<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-09811
GRAPEVINE SYSTEMS, INC.
----------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 13, 1996
----------------------------------------
A special meeting of the holders of the Class A Common Stock of Grapevine
Systems, Inc. is to be held on September 13, 1996 at 10 A.M. (local time), at
10842 Farnam Drive, Omaha, Nebraska 68154, for the following purposes:
1. To consider and vote upon a Stock Exchange Agreement, dated as of July
15, 1996, by and among Transaction Systems Architects, Inc., a Delaware
Corporation ("TSA"), Grapevine Systems, Inc., and Stephen J. Royer, James J.
McFadden, Michael F. Benson, James G. Strickland and Michael R. Engel, pursuant
to which TSA is to acquire all the issued and outstanding shares of Grapevine
Class A Common Stock, par value $.004 per share ("Grapevine Class A Common
Stock") and Grapevine Class B Common Stock, par value $.004 per share
("Grapevine Class B Common Stock") in exchange for shares of Class A Common
Stock of TSA; and
2. To transact such other business as may properly come before the
special meeting, including any and all adjournments and postponements thereof.
The Stock Exchange Agreement is described in and attached, together with
the Plan of Share Exchange, as Annex B to the accompanying Joint Prospectus
Supplement and Information Statement.
The Stock Exchange Agreement must be approved by the holders of a two-
thirds majority of the outstanding Grapevine Class A Common Stock. Only
shareholders of record of the Grapevine Class A Common Stock as of the close of
business on August 16, 1996 are entitled to notice of and to vote at the
special meeting.
The holders of Grapevine Class B Common Stock are NOT entitled to vote on
the Stock Exchange Agreement.
Holders of Grapevine Class A Common Stock are entitled to assert
dissenters' rights under Sections 21-20,137 to 21-20,150 of
<PAGE>
the Nebraska Business Corporation Act. A copy of such sections is attached as
Annex A to the accompanying Joint Prospectus Supplement and Information
Statement. Holders of Grapevine Class B Common Stock are NOT entitled to
dissenters' rights. See "The Special Meeting - Dissenters' Rights" in the
accompanying Joint Prospectus Supplement and Information Statement for a
description of the rights of dissenting holders of Grapevine Class A Common
Stock and a discussion of the procedures which must be followed by holders of
Grapevine Class A Common Stock to obtain payment of the fair value of their
shares.
By Order of the Board of Directors,
Stephen J. Royer, President
Omaha, Nebraska
August 16, 1996
NO PROXIES OF GRAPEVINE SHAREHOLDERS ARE BEING SOLICITED HEREBY AND SUCH
SHAREHOLDERS ARE REQUESTED NOT TO DELIVER PROXIES.
-2-
<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-09811
JOINT PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 16, 1996)
AND INFORMATION STATEMENT
TRANSACTION SYSTEMS ARCHITECTS, INC.
CLASS A COMMON STOCK
This Joint Prospectus Supplement and Information Statement ("Prospectus
Supplement") relates to the issuance of shares of Class A Common Stock, par
value $.005 per share (the "Class A Common Stock"), of Transaction Systems
Architects, Inc., a Delaware corporation ("TSA" or the "Company"), in connection
with a Stock Exchange Agreement, dated as of July 15, 1996 (the "Stock Exchange
Agreement"), by and among the Company, Grapevine Systems, Inc. ("Grapevine"),
and Stephen J. Royer, James J. McFadden, Michael F. Benson, James G. Strickland
and Michael R. Engel (the "Principal Shareholders"). Pursuant to the Stock
Exchange Agreement, the Company is to acquire all of the issued and outstanding
shares of Grapevine Class A Common Stock, par value $.004 per share ("Grapevine
Class A Common Stock") and Grapevine Class B Common Stock, par value $.004 per
share ("Grapevine Class B Common Stock"), in exchange for shares of Class A
Common Stock (the "Share Exchange"). The total number of shares of Class A
Common Stock to be issued to shareholders of Grapevine in connection with the
Share Exchange is 370,000 shares, subject to adjustment in the event that the
average per share closing price of the Company's Class A Common Stock on the
Nasdaq National Market for the five business days after the Registration
Statement of which this Prospectus Supplement is a part (the "Registration
Statement") is declared effective by the Securities and Exchange Commission (the
"SEC") is less than $30.00 per share or more than $40.00 per share. See "Terms
of the Stock Exchange Agreement."
NO PROXIES OF GRAPEVINE OR TSA SHAREHOLDERS ARE BEING SOLICITED HEREBY AND SUCH
SHAREHOLDERS ARE REQUESTED NOT TO DELIVER PROXIES.
------------------------
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE SECURITIES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CLASS A COMMON STOCK MAY
NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. TO THE EXTENT ANY STATEMENTS IN THIS PROSPECTUS
SUPPLEMENT CONFLICT WITH STATEMENTS IN THE PROSPECTUS, THE STATEMENTS IN THIS
PROSPECTUS SUPPLEMENT SHALL CONTROL.
-----------------------
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 OF ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------------------
The date of this Prospectus Supplement is August 16, 1996.
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus Supplement, and, if given or made, such information or
representations must not be relied upon as having been authorized. This
Prospectus Supplement does not constitute an offer to sell or a solicitation of
an offer to buy any securities other than the securities to which it relates or
an offer to sell or the solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus Supplement nor any offer or 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.
