adjournment.
Section 7. Manner of Acting. Except as otherwise provided by law, these
--------- ----------------
by-laws or the Certificate of Incorporation of the Corporation, the act of the
majority of the directors present at a duly held meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 8. Action Without Meeting. Any action required or permitted to be
--------- ----------------------
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors, whether done before or after the action is taken. Such unanimous
written consent shall have the same force and effect as a unanimous vote at a
meeting, and may be stated as such in any articles, certificates or documents
filed with the Secretary of State of Delaware, or any other state wherein the
Corporation may do business.
Section 9. Meeting by Use of Conference Telephone. Any one or more
--------- --------------------------------------
directors may participate in a meeting of the Board of Directors by means of a
conference telephone or similar communications device which allows all persons
participating in the meeting to hear each other, and such participation in a
meeting shall be deemed presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE V
---------
Committees
----------
Section 1. Designation of Committees. The Board of Directors may, by
--------- -------------------------
resolution passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, to the extent
provided in these by-laws or in the resolution of the Board of Directors
establishing the same, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation; provided, however, that no such committee shall have the power or
authority to (a) amend the Certificate of Incorporation of the Corporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
of Directors as provided in Section 151(a) of the General Corporation Law of the
State of Delaware, fix the designations and any of the preferences or rights of
such shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), (b) adopt an agreement of merger or consolidation under Sections
251, 252, 254 through 258, 263 or 264 of the General Corporation Law of the
State of Delaware, (c) recommend to the stockholders the sale, lease or exchange
of all or substantially all of the Corporation's property and assets, (d)
recommend to the stockholders a dissolution of the Corporation or a revocation
of a dissolution or (e) amend these by-laws; and, unless the resolution, these
by-laws or the Certificate of Incorporation of the Corporation expressly so
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<PAGE>
provides, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation Law of
the State of Delaware. Such committees or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board
of Directors.
Section 2. Minutes. Each committee shall keep minutes of its proceedings
--------- -------
and shall report thereon to the Board of Directors when required.
Section 3. Meetings and Action of Committees. Meetings and actions of
--------- ---------------------------------
committees shall be governed by, and held in accordance with, the following
provisions of Article IV of these by-laws: Section 2 (regular meetings), Section
3 (special meetings), Section 4 (notice of special meetings), Section 5
(quorum), Section 6 (adjourned meeting), Section 7 (manner of acting), Section 8
(action without meeting) and Section 9 (meeting by use of conference telephone),
with such changes in the context of such by-laws as are necessary to substitute
the committee and its members for the Board of Directors and its members;
provided, however, that the time of regular meetings of committees may be
determined either by resolution of the Board of Directors or by resolution of
the committee, that special meetings of committees may also be called by
resolution of the Board of Directors, and that notice of special meetings of
committees shall also be given to all alternative members, who shall have the
right to attend all meetings of the committee. The Board of Directors may adopt
rules for the governance of any committee not inconsistent with the provisions
of these by-laws.
ARTICLE VI
----------
Officers
--------
Section 1. Titles. The officers of the Corporation shall be elected by
--------- ------
the Board of Directors and shall consist of a Chairman of the Board, a Chief
Executive Officer, a President, a Chief Financial Officer, a Secretary, and a
Treasurer. The Board of Directors may also elect a Controller and one or more
Vice Presidents and Assistant Secretaries, Assistant Treasurers and such other
officers as it shall deem necessary. Except as otherwise provided in these by-
laws, the additional officers shall have the authority and perform the duties as
from time to time may be prescribed by the Board of Directors. Any two or more
offices may be held by the same individual, but no officer may act in more than
one capacity where action of two or more officers is required.
Section 2. Election and Term. The officers of the Corporation shall be
--------- -----------------
elected by the Board of Directors at the annual meeting of the Board held each
year immediately following the annual meeting of the stockholders, and each
officer shall hold office until the next annual meeting at which officers are to
be elected and until his successor is elected and qualified, or until his
earlier resignation or removal pursuant to these by-laws.
Section 3. Removal. Any officer or agent elected or appointed by the
--------- -------
Board of Directors may be removed, with or without cause, by the Board of
Directors, but removal shall be without prejudice to any contract rights of the
individual removed. Election or appointment of an officer or agent shall not of
itself create contract rights.
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<PAGE>
Section 4. Resignation. Any officer of the Corporation may resign at any
--------- -----------
time by giving written notice to the Corporation. Such resignation shall be
effective upon the giving of such notice or at such later time as shall be
specified therein. The acceptance of such resignation shall not be necessary to
make it effective.
Section 5. Vacancies. Any vacancies among the officers for any reason
--------- ---------
(including death, resignation, disqualification, removal or other causes) may be
filled by the Board of Directors in the manner prescribed in these by-laws for
regular elections to that office.
Section 6. Compensation. The compensation of the officers shall be fixed
--------- ------------
by or under the direction of the Board of Directors. No officer shall be
prevented from receiving such compensation by reason of the fact that such
officer is also a director of the Corporation.
Section 7. Chairman of the Board. The Chairman of the Board of Directors
--------- ---------------------
shall preside at meetings of the Board of Directors. The Chairman of the Board
may but need not be an employee of the Corporation. If not elected Chief
Executive Officer, the Chairman of the Board shall have such other authority and
shall perform such other duties as may from time to time be conferred upon him
herein or by the Chief Executive Officer.
Section 8. Chief Executive Officer. The Chief Executive Officer shall
--------- -----------------------
have general charge of the business and affairs of the Corporation, shall have
final decision-making authority in the conduct of all business affairs of the
Corporation, and shall preside at meetings of the stockholders. The Chief
Executive Officer may perform such acts, not inconsistent with the applicable
law or the provisions of these by-laws, usually performed by the principal
executive officer of a corporation and may sign and execute all authorized
notes, bonds, contracts and other obligations in the name of the Corporation.
The Chief Executive Officer shall have such other powers and perform such other
duties as the Board of Directors shall designate or as may be provided by
applicable law or elsewhere in these by-laws.
Section 9. President. The President shall have responsibility for the
--------- ---------
day-to-day operations of the business of the Corporation and shall report to the
Chief Executive Officer. The President may perform such acts, not inconsistent
with the applicable law or the provisions of these by-laws, usually performed by
the chief operating officer of a corporation and may sign and execute all
authorized notes, bonds, contracts and other obligations in the name of the
Corporation. The President shall have such other powers and perform such other
duties as the Board of Directors shall designate or as may be provided by
applicable law or elsewhere in these by-laws, and in the event of the disability
or death of the Chief Executive Officer, he shall perform the duties of the
Chief Executive Officer unless and until a new Chief Executive Officer is
elected by the directors.
Section 10. Chief Financial Officer. The Chief Financial Officer of the
---------- -----------------------
Corporation shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings
and shares. The books of account shall at all reasonable times be open to
inspection by any director for a purpose reasonably related to his position as a
director. The Chief Financial Officer shall render to the Chief Executive
Officer and Board of Directors, whenever they may request it, an account of the
transactions of the Corporation and of the financial condition of the
Corporation. The Chief Financial Officer shall have such other powers and
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perform such other duties as the Board of Directors shall designate or as may be
provided by applicable law or elsewhere in these by-laws.