TABLE OF CONTENTS
SUMMARY.....................................................................S-4
Parties to the Share Exchange...........................................S-4
The Special Meeting.....................................................S-4
Dissenters' Rights......................................................S-5
The Share Exchange......................................................S-5
Reasons for the Share Exchange..........................................S-6
Certain Federal Income Tax Consequences.................................S-6
Accounting Treatment....................................................S-6
Resale Restrictions.....................................................S-6
Comparison of Stockholder Rights........................................S-7
Comparative Per Share Data..............................................S-7
SELECTED FINANCIAL DATA.....................................................S-8
MARKET PRICE AND DIVIDEND DATA..............................................S-9
THE SPECIAL MEETING........................................................S-10
Vote Required..........................................................S-10
Shares Entitled to Vote; Quorum........................................S-10
Interests of Affiliates of Grapevine...................................S-11
Dissenters' Rights.....................................................S-11
CONTACTS BETWEEN TSA AND GRAPEVINE.........................................S-15
REASONS FOR THE SHARE EXCHANGE.............................................S-15
TERMS OF THE STOCK EXCHANGE AGREEMENT......................................S-16
Closing of the Share Exchange..........................................S-16
Share Exchange.........................................................S-17
Effect of Share Exchange under Nebraska Business Corporation Act.......S-18
Tax-Free Reorganization................................................S-18
Pooling of Interests...................................................S-18
S-2
<PAGE>
Representations and Warranties.........................................S-19
Covenants..............................................................S-20
Conditions to the Share Exchange.......................................S-21
Indemnification........................................................S-22
Termination............................................................S-23
ACCOUNTING TREATMENT.......................................................S-24
CERTAIN FEDERAL INCOME TAX CONSEQUENCES....................................S-24
RESALE RESTRICTIONS........................................................S-26
GRAPEVINE..................................................................S-26
Description of Business................................................S-26
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................S-30
Security Ownership.....................................................S-35
COMPARISON OF STOCKHOLDER RIGHTS...........................................S-36
Authorized Capital Stock...............................................S-37
Voting.................................................................S-37
Special Meetings.......................................................S-37
Directors..............................................................S-38
Vacancies..............................................................S-38
Stockholder Action by Written Consent..................................S-39
Notice of Stockholder Business.........................................S-39
Indemnification........................................................S-40
Insurance..............................................................S-41
Limitation of Liability................................................S-41
Restrictions on Business Combinations..................................S-42
Shareholder Vote for Mergers, Share Exchanges and Sale of Assets.......S-43
Appraisal or Dissenters' Rights........................................S-43
Preferred Stock........................................................S-44
EXPERTS....................................................................S-44
INDEX TO FINANCIAL STATEMENTS..............................................S-45
ANNEX A Sections 21-20,137 to 21-20,150 of the Nebraska Business Corporation
Act regarding Dissenters' Rights.
ANNEX B Stock Exchange Agreement and Plan of Share Exchange
S-3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information contained in this Prospectus Supplement, the
accompanying Prospectus, the Annexes hereto and the documents incorporated by
reference herein or in the accompanying Prospectus. Capitalized terms used
herein and not otherwise defined shall have the respective meanings ascribed
to such terms elsewhere in this Prospectus Supplement or the accompanying
Prospectus. Unless the context requires otherwise, as used in this
Prospectus Supplement, "TSA" or the "Company" means Transaction Systems
Architects, Inc. and all of its subsidiaries.
PARTIES TO THE SHARE EXCHANGE
TSA develops, markets and supports a broad line of software products and
services primarily focused on facilitating electronic payments and electronic
commerce. The principal executive offices of TSA are located at 330 South 108th
Avenue, Omaha, Nebraska 68154, and its telephone number is (402) 390-7600.
Grapevine develops, markets and supports a broad line of software products
and services primarily focused on high availability and on-line transaction
processing systems worldwide. The principal executive offices of Grapevine are
located at 10842 Farnam Drive, Omaha, Nebraska, 68154, and its telephone number
is 402-333-3322. See "Grapevine - Description of Business."
THE SPECIAL MEETING
The Special Meeting is scheduled to be held on September 13, 1996, at
10 A.M. (local time) at 10842 Farnam Drive, Omaha, Nebraska 68154. The
purpose of the Special Meeting is to consider and vote upon the approval of the
Stock Exchange Agreement, and the transactions contemplated thereby.
The Stock Exchange Agreement must be approved by the holders of a two-
thirds majority of the outstanding Grapevine Class A Common Stock. As of Record
Date, the directors and executive officers of Grapevine and their affiliates
were the beneficial owners of approximately 95.25% of the outstanding shares of
Grapevine Class A Common Stock. As of the Record Date, the Principal
Shareholders beneficially owned approximately 95.25% of the outstanding shares
of Grapevine Class A Common Stock. The Principal Shareholders have indicated
that they intend to vote all their shares of Grapevine Class A Common Stock for
approval of the Stock Exchange Agreement. Under the terms of the Stock
Exchange Agreement, prior to the Closing Date, the parties, including the
Principal Shareholders, must use their reasonable best efforts to obtain such
written consents and take such other actions as may be necessary or
appropriate to allow the consummation of the Share Exchange.
S-4
<PAGE>
The holders of Grapevine Class B Common Stock are NOT entitled to vote on
the Share Exchange and the Stock Exchange Agreement. The vote of the holders of
TSA's Class A Common Stock is not required to approve the Stock Exchange
Agreement.
Only shareholders of record of the Grapevine Class A Common Stock as of the
close of business on August 16, 1996 (the "Record Date") will be entitled to
vote at the Special Meeting. Holders of Grapevine Class A Common Stock are
entitled to one vote at the Special Meeting for each share of Grapevine Class A
Common Stock held of record at the Record Date. A majority of the outstanding
shares of Grapevine Class A Common Stock entitled to vote must be represented in
person or by proxy at the Special Meeting in order for a quorum to be present at
the Special Meeting for the purpose of voting on the Share Exchange and the
Stock Exchange Agreement. Any Class A stockholder present in person or by proxy
at the Special Meeting, but who abstains from voting, shall be counted for
purposes of determining whether a quorum exists.
DISSENTERS' RIGHTS
Under the Nebraska Business Corporation Act, holders of Grapevine Class A
Common Stock will have dissenters' rights in connection with the Share Exchange.
Holders of Grapevine Class B Common Stock are NOT entitled to dissenters' rights
in connection with the Share Exchange. See "The Special Meeting - Dissenters'
Rights."
THE SHARE EXCHANGE
Pursuant to the Stock Exchange Agreement, the Company is to acquire all
of the issued and outstanding shares of Grapevine Class A Common Stock and
Grapevine Class B Common Stock, in exchange for shares of TSA Class A Common
Stock. The total number of shares of TSA Class A Common Stock to be issued to
shareholders of Grapevine in connection with the Share Exchange is 370,000
shares, subject to adjustment in the event that the average per share closing
price of the Company's Class A Common Stock on the Nasdaq National Market for
the five business days after the Registration Statement is declared effective
by the SEC is less than $30.00 per share or more than $40.00 per share.
The Stock Exchange Agreement contains various representations and
warranties and covenants by TSA, Grapevine and the Principal Shareholders, and
the obligations of such parties are subject to certain conditions. See "Terms
of the Stock Exchange Agreement."
Conditions to the Share Exchange include, among others, (i) the Grapevine
shareholders have approved the Grapevine Plan of Share
S-5
<PAGE>
Exchange, (ii) the Registration Statement has become effective under the
Securities Act of 1933 and has not been the subject of any stop order or
proceeding seeking a stop order; and (iii) the Grapevine Articles of Share
Exchange have been declared effective. Otherwise, no federal or state
regulatory requirements must be complied with and no federal or state
regulatory approvals must be obtained in connection with the Share Exchange.
REASONS FOR THE SHARE EXCHANGE
Grapevine's reasons for agreeing to the Share Exchange include, among
others, that TSA's global distribution and support network will permit Grapevine
to distribute its products around the world more quickly and cost effectively.