Section 11. Vice Presidents. Each Vice President shall have such powers
---------- ---------------
and perform such duties as shall be assigned to him by the Board of Directors.
Section 12. Secretary. The Secretary shall keep, or cause to be kept,
---------- ---------
accurate records of the acts and proceedings of all meetings of stockholders and
of the Board of Directors and shall give all notices required by law and by
these by-laws. The Secretary shall have general charge of the corporate books
and records and of the corporate seal and shall affix the corporate seal to any
lawfully executed instrument requiring it. The Secretary shall have general
charge of the stock transfer books of the Corporation and shall keep, or cause
to be kept, at the principal office of the Corporation a record of stockholders,
showing the name and address of each stockholder and the number and class of the
shares held by each stockholder. The Secretary shall sign such instruments as
may require the signature of the Secretary, and in general may perform such
acts, not inconsistent with the applicable law or the provisions of these by-
laws, usually performed by the secretary of a corporation. The Secretary shall
have such other powers and perform such other duties as the Board of Directors
shall designate from time to time.
Section 13. Assistant Secretaries. Each Assistant Secretary shall have
---------- ---------------------
such powers and perform such duties as may be assigned by the Board of
Directors, and the Assistant Secretaries shall exercise the powers of the
Secretary during that officer's absence or inability to act.
Section 14. Treasurer. The Treasurer shall have the custody of the
---------- ---------
corporate funds and securities and shall keep and maintain, or cause to be kept
and maintained, full and accurate accounts of receipts and disbursements. The
Treasurer shall deposit all monies and other valuables in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse funds of the Corporation as may be
ordered by the Board of Directors, the Chief Executive Officer or the President,
taking proper vouchers for such disbursements. The Treasurer shall also have
such powers and perform such duties incident to the office as may be assigned
from time to time by the Board of Directors.
Section 15. Assistant Treasurers. Each Assistant Treasurer shall have
---------- --------------------
such powers and perform such duties as may be assigned by the Board of
Directors, and the Assistant Treasurers shall exercise the powers of the
Treasurer during that officer's absence or inability to act.
Section 16. Controller and Assistant Controllers. The Controller shall
---------- ------------------------------------
have charge of the accounting affairs of the Corporation and shall have such
other powers and perform such other duties as the Board of Directors shall
designate. The Controller shall report to the Chief Financial Officer. Each
Assistant Controller shall have such powers and perform such duties as may be
assigned by the Board of Directors, and the Assistant Controllers shall exercise
the powers of the Controller during that officer's absence or inability to act.
Section 17. Voting Upon Stocks. Unless otherwise ordered by the Board of
---------- ------------------
Directors, the Chief Executive Officer shall have full power and authority on
behalf of the Corporation to attend, act and vote at meetings of the
stockholders of any Corporation in which this Corporation may hold stock, and at
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such meetings shall possess and may exercise any and all rights and powers
incident to the ownership of such stock and which, as the owner, the Corporation
might have possessed and exercised. The Board of Directors may by resolution
from time to time confer such power and authority upon any other person or
persons.
ARTICLE VII
-----------
Capital Stock
-------------
Section 1. Certificates. Certificates for shares of the capital stock of
--------- ------------
the Corporation shall be in such form not inconsistent with the certificate of
incorporation of the Corporation as shall be approved by the Board of Directors.
The certificates shall be consecutively numbered or otherwise identified. The
name and address of the persons to whom they are issued, with the number of
shares and date of issue, shall be entered on the stock transfer records of the
Corporation. Each certificate shall be signed by the Chief Executive Officer or
President and by the Secretary or any Assistant Secretary; provided, that where
a certificate is signed by a transfer agent of the Corporation, the signatures
of such officers of the Corporation upon the certificate may be by facsimile,
engraved or printed. Each certificate shall be sealed with the seal of the
Corporation or a facsimile thereof.
Section 2. Transfer of Shares. Transfer of record of shares of stock of
--------- ------------------
the Corporation shall be made on the stock transfer books of the Corporation
only upon surrender of the certificate for the shares sought to be transferred
by the record holder or by a duly authorized agent, transferee or legal
representative. All certificates surrendered for transfer shall be cancelled
before new certificates for the transferred shares shall be issued.
Section 3. Restrictions on Transfer of Shares. The Corporation shall have
--------- ----------------------------------
the power to enter into and perform any agreement with any stockholders of the
Corporation to restrict the transfer of shares of stock of the Corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of the State of Delaware.
Section 4. Transfer Agent and Registrar. The Board of Directors may
--------- ----------------------------
appoint one or more transfer agents and one or more registrars of transfers and
may require all stock certificates to be signed or countersigned by the transfer
agent and registered by the registrar of transfers.
Section 5. Regulations. The Board of Directors shall have power and
--------- -----------
authority to make rules and regulations as it may deem expedient concerning the
issue, transfer and registration of certificates for shares of capital stock of
the Corporation.
Section 6. Lost Certificates. The Board of Directors may authorize the
--------- -----------------
issuance of a new certificate in place of a certificate claimed to have been
lost or destroyed, upon receipt of an affidavit from the person explaining the
loss or destruction. When authorizing issuance of a new certificate, the Board
of Directors may require the claimant to give the Corporation a bond in a sum
as it may direct to indemnify the Corporation against loss from any claim with
respect to the certificate claimed to have been lost or destroyed; or the Board
of Directors may, by resolution reciting that the circumstances justify such
action, authorize the issuance of the new certificate without requiring a bond.
-11-
<PAGE>
ARTICLE VIII
------------
General Provisions
------------------
Section 1. Dividends. The Board of Directors may from time to time
--------- ---------
declare, and the Corporation may pay, dividends out of its earned surplus on its
outstanding shares in the manner and upon the terms and conditions provided by
law.
Section 2. Record Date for Purposes Other Than Stockholder Notice. The
--------- ------------------------------------------------------
Board of Directors may fix a date as the record date for the purpose of
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to exercise
any rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action. Such record date shall not precede the date
upon which the resolution fixing the record date is adopted and shall not be
more than sixty (60) days prior to such action. If no record date is fixed by
the Board of Directors, the record date for determining stockholders for any
such purpose shall be at the close of business on the date on which the Board of
Directors adopts the resolution relating thereto.
Section 3. Seal. The seal of the Corporation shall have inscribed thereon
--------- ----
the name of the Corporation and "Delaware" around the perimeter, and the words
"Corporate Seal" in the center.
Section 4. Waiver of Notice. Whenever notice is required to be given to a
--------- ----------------
stockholder, director or other person under the provisions of these by-laws, the
certificate of incorporation of the Corporation or by applicable law, a waiver
in writing signed by the person or persons entitled to the notice, whether
before or after the time stated in the notice, shall be equivalent to giving the
notice.