See "Reasons for the Share Exchange."
TSA's reasons for acquiring Grapevine pursuant to the Share Exchange
include, among others, the acquisition of new products which are used to manage
complex front-end networks and support a variety of hardware platforms. See
"Reasons for the Share Exchange."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Stock Exchange Agreement provides that the parties intend to adopt the
agreement as a tax-free plan of reorganization and to consummate the Share
Exchange in accordance with the provisions of Section 368(a)(1)(B) of the Code.
TSA, Grapevine and the Principal Shareholders have each agreed not to, either
before or after the Share Exchange, take any action that would prevent the Share
Exchange from qualifying as a reorganization under Section 368(a)(1)(B) of the
Code. See "Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
Grapevine and TSA intend that the Share Exchange be treated as a "pooling
of interests" for accounting purposes. The Stock Exchange Agreement provides
that consummation of the Share Exchange is conditioned upon the receipt by
TSA of an opinion from TSA's independent auditors to the effect that the
Share Exchange qualifies for accounting treatment as a "pooling of interests"
if consummated in accordance with the Stock Exchange Agreement. See
"Accounting Treatment."
RESALE RESTRICTIONS
All shares of TSA Class A Common Stock issued in connection with the
Share Exchange will be freely transferrable, except that shares of TSA Class
A Common Stock received by persons who are deemed to be "affiliates" (as such
term is defined under the Securities Act) of Grapevine prior to the Share
Exchange may be resold by them only if certain requirements are satisfied.
See "Resale Restrictions."
S-6
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
Upon consummation of the Share Exchange, holders of Grapevine Class A
Common Stock and holders of Grapevine Class B Common Stock will become
holders of TSA Class A Common Stock, and their rights will be governed by
the Delaware General Corporation Law, the Amended and Restated Certificate
of Incorporation of TSA, as amended, and the Amended and Restated Bylaws of
TSA, which differ in certain material respects from the Nebraska Business
Corporation Act, the Articles of Incorporation of Grapevine, as amended,
and the Bylaws of Grapevine, as amended. See "Comparison of Stockholder
Rights."
COMPARATIVE PER SHARE DATA
The following table presents selected comparative unaudited per share data
(i) for TSA and Grapevine on a historical basis and (ii) for TSA and Grapevine
on a pro forma basis and (iii) for Grapevine on a pro forma equivalent basis:
September 30, 1995 June 30, 1996
------------------------------------------
Book Value Per Share:
TSA Historical 2.37 2.75
Grapevine Historical 0.37 0.39
TSA Pro Forma (a) 2.36 2.73
Grapevine Pro Forma Equivalent (d) 0.48 0.56
<TABLE>
<CAPTION>
For the years ended September 30, Nine Months ended
1993 1994 1995 June 30, 1996
--------------------------------- -----------------
<S> <C> <C> <C> <C>
Net Income (Loss) Per Share:
TSA Historical (b) (1.66) 0.17 0.12
Grapevine Historical 0.10 0.13 (0.13) 0.03
TSA Pro Forma (b) (1.61) 0.15 0.34
Grapevine Pro Forma
Equivalent (d) (b) (0.33) 0.03 0.07
S-7
<PAGE>
Cash Dividends Per Share:
TSA Historical (c) (c) (c) (c)
Grapevine Historical (c) (c) (c) (c)
TSA Pro Forma (c) (c) (c) (c)
Grapevine Pro Forma Equivalent (d) (c) (c) (c) (c)
</TABLE>
(a) The pro forma book value per share is based upon 25,566,000 and 25,815,000
shares of TSA Common Stock at September 30, 1995 and June 30, 1996,
respectively, (after giving effect to an estimated 370,000 shares of TSA
Class A Common Stock to be issued in connection with the Share Exchange).
(b) Not applicable for periods prior to TSA's date of incorporation (November
2, 1993).
(c) TSA and Grapevine have not declared or paid cash dividends on their Common
Stock since their incorporation.
(d) Calculated by multiplying the TSA pro forma value by the quotient
calculated by dividing the number of shares to be issued under the Stock
Exchange Agreement by the number of shares of Grapevine outstanding as of
the end of the period.
SELECTED FINANCIAL DATA
The following selected financial data have been derived from the
financial statements of TSA and its Predecessors. The selected financial
data presented as of and for the periods ended March 31, 1991 and the nine
months ended June 30, 1995 and 1996, are unaudited. The selected financial
data presented as of and for the periods ended September 30, 1991, 1992 and
1993, the three months ended December 31, 1993, the nine months ended
September 30, 1994 and the year ended September 30, 1995 have been derived
from the audited financial statements of TSA and its Predecessors.
The selected financial data presented below should be read in conjunction
with, and are qualified by reference to, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements of TSA and its Predecessors, included in TSA's 1995 Annual Reports
on Form 10-K and Form 10-Q.
<TABLE>
<CAPTION>
PREDECESSORS (1)
US WEST
OWNERSHIP TANDEM OWNERSHIP
---------- -------------------------------------------------------
SIX MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED ENDED
MARCH 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1991 1991 1992 1993 1993
---------- ------------- ------------- -------------- -------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Total revenues $ 25,079 $23,103 $65,103 $71,158 $18,830
Net income (loss) (4,092) (4,270) (2,299) (4,390) (1,651)
Total assets 109,069 61,841 60,024 57,286 47,861
Long-term obligations -- -- 1,002 672 601
Working capital 4,749 1,121 11,379 13,879 6,861
Stockholders' equity 89,235 42,191 43,669 39,099 28,940
(deficit)
</TABLE>
<TABLE>
<CAPTION>
TSA (2)
-----------------------------------------------------
NINE MONTHS YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, JUNE 30, JUNE 30,
1994(3) 1995 1996 1995
------------ ------------ ------------ -----------
(amounts in thousands)
<S> <C> <C> <C> <C>
Total revenues $ 74,063 $114,888 $110,457 $81,801
Net income (loss) (33,538) 3,800 9,129 1,027
Total assets 58,677 100,142 111,638 67,223
Long-term obligations 22,788 318 1,547 434
Working capital 1,975 38,666 36,458 14,964
Stockholders' equity (32,392) 59,697 69,888 34,381
(deficit)
Net income (loss) per common and
equivalent share (4):
Before extraordinary loss ............. $ (1.66) $ 0.29 $ .34 $ .17
Extraordinary loss .................... -- (.12) -- (.12)
---------- ---------- ---------- -------
Net income (loss) ..................... $ (1.66) $ .17 $ .34 $ .05
---------- ---------- ---------- -------
---------- ---------- ---------- -------
Shares used in per share computation (4)... 20,208 22,871 26,658 21,961
---------- ---------- ---------- -------
---------- ---------- ---------- -------
</TABLE>
(1) TSA was formed on November 2, 1993 for the purpose of acquiring all
of the outstanding capital stock of Applied Communications Inc. (ACI)
and Applied Communications Inc. Limited (ACIL) (the Predecessors) from
Tandem Computers Incorporated. ACI and ACIL were acquired on December 31,
1993. On January 3, 1994, TSA acquired all of the outstanding common
stock of U.S. Software, Inc.
(2) The statements of operations data after January 1, 1994 are not
comparable to data for prior periods due to the effects of the acquisition
of the Predecessors. The acquisition was accounted for as a purchase and
the financial statements since the date of the acquisition are presented on
the new basis of accounting established for the purchased assets and
liabilities.
(3) The financial data for the nine months ended September 30, 1994 represent
the results of operations of TSA for the periods from inception
(November 2, 1993) through September 30, 1994. TSA did not have
substantive operations prior to the December 31, 1993 acquisition of
ACI and ACIL.
(4) Net income (loss) per common and equivalent share and the shares used in
the per share computation have been computed on the basis described in
Note 2 to the Consolidated Financial Statements included in TSA's 1995
Annual Report on Form 10-K.
The following table sets forth selected financial data of Grapevine as of
and for each of the years in the five-year period ended December 31, 1995 and
as of and for each of the six month periods ended June 30, 1995 and 1996.
The financial data as of and for each of the five years in the period ended
December 31, 1995, have been derived from Grapevine's audited Financial
Statements. Grapevine's Financial Statements as of December 31, 1994 and
1995, and for the years ended December 31, 1993, 1994 and 1995 have been
included in this Prospectus. The financial data as of and for the six month
periods ended June 30, 1995 and 1996 are derived from unaudited financial
statements of Grapevine and, in the opinion of management, reflect all
adjustments, consisting only of adjustments of a normal recurring nature,
necessary for a fair presentation of such data. The statements of operations
data for interim periods is not necessarily indicative of results for the
full year. The information below is qualified in its entirety by the
detailed information included elsewhere herein and should be read in
conjunction with "Grapevine - Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Grapevine - Description of
Business" and the Financial Statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
----------------------------------------------
1991 1992 1993 1994 1995 1996 1995
---- ---- ---- ---- ---- ---- ----
(amounts in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Gross revenues $1,904 $2,835 $3,351 $3,810 $4,805 $2,959 $2,148
Net income (loss) 47 128 150 66 9 (7) (12)
Total assets 766 984 1,372 1,616 1,895 2,184 1,929
Long-term obligations 18 18 3 10 8 85 20
Working capital (deficit) 32 16 145 8 (59) (156) (117)
</TABLE>
For TSA pro forma information giving effect to the Share Exchange pursuant to
the Stock Exchange Agreement dated July 15, 1996 between TSA, Grapevine, and
the Principal Shareholders, see pages F-14 through F-20 of this document.
S-8
<PAGE>
MARKET PRICE AND DIVIDEND DATA
The TSA Class A Common Stock is traded over-the-counter on the Nasdaq
National Market under the symbol "TSAI." The following table sets forth, for
the fiscal quarters indicated, the high and low sale prices of the Class A
Common Stock as reported by the Nasdaq National Market since TSA's initial
public offering on February 23, 1995, as adjusted to reflect a 2-for-1 split of
TSA's Class A Common Stock and Class B Common Stock effected July 1, 1996.
High Low
---- ---
1995
----
Second quarter . . . . $11 3/4 $8 7/8
Third quarter . . . . 13 3/8 9 3/8
Fourth quarter . . . . 14 11 3/4
1996
----
First quarter . . . . $16 7/8 $12 1/2
Second quarter . . . . 20 3/8 16 3/8
Third quarter . . . . 33 1/2 20 1/4
Fourth quarter (through
August 5, 1996) . . 40 1/2 24 3/4
On July 12, 1996, the last trading day preceding public announcement of
the proposed share exchange, the last sale price of TSA's Class A Common
Stock as reported by the Nasdaq National Market was $29.50 per share. On
August 5, 1996, the last sale price of TSA's Class A Common Stock as reported
by the Nasdaq National Market was $30.00 per share. There were 406 holders of
record of TSA's Class A Common Stock as of August 5, 1996.
TSA has not declared or paid cash dividends on its common stock since its
incorporation. TSA currently intends to retain earnings to finance the growth
and development of its business and does not anticipate paying cash dividends in
the foreseeable future. Any payment of cash dividends in the future will depend
upon the financial condition, capital requirements and earnings of TSA, as well
as other factors the Board of Directors of TSA may deem relevant.
There is no established public trading market for the Grapevine Class A
Common Stock or the Grapevine Class B Common Stock. As of the date of this
Prospectus Supplement, the Grapevine Class A Common Stock and the Grapevine
Class B Common Stock are held of record by 12 and 39 holders, respectively.
Grapevine has never paid a cash dividend to its shareholders.
Grapevine Class A Common Stock and Grapevine Class B Common Stock have not
been issued or transferred for consideration within
S-9
<PAGE>
the past two fiscal years, except for transactions pursuant to Grapevine's
Employee Stock Incentive Plan (See Note H to Financial Statements of
Grapevine) or other compensatory arrangements.
THE SPECIAL MEETING
A special meeting of the shareholders of Grapevine (the "Special
Meeting") is scheduled to be held on September 13, 1996, at 10 A.M.
(local time) at 10842 Farnam Drive, Omaha, Nebraska 68154. The purpose of
the Special Meeting is to consider and vote upon the approval of the Stock
Exchange Agreement, and the transactions contemplated thereby.
VOTE REQUIRED
The Stock Exchange Agreement must be approved by the holders of a two-
thirds majority of the outstanding Grapevine Class A Common Stock, or 866,167
shares. As of the Record Date, the Principal Shareholders beneficially owned
approximately 95.25% of the outstanding shares of Grapevine Class A Common
Stock. The Principal Shareholders have indicated that they intend to vote all
their shares of Grapevine Class A Common Stock for approval of the Stock
Exchange Agreement. Under the terms of the Stock Exchange Agreement, prior to
the Closing Date, the parties, including the Principal Shareholders, must use
their reasonable best efforts to obtain such written consents and take such
other actions as may be necessary or appropriate to allow the consummation of
the Share Exchange.
Grapevine Class B Common Stock does not have voting rights, except as
specifically required by the Nebraska Business Corporation Act ("NBCA"). The
NBCA does not require the vote of the holders of Grapevine Class B Common Stock
to approve the Stock Exchange Agreement. Likewise, the vote of the holders of
TSA's Class A Common Stock is not required to approve the Stock Exchange
Agreement.