Section 5. Depositories and Checks. All funds of the Corporation shall be
--------- -----------------------
deposited in the name of the Corporation in such bank, banks or other financial
institutions as the Board of Directors may from time to time designate and shall
be drawn out on checks, drafts or other orders signed on behalf of the
Corporation by such person or persons as the Board of Directors may from time to
time designate.
Section 6. Bond. The Board of Directors may by resolution require any or
--------- ----
all officers, agents and employees of the Corporation to give bond to the
Corporation, with sufficient sureties, conditioned on the faithful performance
of the duties of their respective offices or positions, and to comply with such
other conditions as may from time to time be required by the Board.
Section 7. Loans to Officers. The Corporation may lend money to, or
--------- -----------------
guarantee any obligation of, or otherwise assist any officer or other employee
of the Corporation or of its subsidiaries, including any officer or employee who
is a director of the Corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the Corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the Corporation. Nothing in these by-laws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the Corporation
at common law or under any statute.
-12-
<PAGE>
Section 8. Fiscal Year. The fiscal year of the Corporation shall be the
--------- -----------
period ending on December 31 of each year or such other period as the Board of
Directors shall from time to time determine.
Section 9. Indemnification of Directors and Officers.
--------- -----------------------------------------
(a) Right to Indemnification. The Corporation shall, to the maximum
------------------------
extent and in the manner permitted by the General Corporation Law of the State
of Delaware as the same now exists or may hereafter be amended, indemnify any
person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
any threatened, pending or completed action, suit or proceeding in which such
person was or is a party or is threatened to be made a party by reason of the
fact that such person is or was a director or officer of the Corporation. For
purposes of the foregoing provisions, a "director" or "officer" of the
Corporation shall mean any person (a) who is or was a director or officer of the
Corporation, (b) who is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise or (c) who was a director or officer of a corporation which was
a predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation. The Corporation shall be required to
indemnify a director or officer in connection with an action, suit or proceeding
(or part thereof) initiated by such director or officer only if the initiation
of such action, suit or proceeding (or part thereof) by the director or officer
was authorized by the Board of Directors of the Corporation. The Corporation
shall pay the expenses (including attorneys' fees) incurred by a director or
officer of the Corporation entitled to indemnification hereunder in defending
any action, suit or proceeding referred to in the immediately preceding
paragraph in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the Corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it shall ultimately be determined that the director or officer is
not entitled to be indemnified under this Article VIII, Section 9 or otherwise.
Any repeal or modification of the foregoing provisions of these by-laws shall
not adversely affect any right or protection hereunder of any person in respect
of any act or omission occurring prior to the time of such repeal or
modification.
(b) Right of Indemnitee to Bring Suit. If a claim under paragraph (a)
---------------------------------
of this Section is not paid in full by the Corporation within sixty (60) days
after a written claim has been received by the Corporation, except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be twenty (20) days, the person claiming indemnification may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim. If successful in whole or in part in any such suit or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In any suit brought by a person
claiming indemnification to enforce a right to indemnification hereunder (but
not in a suit brought by any such person to enforce a right to an advancement of
expenses), it shall be a defense that such person has not met the applicable
standard of conduct set forth in the General Corporation Law of the State of
Delaware. In any suit by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the Corporation shall be entitled to
recover such expenses upon a final adjudication that such person has not met the
applicable standard of conduct set forth in the General Corporation Law of the
State of Delaware. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
-13-
<PAGE>
determination prior to the commencement of any such suit that indemnification is
proper in the circumstances because the person claiming indemnification has met
the applicable standard of conduct set forth in the General Corporation Law of
the State of Delaware, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel or its stockholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of conduct
or, in the case of such a suit brought by a person claiming indemnification, be
a defense to such suit. In any suit brought by a person claiming
indemnification to enforce a right hereunder, or by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the burden
of proving that such person is not entitled to be indemnified or to such
advancement of expenses under this Section or otherwise shall be on the
Corporation.
(c) Non-Exclusivity of Rights. The rights to indemnification and to
-------------------------
the advancement of expenses conferred in this Section shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, the certificate of incorporation of the Corporation, these by-laws, by
agreement, by vote of stockholders or disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss under the General Corporation
Law of the State of Delaware.
(e) Indemnification of Agents of the Corporation. The Corporation
--------------------------------------------
may, to the extent authorized from time to time by the Board of Directors, grant
rights to indemnification and to the advancement of expenses, to any employee or
agent of the Corporation to the fullest extent of the provisions of this Section
with respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.
Section 10. Amendments. Except as otherwise provided herein, these by-
---------- ----------
laws may be amended or repealed and new by-laws may be adopted by the
affirmative vote of the holders of a majority of the capital stock issued and
outstanding and entitled to vote at any meeting of stockholders or by resolution
adopted by the affirmative vote of not less than a majority of the number of
directors of the Corporation. The provisions of Article II-Section 9, Article
III-Section 2, Article VIII-Section 9, and this Article VIII-Section 10 may only
be altered, amended or repealed by the affirmative vote of the holders of at
least two-thirds (b) of the outstanding shares of Common Stock.
[EXECUTION SET FORTH ON FOLLOWING PAGE]
-14-
<PAGE>
THIS IS TO CERTIFY that the above by-laws of SQL Financials International,
Inc. were duly adopted by the stockholders of the Corporation by action taken by
unanimous written consent effective the day of March, 1998, and are
-----
effective the day of , 1998.
---- -----------
This day of , 1998.
----- ----------
--------------------------------
Arthur G. Walsh, Jr., Secretary
[Corporate Seal]
-15-
<PAGE>
EXHIBIT 10.12
SQL FINANCIALS INTERNATIONAL, INC.
SOFTWARE LICENSE AND SUPPORT AGREEMENT
THIS AGREEMENT ("Agreement"), effective as of the date shown on Exhibit A,
is by and between SQL FINANCIALS INTERNATIONAL, INC. d/b/a SQL FINANCIALS(R),
a Delaware corporation with its principal place of business at 3950 Johns Creek
Court, Suwanee, Georgia 30024 ("SFI") and Technology Ventures, L.L.C. and McCall
Consulting Group, Inc. ("You" and "Your"), Georgia entities with their principal
place of business specified on Exhibit A.
For and in consideration of the representations set forth herein, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. DEFINITIONS.
------------
As used in this Agreement and the exhibit(s) hereto; the following terms
shall have the meaning and definition as specified below:
A. Accepted Order(s) means a written amendment executed by You and
-----------------
accepted by SFI in accordance with the procedure described in Section 12 of this
Agreement.
B. Application means any one of the computer software programs in object-
-----------
code form comprising the Software and listed in Exhibit A and in Accepted
Order(s).
C. Application Fee means the amount of money in U.S. dollars specified on
---------------
Exhibit A and any Accepted Order(s) for the licensing rights to the Software and
Third-Party Software.