A condition to TSA's obligations under the Stock Exchange Agreement is that
the number of dissenting shares to the Plan of Share Exchange does not exceed
10% of the outstanding shares of Grapevine Class A Common Stock. See "Terms of
the Stock Exchange Agreement."
SHARES ENTITLED TO VOTE; QUORUM
Only shareholders of record of the Grapevine Class A Common Stock as of the
close of business on August 16, 1996 (the "Record Date") will be entitled to
vote at the Special Meeting. As of the Record date, there were 1,299,250 shares
of Grapevine Class A Common Stock outstanding. Holders of Grapevine Class A
Common Stock are entitled to one vote at the Special Meeting for each share of
Grapevine Class A Common Stock held of record at the Record Date. A majority of
the outstanding shares of Grapevine Class A Common Stock entitled to vote must
be represented in person
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or by proxy at the Special Meeting in order for a quorum to be present at the
Special Meeting for the purpose of voting on the Share Exchange and the Stock
Exchange Agreement. Any Class A stockholder present in person or by proxy at
the Special Meeting, but who abstains from voting, shall be counted for purposes
of determining whether a quorum exists.
INTERESTS OF AFFILIATES OF GRAPEVINE
Pursuant to the terms of the Stock Exchange Agreement, upon consummation of
the Share Exchange, TSA will offer Stephen J. Royer, James J. McFadden and
Michael F. Benson, each of whom is an executive officer and director of
Grapevine, compensation plans similar to those for executives in similar
positions with other TSA subsidiaries.
DISSENTERS' RIGHTS
Holders of Grapevine Class A Common Stock are entitled to dissent from, and
obtain payment of the fair value of their shares in the event of the
consummation of the Share Exchange. Holders of Grapevine Class B Common Stock
are NOT entitled to dissenters' rights in connection with the Share Exchange.
Holders of Grapevine Class A Common Stock who elect to dissent from the
Share Exchange and demand payment of the fair value of their shares of Grapevine
Class A Common Stock must strictly comply with the applicable provisions set
forth in Sections 21-20,137 to 21-20,150 of the NBCA, a copy of which is
attached hereto as Annex A. THE FOLLOWING DISCUSSION IS NOT A COMPLETE
STATEMENT OF NEBRASKA LAW PERTAINING TO DISSENTERS' RIGHTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO ANNEX A HERETO.
WRITTEN NOTICE AND VOTING
If a holder of Grapevine Class A Common Stock elects to exercise his or her
dissenters' rights and demand payment of the fair value of his or her shares of
Grapevine Class A Common Stock, the holder must satisfy both of the following
conditions, as well as the applicable procedural requirements: (i) the holder
must deliver to Grapevine prior to the vote at the Special Meeting a written
notice of the holders' intent to demand payment for his or her shares if the
Share Exchange is effectuated, and (ii) the holder may not vote his or her
shares in favor of the Share Exchange or the Stock Exchange Agreement. Such
written notice should be sent to David P. Stokes, General Counsel and Secretary,
Transaction Systems Architects, Inc., 330 South 108th Avenue, Omaha, Nebraska
68154.
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A holder of Grapevine Class A Common Stock who does not deliver the written
notice described above or who votes in favor of the approval of the Stock
Exchange Agreement is not entitled to demand payment for his or her Grapevine
Class A Common Stock.
DISSENT BY NOMINEES AND BENEFICIAL OWNERS
A record shareholder may assert dissenters' rights as to fewer than all
shares registered in his or her name only if he or she dissents with respect to
all shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he or she asserts
dissenters' rights. The rights of a partial dissenter shall be determined as if
the shares as to which he or she dissents and his or her other shares were
registered in the name of different shareholders.
A beneficial shareholder may assert dissenters' rights as to shares held on
his or her behalf only if: (a) he or she submits to TSA the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and (b) he or she does so with respect
to all shares of which he or she is the beneficial shareholder or for which he
or she has power to direct the vote.
DISSENTERS' NOTICE
If the Stock Exchange Agreement is approved, TSA will deliver a written
dissenters' notice (the "Dissenters' Notice") to each holder of Grapevine Class
A Common Stock who delivered written notice of his or her intent to dissent
prior to the vote at the Special Meeting and did not vote his or her shares in
favor of the Share Exchange ("Dissenting Shareholder") no later than ten days
after such approval. The Dissenters' Notice must (i) state where the payment
demand must be sent and where and when certificates for certificated shares
shall be deposited; (ii) inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is received;
(iii) supply a form for demanding payment that includes the date of the first
announcement to media or shareholders of the terms of the Share Exchange and
requires that the Dissenting Shareholder certify whether or not he or she
acquired beneficial ownership of his or her Grapevine Class A Common Stock
before that date; (iv) set a date by which TSA must receive the payment demand
which date may not be fewer than thirty nor more than sixty days after the date
the Dissenters' Notice is delivered; and (v) be accompanied by a copy of
Sections 21-20,137 to 21-20,150 of the NBCA.
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DUTY TO DEMAND PAYMENT
The Dissenting Shareholder must demand payment, certify whether he or she
acquired beneficial ownership of his or her shares of Grapevine Class A Common
Stock before the date set forth in the Dissenters' Notice, and deposit his or
her certificates in accordance with the terms of the Dissenters' Notice, in
order to preserve his or her statutory Dissenters' rights. A Dissenting
Shareholder who demands payment and deposits stock certificates in accordance
with the Dissenters' Notice retains all other rights of a shareholder until such
rights are cancelled or modified by the effectuation of the Share Exchange. A
Dissenting Shareholder who fails to demand payment or deposit stock certificates
as required by the Dissenters' Notice by the respective date set forth therein
is not entitled to payment for his or her shares under Sections 21-20,137 to 21-
20,150 of the NBCA.
PAYMENT
As soon as the Share Exchange is effectuated, or upon receipt of a payment
demand, TSA will pay each Dissenting Shareholder who complied with the statutory
conditions the amount TSA estimates to be the fair value of his or her shares of
Grapevine Class A Common Stock, plus accrued interest. Such payment will be
accompanied by (i) TSA's balance sheet as of the end of a fiscal year ending not
more than sixteen months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year, and the
latest available interim financial statements, if any; (ii) statement of TSA's
estimate of the fair value of the shares; (iii) an explanation of how the
interest was calculated; (iv) a statement of the dissenters' right to demand
payment if dissatisfied under Section 21-20,148 of the NBCA; and (v) a copy of
Sections 21-20,137 to 21-20,150 of the NBCA.
AFTER-ACQUIRED SHARES
TSA may elect to withhold payment from a Dissenting Shareholder who
acquired beneficial ownership of his or her shares of Grapevine Class A Common
Stock after the date set forth in the Dissenters' Notice as the date of the
first announcement to news media or to shareholders of the terms of the Share
Exchange or the Stock Exchange Agreement ("Post Announcement Shareholders"). To
the extent TSA elects to withhold payment from such shareholders, it will
estimate the fair value of the shares, plus accrued interest and pay this amount
to each Post Announcement Shareholder who agrees to accept it in full
satisfaction of his or her demand. TSA will send with its offer a statement of
its estimate of the fair value of the shares, an explanation of how the interest
was calculated and a statement of the dissenters' right to demand payment if
dissatisfied under Section 21-20,148 of the NBCA.
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PROCEDURE IF SHAREHOLDER DISSATISFIED
Within thirty days after (i) TSA pays the Dissenting Shareholders its
estimate of the fair value of their shares or (ii) TSA offers to pay the Post
Announcement Shareholders their estimate of the fair value of their shares, each
such shareholder may notify TSA in writing of his or her own estimate of the
fair value of his or her shares and amount of interest due, and demand payment
of his or her estimate, less any payment received from TSA, or reject TSA's
offer and demand payment of the fair value of his or her shares and interest due
("Secondary Payment Demand") if: (a) the Dissenting Shareholder believes that
the amount paid or offered is less than the fair value of his or her shares or
that the interest due is incorrectly calculated; (b) TSA fails to make payment
within sixty days after the date set for demanding payment; or (c) TSA, having
failed to consummate the Share Exchange, does not return the deposited
certificates or release the transfer restrictions imposed on uncertificated
shares within sixty days after the date set for demanding payment.
COURT ACTION
If a Secondary Payment Demand remains unsettled, TSA will commence a
proceeding within sixty days after receiving the Secondary Payment Demand and
petition the District Court of Douglas County, Nebraska to determine the fair
value of the shares and accrued interest. If TSA does not commence the
proceeding within the sixty-day period, it will pay each Dissenting
Shareholder whose demand remains unsettled the amount demanded. All
Dissenting Shareholders whose claims remain unsettled at such time will be
made parties to those proceedings. Each Dissenting Shareholder made a party
to the proceeding shall be entitled to a judgment (a) for the amount, if any,
by which the court finds the fair value of his or her shares, plus interest,
exceeds the amount paid by the corporation or (b) for the fair value, plus
accrued interest, of his or her after-acquired shares for which TSA elected
to withhold payment.
COURT COSTS AND ATTORNEY'S FEES
The court, in an appraisal proceeding, will determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court will assess the costs against TSA, except
that the court may assess costs against all or some of the Dissenting
Shareholders, in amounts the court finds equitable, to the extent the court
finds the Dissenting Shareholders acted arbitrarily, vexatiously or not in good
faith in demanding payment. The court may also assess the attorney's fees and
expenses and the fees and expenses of experts
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for the respective parties in amounts the court finds equitable: (a) against TSA
and in favor of any or all Dissenting Shareholders if the court finds TSA did
not substantially comply with the requirements of Sections 21-20,140 to 21-
20,148; or (b) against either TSA or a Dissenting Shareholder, in favor of any
other party, if the court finds that the party against whom fees and expenses
are assessed acted arbitrarily, vexatiously or not in good faith. Finally, if
the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
such services should not be assessed against TSA, the court may award to counsel
reasonable fees to be paid out of amounts awarded to the Dissenting Shareholders
who were benefited.
CONTACTS BETWEEN TSA AND GRAPEVINE
TSA has purchased professional services from Grapevine. Revenues to
Grapevine from these purchases for the nine months ended June 30, 1996 and
fiscal years 1995, 1994 and 1993, have been approximately $405,000, $52,000,
$154,000 and $412,000, respectively. Pursuant to certain Development Agreements
between Applied Communications, Inc. and U.S. Software, Inc. (subsidiaries of
TSA) and Grapevine, TSA and Grapevine have established a continuing arrangement
under which Grapevine supports TSA in designing, developing, testing,
maintaining and enhancing TSA software products.
Prior to the commencement of negotiation of the Share Exchange, there were
no negotiations or understandings regarding an acquisition of Grapevine by TSA.
Negotiations commenced in April 1996 and resulted in a non-binding letter of
intent dated May 22, 1996. Subsequent negotiations resulted in the signing of
the Stock Exchange Agreement on July 15, 1996. Prior to negotiation of the
letter of intent, however, members of management of the respective companies had
informal contacts primarily as a result of their location in the same city, the
prior employment of members of Grapevine's management by Applied Communications,
Inc., which is now a subsidiary of TSA, and the related nature of the respective
businesses. General discussions concerning a possible acquisition of Grapevine
by TSA occurred from time to time during such informal contacts.
REASONS FOR THE SHARE EXCHANGE
Grapevine's reasons for agreeing to the Share Exchange include the
following:
(i) TSA's global distribution and support network will permit Grapevine to
distribute its products around the world more quickly and cost effectively;
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(ii) The expectation that the Share Exchange will result in certain
economies of scale making the operation of the business of Grapevine more cost
effective.
(iii) The acquisition by TSA is expected to make more financial resources
available to expand the Grapevine business.
(iv) The Share Exchange will provide the shareholders of Grapevine with a
more liquid investment. There is no established trading market for the
Grapevine Class A Common Stock or the Grapevine Class B Common Stock. If the
Share Exchange is consummated, Grapevine Shareholders will receive TSA Class A
Common Stock which is currently traded on the Nasdaq National Market.
(v) It is expected that the Share Exchange will afford the Grapevine
shareholders the opportunity to receive shares of TSA Class A Common Stock in a
transaction that is nontaxable for federal income tax purposes.
TSA's reasons for acquiring Grapevine pursuant to the Share Exchange
include the following:
(i) The acquisition of new products which are used to manage complex
front-end networks and support a variety of hardware platforms including
Stratus, Sun, Tandem and the IBM RS/6000. This is consistent with TSA's goal of
offering proven solutions on multiple platforms.
(ii) The Share Exchange will provide TSA with a new presence in a number
of industries including the manufacturing, health care, gaming, on-line
services, and brokerage industries. The Share Exchange will also expand TSA's
presence in the banking industry.
(iii) The addition of Grapevine's qualified technical staff to TSA's
existing staff.
TERMS OF THE STOCK EXCHANGE AGREEMENT
The following is a brief summary of the Stock Exchange Agreement. This
summary is qualified in its entirety by reference to the Stock Exchange
Agreement which is attached hereto, together with the Plan of Share Exchange,
as Annex B, was filed as an exhibit to the Registration Statement and is
incorporated herein by reference.