D. Confidential Information includes, but is not limited to, the terms of
------------------------
this Agreement, Third-Party Software, and, to the extent such information is not
defined as a Trade Secret in Paragraph 1.O below, any other information marked
or noticed as confidential by either party. "Confidential Information" does not
include information that has become publicly known or available without breach
of this Agreement.
E. Database Server means the authorized number of individual computers
---------------
connected to Your network, as specified in Exhibit A and any Accepted Orders, on
which the Database Software is installed.
F. Database Software means a single copy of the database management system
-----------------
software, as identified in Exhibit A and any Accepted Orders, installed on the
authorized Database Server(s).
G. Designated Employee means up to three of Your employees as identified
-------------------
in Exhibit A who are responsible for contacting SFI via the SFI support line for
the services described in Section 5 of this Agreement. You may change a
"Designated Employee" by notifying SFI in writing.
<PAGE>
H. Documentation means the reference materials owned and provided by SFI
-------------
to You which instruct You in the requirements, structure, operation, and
maintenance of the Software. Documentation is provided in a combination of
printed and electronic formats.
I. Full Users are defined as each Workstation on which the Application(s)
----------
are installed and/or used, or to which the Application(s) are distributed for
use over Your internal network.
J. License Term means the period of time beginning with the effective date
------------
identified in Exhibit A and ending forty years thereafter.
K. Location(s) means Your place of business specified in Exhibit A.
-----------
Notwithstanding the foregoing, upon Your payment to SFI of the applicable fees
designated in Accepted Order(s), the addresses of additional sites described in
Accepted Order(s) are included and made part of this definition with respect to
the Software described on such Accepted Order(s).
L. Software means (a) the object-code version of the computer software
--------
Applications; (b) the periodic improvements of or additions to the functionality
set forth in the Documentation; (c) the Documentation; and (d) any other
enhancements, modifications, or revisions of the foregoing and all copies of the
foregoing.
M. Support Terms mean the terms and conditions of Section 5 of this
-------------
Agreement pursuant to which SFI will provide specific support services to You as
set forth therein.
N. Third-Party Software means the computer software applications owned or
--------------------
distributed by certain third parties, in machine-readable object-code form and
any accompanying documentation, which are identified in Exhibit A and any
Accepted Order(s).
O. Trade Secret means information, without regard to form, including, but
------------
not limited to, the Software, technical or nontechnical data, research data, a
formula, a pattern, a compilation, a program, a device, a method, a technique, a
drawing, a process, financial data, financial plans, product plans, or a list of
actual or potential customers or suppliers which is not commonly known by or
available to the public, and which information (i) derives economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use, and (ii) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
P. Workstations mean Your computer workstations which are connected to the
------------
Database Server(s) via a local area or telecommunications network.
Q. You or Your means the entity identified under the recital set forth
-----------
above and any person, firm, corporation, partnership, association, or other
entity which now or in the future controls, is controlled by, or is under common
control with You, provided such entity is not a competitor of SFI.
<PAGE>
2. SOFTWARE LICENSE.
-----------------
A. SFI grants to You, and You accept, a limited, nonexclusive, and
nontransferable license during the License Term to use each Application and the
Third-Party Software solely for Your own internal operations. For Your
production needs, the license granted herein permits You to use each Application
with a single production copy of the Database Software. One or more
Applications may access the same production copy of the Database Software, or
each Application may access its own separate copy provided You do not exceed the
authorized number of Database Servers. Your access to the Database Software via
the Workstations shall at no time exceed the number of Full Users specified in
Exhibit A and any Accepted Order(s).
B. SFI will provide You with one copy of the Documentation for each
Application. You may reproduce copies of the Documentation to be used solely
for Your internal purposes in accordance with this Agreement.
C. You may make a reasonable number of copies of the Software as needed
solely for back-up, archival, and testing purposes. Such copies must be
maintained in a secure area with limited access.
D. You will not alter, remove, modify, or suppress any proprietary notices
placed on or contained within the Software and Third-Party Software. You will
also ensure that all such proprietary notices and confidentiality legends appear
on all copies of the Software and Third-Party Software.
E. Except as expressly authorized in this Agreement, You may not copy or
reproduce the Software or Third-Party Software. Under no circumstances will You
modify, distribute or transfer (by any means), display, sublicense, rent, lease,
reverse engineer, decompile, or disassemble the Software or Third-Party Software
or use the Software or Third-Party Software in a service bureau or time- sharing
environment. SFI reserves all other rights not expressly granted to You
hereunder.
F. SFI may deliver the Software in compact disc ("CD") format. Such CD may
contain applications which You have not licensed the right to use and which are
password protected. You agree that the term "Application(s)" used in the
context of Your licensing rights under this Agreement shall mean only the
Applications described in Exhibit A and any Accepted Orders, and that You shall
not access, use, or disclose in any manner whatsoever any applications which You
have not licensed and that all copyrights, Trade Secrets, and other proprietary
rights in and to such unlicensed applications shall remained vested in SFI.
G. With advance notice, You will allow SFI to enter the Location(s) during
regular business hours in order for SFI to verify Your usage of the Software and
Third-Party Software is in compliance with this Agreement.
3. DELIVERY AND IMPLEMENTATION.
----------------------------
A. SFI shall deliver one copy of the applicable Software and Third-Party
<PAGE>
Software (if any) to You within a reasonable period of time following Your
payment of the Application Fee(s) described in Exhibit A or in Accepted
Order(s), if any. SFI shall be responsible for all freight and insurance
related to shipment of the Software to the Location(s), and bear all risk of
loss of shipment to the Location(s) as specified in the Accepted Order(s). The
Location "Contact Person" designated on Exhibit A and any Accepted Order(s) will
be the person SFI contacts for all matters related to the delivery of the
Software.
B. Upon Your request and subject to the availability of personnel, SFI
will provide You with implementation and training services on a time-and-
materials basis at SFI's then-current rates plus out-of-pocket expenses incurred
by SFI in rendering such services. Invoices relative to implementation and
training will be paid in accordance with the provisions of Section 11.D. Each
party will perform its respective responsibilities to effect a successful
implementation of the Software.
C. You will provide an environment for installation and operation of the
Software which meets the standard system requirements described in the
Documentation. SFI is not responsible for obtaining or selling to You the
hardware and all third-party software needed in order to meet the standard
system requirements or maintenance or support thereof.
4. TERM.
-----
A. This Agreement will become effective on the effective date of this
Agreement and will remain in full force and effect until the expiration of the
License Term unless earlier terminated as provided in Section 4.B.
Notwithstanding the foregoing, the Support Terms shall become effective on the
effective date of this Agreement and shall remain in full force and effect
thereafter for an initial term of one year, unless earlier terminated as
provided in this Section 4.A. or in Section 4.B. At the end of the initial one-
year term of the Support Terms and upon payment of the applicable annual support
fee, the Support Terms will automatically renew for successive one-year terms.
Either party may cause the Support Terms not to be automatically renewed by
notice to the other party given not less than thirty days prior to the end of
the initial term or any renewal term of the Support Terms, subject to Section
4.C. of this Agreement and to portions of this Agreement which shall remain in
full force and effect in accordance with their terms.