CLOSING OF THE SHARE EXCHANGE
If the Stock Exchange Agreement is not terminated prior to closing, the
closing of the Share Exchange (the "Closing") will take place as soon as
practicable after the parties are in a position to satisfy or waive the
conditions precedent to the Share
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Exchange described below. The Closing will take place at a date and time to be
mutually agreed upon by the parties but not later than twenty business days
after the Registration Statement is declared effective by the SEC (the "Closing
Date").
SHARE EXCHANGE
On the Closing Date, subject to the terms and conditions of the Share
Exchange Agreement, the holders of Grapevine Class A Common Stock and the
holders of Grapevine Class B Common Stock will exchange all of their shares for
TSA Class A Common Stock as follows:
(i) Each share of Grapevine Class A Common Stock outstanding immediately
prior to the Closing Date shall be exchanged for .2074 of a share of TSA Class A
Common Stock.
(ii) Each share of fully vested Grapevine Class B Common Stock outstanding
immediately prior to the Closing Date shall be exchanged for .1971 of a share of
TSA Class A Common Stock.
(iii) Each share of twenty-five percent vested Grapevine Class B Common
Stock outstanding immediately prior to the Closing Date shall be exchanged for
.1675 of a share of TSA Class A Common Stock.
(iv) Each share of fifty percent vested Grapevine Class B Common Stock
outstanding immediately prior to the Closing Date shall be exchanged for .1774
of a share of TSA Class A Common Stock.
(v) Each share of seventy-five percent vested Grapevine Class B Common
Stock outstanding immediately prior to the Closing Date shall be exchanged for
.1872 of a share of TSA Class A Common Stock.
The total number of shares of TSA Class A Common Stock to be issued in the
Share Exchange (i.e., 370,000) and the exchange ratios described above will be
adjusted in the event that the average per share closing price of TSA Class A
Common Stock on the Nasdaq National Market for the five business days after the
Registration Statement is declared effective by the SEC ("Average Closing
Price") is less than thirty dollars per share or more than forty dollars per
share. If the Average Closing Price is less than thirty dollars per share, then
the total number of shares of TSA Class A Common Stock to be issued in the Share
Exchange will be determined by dividing $11,100,000 (which is 370,000 x $30.00)
by the Average Closing Price. If the Average Closing Price is greater than
forty dollars per share, then the total number of shares of TSA Class A Common
Stock to be issued in the Share Exchange will be determined by dividing
$14,800,000 (which is 370,000 x $40.00) by
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the Average Closing Price. In the case of either such adjustment, the exchange
ratios described above will be adjusted proportionately.
On the Closing Date, TSA will deliver for exchange certificates evidencing
TSA Class A Common Stock in exchange for the outstanding shares of Grapevine
Class A Common Stock and Grapevine Class B Common Stock. No fractional shares
of TSA Class A Common Stock will be issued in connection with the Share
Exchange. In lieu of any such fractional shares, each holder of shares of
Grapevine Class A Common Stock or Grapevine Class B Common Stock who would
otherwise have been entitled to receive a fraction of a share of TSA Class A
Common Stock upon surrender of stock certificates for exchange will be entitled
to receive from TSA a cash payment equal to such fraction multiplied by the
Average Closing Price.
EFFECT OF SHARE EXCHANGE UNDER NEBRASKA BUSINESS CORPORATION ACT
The Share Exchange Agreement provides that Articles of Share Exchange shall
be filed with the Secretary of State of Nebraska as soon as practicable after
the Closing. The effective date of the Articles of Share Exchange (the
"Effective Date") as specified in the Plan of Share Exchange will be the Closing
Date or such other date as the parties may mutually agree upon. The Stock
Exchange Agreement further provides that, subject to the terms and conditions
therein, TSA will acquire all of the Grapevine Class A Common Stock and
Grapevine Class B Common Stock in a statutory share exchange pursuant to a Plan
of Share Exchange and in accordance with applicable provisions of Delaware and
Nebraska law so as to cause each share of Grapevine Class A Common Stock and
Grapevine Class B Common Stock that is issued and outstanding immediately prior
to the Effective Date to be exchanged for the number of fully paid and
nonassessable shares of TSA Class A Common Stock calculated in accordance with
the ratios described above without further action on the part of any holder
thereof.
TAX-FREE REORGANIZATION
The Stock Exchange Agreement provides that the parties intend to adopt the
agreement as a tax-free plan of reorganization and to consummate the Share
Exchange in accordance with the provisions of Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended (the "Code").
POOLING OF INTERESTS
The parties intend the Share Exchange to be treated as a "pooling of
interests" for accounting purposes.
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REPRESENTATIONS AND WARRANTIES
The Stock Exchange Agreement contains various representations and
warranties of Grapevine and the Principal Shareholders relating to, among other
things, (a) the due organization, power and standing of Grapevine; (b) the
execution, delivery, performance, authorization and enforceability of the Stock
Exchange Agreement, the Plan of Share Exchange, and the Articles of Share
Exchange; (c) governmental authorizations; (d) conflicts under the Articles of
Incorporation or Bylaws of Grapevine, violations of any law, judgment or order
applicable to Grapevine, defaults under any agreements, and creation of liens;
(e) the capitalization of Grapevine; (f) subsidiaries of Grapevine; (g)
financial statements of Grapevine; (h) receivables of Grapevine; (i) compliance
with laws; (j) notice of defaults; (k) litigation; (l) absence of certain
changes; (m) certain agreements; (n) employee benefits; (o) major contracts; (p)
tax returns; (q) interests of officers, directors and other affiliates of
Grapevine; (r) intellectual property; (s) restriction on business activities;
(t) title to properties, absence of liens and encumbrances, condition of
equipment; (u) governmental authorizations and licenses; (v) environmental
matters; (w) insurance; (x) labor matters; (y) employees; (z) customers; (aa)
finders' fees; (bb) information supplied; and (cc) Grapevine shareholders. The
representations and warranties of Grapevine and the Principal Shareholders
survive the execution and delivery of the Stock Exchange Agreement and the
Closing Date. However, the representations and warranties of the Principal
Shareholders expire on the first anniversary of the Closing Date in the absence
of actual fraud.