B. Either party may terminate this Agreement upon the occurrence of a
material breach hereof by the other party, which material breach has not been
cured within thirty days after receipt of written notice thereof by the
breaching party from the other. Notwithstanding the foregoing, in the event
such breach is a material breach of the Support Terms and remains uncured for
the thirty-day period stated above, the nonbreaching party may only terminate
the Support Terms and the remaining provisions of this Agreement shall continue
in full force and effect.
C. Upon either expiration or termination of the license granted herein,
You shall immediately return to SFI all Software and Third-Party Software
(including any and all copies thereof) and all SFI Trade Secret and Confidential
Information; shall render unusable any Software and Third-Party Software or
<PAGE>
portion thereof loaded on the server(s) or Workstations; and shall cause an
authorized representative of Your business to certify in writing that You have
complied with this Section 4.C. In the event of termination of the Support Terms
based on a material breach by SFI which is not cured as set forth herein, SFI
will refund to You the unused portion of the annual support fee paid for such
term based on a prorata abatement over the one-year term.
D. Each party agrees not to disclose Confidential Information obtained
from the other party for a period of three years beyond the termination of this
Agreement. Each party agrees its obligation to maintain the confidentiality of
the other party's Trade Secrets shall survive termination of this Agreement, as
shall the provisions set forth in Sections 6.B, 8, and 9.
5. SUPPORT TERMS.
--------------
A. For the annual support fee portion of the Application Fee set forth in
Exhibit A and in Accepted Order(s), if any, SFI agrees to provide the support
services as described in this Section 5.
B. SFI will:
(1) provide reasonable telephone assistance during SFI's normal
support hours to Your Designated Employees relating to the use of the
Software and Third-Party Software;
(2) make available to You new releases of the Software from time to
time as they become available to SFI's customers in general;
(3) make available to You new releases of the Third-Party Software
that SFI deems compatible with the Software from time to time as they
become available to SFI and are tested and qualified by SFI; and
(4) furnish one copy per Application of updated Documentation on the
use and operation of the Software.
C. You will:
(1) provide SFI with all information determined reasonably necessary
by SFI to replicate and resolve any Software or Third-Party Software
problem You encounter:
(2) in the event SFI must travel to the Location in order to resolve a
Software or Third-Party Software problem, provide SFI with access to and
use of all information and facilities determined reasonably necessary by
SFI to replicate and resolve any Software or Third-Party Software problem
You encounter;
(3) maintain the Software and Third-Party Software at the release
levels specified by SFI and maintain the release level of third-party
products required for operation of the Software as approved for use by SFI;
(4) operate the Software and Third-Party Software on a computer system
consistent with the standard system requirements described in the
Documentation and any updates thereto; and
(5) employ data processing or systems administration personnel with
sufficient knowledge and expertise to effectively operate and maintain the
Software and any Third-Party Software in Your technical environment.
<PAGE>
D. SFI will provide the support services described in this Section 5 only
for the then-current and immediately prior release of the Software as of the
date of Your request for services. With respect to a release other than the
then-current and immediately prior releases, SFI reserves the right to determine
whether or not to make available support services and the terms and fees of such
services, if any.
E. SFI reserves the right to discontinue support of the Third-Party
Software with or without cause upon thirty days prior notice to You. In such
event, SFI will refund to You the unused portion of the annual support fee paid
for such term based on a prorata abatement over the one-year term.
F. SFI shall not be obligated to support an Application, or portion
thereof, in which You by any program or process other than the Application (i)
delete or modify the database tables, indexes, or procedures created and
maintained by the Application, or (ii) add to, delete, or modify the data
maintained in the database tables, unless procedures for such changes are
provided by SFI in the Application Documentation or under the direction of SFI's
Customer Support and You perform the changes in accordance therewith.
6. PROPRIETARY RIGHTS AND CONFIDENTIALITY.
---------------------------------------
A. You acknowledge SFI owns or has the right to distribute the Software
and Third-Party Software. You further acknowledge the Software is unpublished
and embodies SFI's copyrights and Trade Secrets.
B. All right, title, and interest in the Software, including without
limitation, all copyrights, Trade Secrets, and other intellectual property
rights pertaining thereto shall remain vested in SFI. You do not claim any title
or ownership of the Third-Party Software.
C. Each party acknowledges that certain information it will acquire from
the other party may constitute Trade Secrets and Confidential Information.
Having acknowledged the foregoing, each party agrees (i) to exercise the same
degree of care and protection (but no less than a reasonable degree of care and
protection) with respect to the other party's Trade Secrets and Confidential
Information as each party exercises with respect to its own Trade Secrets and
Confidential Information; and (ii) not to, directly or indirectly, disclose,
copy, transfer or allow access to any Trade Secrets and Confidential Information
obtained from the other party; provided, however, each party may disclose Trade
Secrets and Confidential Information to its employees and third parties
performing services for such party related to the purposes of this Agreement who
have a need to know and who have agreed in writing to comply with the
restrictions set forth herein.
D. Anything herein to the contrary notwithstanding, You agree not to
demonstrate the Software, or operation thereof, or reveal any of SFI's Trade
Secrets and Confidential Information to any known competitor of SFI without the
prior written consent of SFI. Furthermore, You agree to keep the Software and
Third-Party Software free and clear of all claims, liens, and encumbrances.
<PAGE>
E. Each party agrees that monetary damages shall not be an adequate remedy
for breach of its respective obligations of confidentiality set forth herein and
that in addition to all other remedies to which it may be entitled, the
nonbreaching party shall have the right to apply to a court of competent
jurisdiction for a temporary restraining order, preliminary injunction, or other
equitable relief to preserve the status quo or prevent irreparable harm in the
event there is a breach or threatened breach of the provisions set forth in this
Section 6.
7. LIMITED WARRANTIES AND DISCLAIMERS.
-----------------------------------
A. SFI represents and warrants that (i) SFI has the right to grant the
license granted herein, and (ii) so long as You maintain and are in compliance
with the Support Terms, the Software will be free of material defects and will
operate in accordance with the Documentation.
B. SFI will take appropriate action to correct any material
nonconformities with the limited warranty set forth in Section 7.A. of which SFI
receives notice from You; or, at SFI's option, SFI will replace the
nonconforming portion of the Software. The limited warranty set forth in
Section 7.A. shall not apply to (and You shall pay SFI at SFI's then-current
rates for additional services performed by SFI in connection therewith)
nonconformities reasonably determined by SFI to have been caused by any of the
following: (i) deletions or modifications to the Software, database tables,
indexes, or procedures performed by a party other than SFI and not under SFI's
direction; (ii) additions, deletions, or modifications to the data maintained in
the database tables created and maintained by the Application by any program or
process other than the Application; (iii) negligence in the operation or use of
the Software; or (iv) use, adjustments, installation, or malfunction of any
products or goods other than those authorized by SFI.
C. THE LIMITED WARRANTIES SET FORTH IN THIS AGREEMENT ARE MADE FOR THE
BENEFIT OF YOU ONLY. THE REMEDIES DESCRIBED IN SECTION 7.B. ARE THE SOLE AND
EXCLUSIVE REMEDIES FOR BREACH OF THE LIMITED WARRANTY MADE IN SECTION 7.A.
THERE ARE NO OTHER WARRANTIES OR CONDITIONS, WHETHER WRITTEN OR ORAL, EXPRESS OR
IMPLIED, WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT, THE SOFTWARE
(INCLUDING ANY THIRD-PARTY SOFTWARE PRODUCTS), OR ANY OTHER GOODS OR SERVICES
PROVIDED BY SFI, INCLUDING ANY IMPLIED WARRANTIES OR CONDITIONS OF
MERCHANTABILITY OR AGAINST INFRINGEMENT OR IMPLIED WARRANTIES OR CONDITIONS OF
FITNESS FOR A PARTICULAR PURPOSE. THE REMEDIES DESCRIBED IN THIS SECTION 7 ARE
THE SOLE AND EXCLUSIVE REMEDIES FOR BREACH HEREOF.
8. INDEMNIFICATIONS.
-----------------
A. SFI shall defend, at its expense, any action (or portion thereof)
brought against You based solely on a claim that the Software infringes upon a
United States copyright or violates the proprietary trade secret of any third
party. SFI will indemnify You and hold You harmless against damages and costs,
including attorneys' fees, finally awarded against You in such actions which are
directly attributable to such claims; provided SFI is given prompt written
notice of such claim, reasonable assistance from You, and sole authority to
<PAGE>
defend or settle such claim. If the Software becomes, or in SFI's opinion is
likely to become, the subject of such a claim of infringement, then SFI may, at
its option: (i) procure for You the right to use the Software free of any
liability for infringement or violation; or (ii) replace or modify the Software
to make it noninfringing or nonviolating. SFI shall have no liability for any
claim based on use or modification of the Software other than as specified in
this Agreement and the Documentation or use of third-party products either
independently or with the Software. THIS SECTION SETS FORTH THE COMPLETE
LIABILITY OF SFI WITH RESPECT TO INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS.
B. You acknowledge the Software is an information software package only
and that the Software is designed merely to assist You, Your agents, and
employees in the performance of their professional activities and is not
intended to replace the professional skill and judgment of You, Your agents, or
employees. You shall be solely responsible for the accuracy and adequacy of
information and data furnished for processing and any use made by You, Your
agents or employees of the data output by the Software and any reliance thereon.
You shall indemnify, defend, and hold harmless SFI and its affiliates and their
respective officers, directors, shareholders, agents, and representatives
against any and all liabilities, obligations, losses, costs, damages, and other
expenses and attorneys' fees relating to any claim by any third party arising
from or relating to this Agreement or Your use of the Software or any output
thereof (except to the extent SFI is obligated to indemnify You as described in
Section 8.A.), provided SFI gives You prompt written notice of such claim,
reasonable assistance, and sole authority to defend or settle such claim.
9. LIMITATION OF LIABILITY.
------------------------
A. EXCEPT FOR THE SPECIFIC LIABILITIES ASSUMED BY SFI UNDER SECTION 8.A.,
UNDER NO CIRCUMSTANCES SHALL SFI OR ANY SUPPLIER OF SFI HAVE ANY LIABILITY TO
YOU OR ANY THIRD PARTY FOR ANY CONSEQUENTIAL, EXEMPLARY, INCIDENTAL, INDIRECT,
OR SPECIAL DAMAGES OR COSTS (INCLUDING ATTORNEYS' FEES) OR LOSS OF GOODWILL
RESULTING FROM ANY CLAIM (INCLUDING ANY CAUSE OF ACTION IN CONTRACT, TORT,
NEGLIGENCE, STRICT LIABILITY, OR PRODUCTS LIABILITY) REGARDING THIS AGREEMENT OR
RESULTING FROM OR IN CONNECTION WITH THE USE OF OR INABILITY TO USE, OR
PERFORMANCE OR NONPERFORMANCE OF, THE SOFTWARE, THE THIRD-PARTY SOFTWARE, OR ANY
OTHER GOODS OR SERVICES PROVIDED BY SFI OR ITS SUPPLIERS, OR ANY COMPONENT
THEREOF, EVEN IF SFI OR SUCH SUPPLIERS HAVE BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES OR COSTS.
B. EXCEPT FOR THE SPECIFIC LIABILITIES ASSUMED BY SFI UNDER SECTION
8.A., IN NO EVENT SHALL SFI OR ANY THIRD-PARTY SUPPLIER OF SOFTWARE PRODUCTS BE
LIABLE TO YOU UNDER THIS AGREEMENT OR OTHERWISE, REGARDLESS OF THE FORM OF CLAIM
OR ACTION, IN AN AMOUNT THAT EXCEEDS THE LICENSE FEE PORTION OF THE APPLICATION
FEE PAID BY YOU FOR THE PARTICULAR APPLICATION INVOLVED. FOR PURPOSES OF THIS
SECTION 9.B ONLY, THE LICENSE FEE PORTION OF THE APPLICATION FEE SHALL BE DEEMED
<PAGE>
TO BE EIGHTY PERCENT OF SUCH APPLICATION FEE. SFI SHALL HAVE NO LIABILITY FOR
ANY DAMAGES WHATSOEVER RELATING TO ANY PRODUCTS, GOODS, OR SERVICES NOT PROVIDED
BY SFI.
C. You acknowledge and agree that the fees charged by SFI in this
Agreement reflect the allocation of risks including (but not limited to) the
foregoing limitation of liability and the exclusive remedies described in
Section 7.B. A modification of the allocation of risks set forth in this
Agreement would affect the fees charged by SFI, and in consideration of such
fees, You agree to such allocations of risk.
10. FORCE MAJEURE.
--------------
Neither party shall be liable for any delay or failure in performance of
this Agreement if caused by an act of God or any factor beyond control of the
party. In any such event, the date for the party's performance shall be deferred
for a period of time equal to the time lost by reason of such act of God or
other factor beyond control, provided that the delayed party shall notify the
other party of such occurrence and shall cooperate with the other party in
minimizing any adverse impact of such occurrence.
11. PAYMENT TERMS.
--------------
A. Upon Your execution of this Agreement, You will pay SFI the total
fee(s) described in Exhibit A. With respect to additional items and
professional services ordered after the effective date of this Agreement
pursuant to an Accepted Order, You will pay SFI the total fee(s) described in
such Accepted Order on the dates specified therein or, if not specified, thirty
days from the date of the invoice. In addition, and provided the Support Terms
have not been terminated in accordance with Section 4 of this Agreement, You
will pay to SFI the then-current annual support fee for the Software and the
Third-Party Software on each anniversary date of the effective date of this
Agreement which payment will be made on the first day of the month in which the
anniversary date of the effective date occurs. The annual support fee will be
prorated for a partial month if the effective date is not the first day of a
month.
B. You will pay SFI all reasonable out-of-pocket expenses incurred by SFI
relating to the performance of the services specified hereunder. Any services
provided by SFI to You which are beyond the included services described in this
Agreement will be at SFI's then-current rates.
C. You will be responsible for payment of all applicable sales, use, ad
valorem, and excise taxes; duties; and assessments relating to the goods and
services provided hereunder. You shall hold SFI harmless from all claims and
liability arising from Your failure to pay such taxes.
D. Each of the amounts payable by You to SFI under this Agreement will be
due and payable on the date specified herein or, if not specified, thirty days
from the date of the invoice. SFI's obligations and Your rights under this
Agreement are conditioned upon Your payment of the fees and other charges
described herein. Any amount payable pursuant to this Agreement which is not
paid within thirty (30) days of the date of invoice shall be delinquent and
shall bear interest at the rate of one and one half percent (1.5%), or the
<PAGE>
maximum legal rate if less, for each month or portion thereof it is delinquent;
You shall pay such interest, along with all costs and reasonable attorneys' fees
incurred by SFI in the collection of such delinquent amounts. All fees and
charges related to this Agreement are in U.S. dollars.
12. ADDITIONAL ITEMS.
-----------------
A. Additional items of Software, Third-Party Software, professional
services, and the right to operate the Software (i) with additional Full Users,
or (ii) with access to additional production copies of the Database Software, or
any one or more of the foregoing, may be added to this Agreement by execution of
an amendment to this Agreement in accordance with the procedure described in
this Section 12.
B. In the event You desire to license such additional items, You must (i)
have an authorized representative execute an amendment to this Agreement
detailing such request, and (ii) remit such order request to SFI. Upon
acceptance by SFI, SFI will execute the amendment and return a fully executed
copy to You for Your files. Such additional items shall be governed by the
terms and conditions of this Agreement. If the request is accompanied by Your
purchase order, any preprinted terms and conditions appearing on such purchase
order shall not apply to or become part of this Agreement regardless of any
statement to the contrary contained in or specified on such form.
13. NOTICES.
--------
All notices under this Agreement shall be in writing and shall be deemed to
be effectively given if made as follows: (i) if hand delivered, when received,
(ii) if mailed, three days after being deposited postage prepaid in the United
States mail, and sent via certified mail, return receipt requested, (iii) if
faxed, on the date of the fax confirmation, or (iv) if mailed for overnight
delivery, when delivered by the overnight delivery carrier, if to SFI, to the
Vice President of Operations or to the Contracts Manager at the address set
forth in the first paragraph of this Agreement, and if to You, to Your employee
identified in Exhibit A under the heading "Notices to You" at the address set
forth therein. Each party may change the address or title of the person to whom
notices will be sent by giving notice in the manner set forth herein.
14. GENERAL.
--------
A. This Agreement represents the complete and exclusive statement of the
mutual understanding of the parties with respect to the subject matter hereof
and supersedes and cancels all previous and contemporaneous written and oral
agreements and communications relating to the subject matter of this Agreement.
B. This Agreement may not be amended, supplemented, or otherwise modified
except by an instrument in writing signed by each of the parties hereto.
C. You agree to cooperate with SFI as reasonably necessary to permit SFI
to comply with the laws and administrative regulations of the United States
relating to the control of exports of commodities and technical data. You also
<PAGE>
agree not to export or re-export directly or indirectly (including via remote
access) any of the computer software provided by SFI to You (including any
Confidential Information and Trade Secrets of SFI) to any country for which
export or re-export is forbidden or for which a validated license is required
under U.S. law. The parties agree that the United Nations Convention on
Contracts for the International Sale of Goods shall not apply to this Agreement
in any respect.
D. The exhibits referenced in this Agreement are attached hereto and
incorporated herein by reference. In case of any conflict between this
Agreement (excluding the exhibits) and one or more of the exhibits, the
provisions of this Agreement (excluding the exhibits) shall control and govern.
E. The invalidity or unenforceability of one or more provisions of this
Agreement shall not affect the validity or enforceability of any of the other
provisions hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provisions were omitted. Without limiting the
generality of the preceding sentence, if any remedy set forth in this Agreement
is determined to have failed of its essential purpose, then all other provisions
of this Agreement, including the limitation of liability and exclusion of
damages shall remain in full force and effect. The failure of either party to
exercise any of its rights under this Agreement shall not be deemed a waiver or
forfeiture of such rights.
F. This Agreement shall bind and inure to the benefit of each party hereto
and its respective successors and assigns. You may not assign, transfer, or
pledge this Agreement, or any interest, license, or rights of any kind herein,
in any manner, without the express written consent of SFI.
G. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original but all of which together shall be deemed for
all purposes to constitute one and the same instrument.
H. The titles of sections are for convenience of reference only and shall
not be deemed to be a part of this Agreement.
I. This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia without giving effect to the conflict of law
principles.
ATTACHED HERETO AND MADE A PART HEREOF: Exhibit A, Addendum 1.
<PAGE>
IN WITNESS WHEREOF, each party has executed this Agreement as of the
effective date set forth in Exhibit A and represents and warrants to the other
that it is legally free to enter into this Agreement and that its execution has
been duly authorized.
YOU:
SFI:
TECHNOLOGY VENTURES, L.L.C. SQL FINANCIALS INTERNATIONAL, INC.
McCALL CONSULTING GROUP, INC. D/B/A SQL FINANCIALS
By: /s/ Joseph S. McCall By: /s/ Stephen P. Jeffery
------------------------------- -----------------------------------
Name: Joseph S. McCall Name: Stephen P. Jeffery
Titles: Sole Manager, Technology Title: President
Ventures, L.L.C.
President, McCall Consulting
Group, Inc.
Date: February 5, 1998 Date: February 5, 1998
---------------------------- --------------------------------
<PAGE>
ADDENDUM 1
TO THE SQL FINANCIALS INTERNATIONAL, INC.
SOFTWARE LICENSE AND SUPPORT AGREEMENT WITH
TECHNOLOGY VENTURES, L.L.C. AND MCCALL CONSULTING GROUP, INC.
THIS ADDENDUM 1 ("Addendum 1") is by and between SQL FINANCIALS
INTERNATIONAL, INC. d/b/a SQL Financials(R) ("SFI") and TECHNOLOGY VENTURES,
L.L.C. and McCALL CONSULTING GROUP, INC. ("You" and "Your") and amends the
Software License and Support Agreement between SFI and You of even date herewith
(the "Agreement").
For and in consideration of the representations set forth herein, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. PRECEDENCE OF ADDENDUM.
-----------------------
The Addendum shall be considered a part of the Agreement as if fully set
forth therein. However, if any term or condition of the Addendum conflicts
with any term or condition of the Agreement, then such term or condition of the
Addendum shall control.
2. DEFINITIONS.
------------
A. Section 1.B. of the Agreement is hereby deleted in its entirety and
replaced with the following:
"Application means any one of the computer software programs comprising the
-----------
Software as set forth in Exhibit A, including any additional Software provided
to You by SFI from time to time (i.e. Order Entry, Inventory Management and/or
Treasury Management Software as set forth below)."
B. Section 1.C. of the Agreement is hereby deleted in its entirety and
replaced with the following:
"Application Fee means the consideration paid or given by You as specified
---------------
in Exhibit A for the licensing rights to the Software and Third-Party Software."
3. DELIVERY AND IMPLEMENTATION
---------------------------
The first sentence of Section 3.A. of the Agreement is hereby deleted in
its entirety and replaced with the following:
"SFI shall deliver one copy of all Software and Third-Party Software to You
promptly upon its general availability. In the event SFI, in its sole
discretion, develops, or acquires the right from a third party(s) to sublicense,
without additional payment to the Third-Party, Software designed for Order
Entry, Inventory Management, or Treasury Management, SFI agrees to deliver such
Software to You promptly upon its general availability."
<PAGE>
4. TERM.
-----
A. The second and third sentences of Section 4.A. of the Agreement are
hereby deleted in their entirety and replaced with the following:
"Notwithstanding the foregoing, the Support Terms shall become effective on
the effective date of this Agreement and shall remain in full force and effect
thereafter for an initial term ending December 31, 1998, unless earlier
terminated as provided in this Section 4.A. or in Section 4.B. At the end of
each term of the Support Terms, the Support Terms will automatically renew for
successive one-year terms, provided Technology Ventures, L.L.C. continues to
own at least 100,000 shares of the outstanding common stock of SFI (the
"Ownership Interest"). In the event Technology Ventures, L.L.C. does not retain
an Ownership Interest in SFI, You may renew the Support Terms by paying SFI for
such support at SFI's then-current list price for such support."
5. SUPPORT TERMS.
--------------
Section 5.A. of the Agreement is hereby deleted in its entirety and
replaced with the following:
"SFI agrees to provide the support services as described in this Section 5
during each term of these Support Terms provided You have not made any changes
to the Software."
6. LIMITATION OF LIABILITY.
------------------------
The second sentence of Section 9.B. is hereby deleted in its entirety.
7. CHANGE OF OWNERSHIP.
--------------------
As of the effective date (as to Technology Ventures, L.L.C.) of this
Agreement, Joseph S. McCall holds a controlling interest in Technology Ventures,
L.L.C., which has a controlling interest in McCall Consulting Group, Inc. In
the event the controlling interest in Technology Ventures, L.L.C. is no longer
held by Joseph S. McCall, or Technology Ventures, L.L.C. no longer holds a
controlling interest in McCall Consulting Group, Inc., SFI may, at its sole
discretion, impose an annual support fee. Any fees imposed under this section
shall be due and payable within thirty (30) days after the date of the invoice.
For the purposes of this paragraph, "controlling interest" shall mean a majority
ownership interest in either Technology Ventures, L.L.C. or McCall Consulting
Group, Inc.
In the event that a competitor of SFI becomes a holder of any interest in
Technology Ventures, L.L.C. or McCall Consulting Group, Inc., or Technology
Ventures, L.L.C. or McCall Consulting Group, Inc. become a holder of any
interest in a competitor of SFI, SFI may, at its sole discretion either (a)
terminate this Agreement in its entirety with no penalty, and You must comply
with Section 4.C. of the Agreement; or (b) impose a license fee for the Software
or an annual support fee or both. Any fees imposed under this section shall be
due and payable within thirty (30) days after the date of the invoice.
<PAGE>
IN WITNESS WHEREOF, each party has executed this Addendum 1 as of the
effective date set forth in Exhibit A and represents and warrants to the other
that it is legally free to enter into this agreement and that its execution has
been duly authorized.
YOU: SFI:
TECHNOLOGY VENTURES, L.L.C. SQL FINANCIALS INTERNATIONAL, INC.
McCALL CONSULTING GROUP, INC. D/B/A SQL FINANCIALS
By: /s/ Joseph S. McCall By: /s/ Stephen P. Jeffery
------------------------------ -----------------------------------
Name: Joseph S. McCall Name: Stephen P. Jeffery
Titles: Sole Manager, Technology Title: President
Ventures, L.L.C.
President, McCall Consulting
Group, Inc.
Date: February 5, 1998 Date: February 5, 1998
----------------------------- ----------------------------------
<PAGE>
EXHIBIT 11.1
<TABLE>
<CAPTION>
PRO FORMA
1995 1996 1997 1997
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Net loss........................................ $(8,049) $(7,879) $(4,110) $(4,110)
Weighted average common shares outstanding...... 1,300 1,373 1,386 1,386
Conversion of preferred stock (1)............... 0 0 0 4,761
------- ------- ------- -------
Total...................................... 1,300 1,373 1,386 6,147
Basic and diluted net loss per share (2)........ $ (6.19) $ (5.74) $ (2.97)
======= ======= =======
Pro forma basic and diluted net loss per share.. $ (0.67)
=======
</TABLE>
- ---------
(1) Preferred Stock will be converted to Common Stock upon the Offering
(2) Basic and diluted earnings per share are the same as all common stock
equivalents are antidilutive
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountant, we hereby consent to the use of our reports
(and to all references to our firm) included in or made part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 2, 1998
<PAGE>
Exhibit 23.4
CONSENT OF
WILLAMETTE MANAGEMENT ASSOCIATES, INC.
We hereby consent to the inclusion of our valuation reports to SQL
Financials International, Inc. ("SQL") and to the reference to our name in SQL's
Registration Statement on Form S-1. In giving such consent, we do not admit that
we come within the category of persons whose consent is required under, and we
do not admit and we disclaim that we are "experts" for purposes of, the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.`
By: /s/ Curtis R. Kimball
----------------------------------------
Curtis R. Kimball
Principal
Williamette Management Associates, Inc.
Atlanta, Georgia
April 3, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,213
<SECURITIES> 0
<RECEIVABLES> 4,684
<ALLOWANCES> 634
<INVENTORY> 0
<CURRENT-ASSETS> 12,095
<PP&E> 3,374
<DEPRECIATION> (1,867)
<TOTAL-ASSETS> 14,681
<CURRENT-LIABILITIES> 12,210
<BONDS> 0
25,112
0
<COMMON> 0
<OTHER-SE> (27,910)
<TOTAL-LIABILITY-AND-EQUITY> 14,681
<SALES> 0
<TOTAL-REVENUES> 25,988
<CGS> 0
<TOTAL-COSTS> 8,580
<OTHER-EXPENSES> 20,766
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274
<INCOME-PRETAX> (4,110)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,110)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,110)
<EPS-PRIMARY> (2.97)
<EPS-DILUTED> (2.97)
</TABLE>
<PAGE>
EXHIBIT 99.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL
STATEMENT SCHEDULE
To the Stockholders and the Board of Directors
of Melita International Corporation
We have audited in accordance with generally accepted auditing standards, the
financial statements of Melita International Corporation and Subsidiaries
included in this Registration Statement and have issued our report thereon dated
February 19, 1998. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule listed in Item
16(b) is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commissions rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 19, 1998