The Stock Exchange Agreement contains various representations and
warranties of TSA relating to, among other things: (a) the due organization,
power and standing of TSA; (b) the execution, delivery, performance,
authorization and enforceability of the Stock Exchange Agreement; (c)
governmental consents and approvals; (d) conflicts under the Articles of
Incorporation or Bylaws of TSA, violation of any law, judgement or order
applicable to TSA or any other subsidiary of TSA, defaults under any agreements
binding upon TSA or any subsidiary of TSA, and creation of liens; (d) the
capitalization of TSA; (e) TSA's delivery to Grapevine of certain SEC filings;
(f) financial statements of TSA; (g) absence of certain changes; (h) compliance
with laws; and (i) finders' fees. The representations and warranties of TSA
survive the execution and delivery of the Stock Exchange Agreement and the
Closing Date.
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COVENANTS
Under the Stock Exchange Agreement, Grapevine and the Principal
Shareholders have made certain covenants including, among other things, that
until the Closing Date (a) Grapevine will conduct its business in the ordinary
course in all material respects; (b) Grapevine will not adopt or propose any
change in its articles of incorporation or bylaws; (c) Grapevine will not enter
into any contract, agreement, plan or arrangement covering any director, officer
or employee of Grapevine that provides for the making of any payments,
acceleration or vesting of any benefit or right or any other entitlement
contingent upon (A) the Share Exchange or (B) the termination of employment
after the occurrence of any such contingency if such payment, acceleration, or
entitlement would not have been provided for by such contingency; (d) Grapevine
will not issue any common stock or other securities; (e) Grapevine will keep in
full force and effect all its existing insurance and will not modify or reduce
the coverage thereunder; (f) Grapevine will not transfer or otherwise dispose of
any of its material assets, including intellectual property rights, and will not
pay any dividend or make any distribution to holders of its capital stock; (g)
Grapevine will give TSA and its authorized representatives access to certain
information and will furnish to TSA and its authorized representatives such
information with respect to the business of Grapevine as may reasonably be
requested; and (h) Grapevine will deliver to TSA a monthly balance sheet and
statement of operations.
In addition, Grapevine and the Principal Shareholders also agreed that,
until the earlier of the Closing Date or the termination of the Stock Exchange
Agreement, Grapevine and its officers, directors, employees or other agents will
not, directly or indirectly, (i) take any action to solicit, initiate or
encourage the making of any acquisition proposal, or (ii) engage in any
negotiations with, or, except as required by a court of competent jurisdiction,
disclose any non-public information relating to Grapevine or afford access to
the properties, books or records of Grapevine to any person or entity that may
be considering making or has made an acquisition proposal.
TSA has made certain covenants including, among other things, that (a)
until the Closing Date, TSA will give Grapevine and its authorized
representatives access to all information regarding TSA which may be reasonably
requested by Grapevine or such representative; (b) upon consummation of the
Share Exchange, TSA will offer Stephen J. Royer, James J. McFadden and Michael
F. Benson compensation plans similar to those for executives in similar
positions with other TSA subsidiaries; (c) upon consummation of the Share
Exchange, TSA will establish a bonus compensation plan for Grapevine employees
consistent with the bonus plan for other TSA operating entities or units; and
(d) in connection with the issuance of TSA Class A Common Stock in the
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Share Exchange, TSA will promptly prepare and file with the SEC under the
Securities Act of 1933 a registration statement and shall use all reasonable
efforts to cause such registration statement to be declared effective as
promptly as practicable, and TSA will take any action required to be taken under
state securities or "blue sky" laws in connection with such issuance.
TSA, Grapevine and the Principal Shareholders have agreed, among other
things, that (a) each party will promptly advise the others in writing (i) of
certain events that would render any representation or warranty contained in the
Stock Exchange Agreement untrue, inaccurate or misleading in any material
respect and (ii) of any material adverse change in the business condition of the
party and its subsidiaries, taken as a whole; (b) prior to the Closing Date,
execute and file any application or any other document that may be necessary in
order to obtain certain regulatory approvals which may be reasonably required or
that a party may reasonably request in connection with the consummation of the
Share Exchange; (c) prior to the Closing Date, obtain such written consents and
take such other action as may be necessary or appropriate to allow the
consummation of the Share Exchange; (d) no party will take any action that will
prevent the Share Exchange from qualifying as a reorganization under Section
368(a)(1)(B) of the Code or prevent the transaction from qualifying for the
pooling of interest method of accounting; and (e) the timing and content of all
public announcements regarding the Share Exchange will be determined solely by
TSA. In addition, TSA and Grapevine have agreed not to directly or indirectly
divulge to any person or entity or use certain confidential information, except
as required for the performance of their respective duties under the Stock
Exchange Agreement, unless expressly authorized by the other in writing. The
covenants of TSA and Grapevine with respect to confidential information will
survive the termination of the Stock Exchange Agreement.
CONDITIONS TO THE SHARE EXCHANGE
The obligations of TSA under the Stock Exchange Agreement are subject to
the fulfillment or satisfaction, on and as of the Closing Date, of each of the
following conditions (unless waived in writing by TSA): (a) the accuracy of the
representations and warranties of Grapevine and the Principal Shareholders on
and as of the Closing Date and the compliance by Grapevine and the Principal
Shareholders with their covenants contained in the Stock Exchange Agreement in
all material respects on or before the Closing Date; (b) there shall have been
no material adverse change in Grapevine since May 31, 1996; (c) all written
consents, assignments, waivers or authorizations that are required as a result
of the Share Exchange for the continuation in full force and effect of any
material contracts or leases of Grapevine have been obtained; (d) the Grapevine
shareholders have approved the Grapevine Plan of
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Share Exchange; (e) Grapevine shareholders have executed and delivered stock
certificates and related stock powers for all their shares of Grapevine Class A
Common Stock and Grapevine Class B Common Stock to the Principal Shareholders
who have in turn delivered such stock certificates and stock powers to TSA, and
such stock certificates and stock powers shall be in forms reasonably
satisfactory to TSA; (f) TSA has received written assurance from its financial
advisors that the Share Exchange will qualify for pooling of interests
accounting; (g) the Registration Statement has become effective under the
Securities Act of 1933 and has not been the subject of any stop order or
proceeding seeking a stop order; and (h) the Grapevine Articles of Share
Exchange has been declared effective and the number of dissenting shares to the
Plan of Share Exchange does not exceed 10% of the Grapevine outstanding shares.
The obligations of Grapevine and the Principal Shareholders under the Stock
Exchange Agreement are subject to the fulfillment or satisfaction on or as of
the Closing Date of each of the following conditions (unless waived in writing
by Grapevine): (a) the accuracy of the representations and warranties of TSA on
and as of the Closing Date and the compliance by TSA with its covenants
contained in the Stock Exchange Agreement in all material respects on or before
the Closing Date; and (b) there have been no material adverse changes in TSA
since March 31, 1996.
INDEMNIFICATION
The Stock Exchange Agreement provides that if the Closing of the Share
Exchange occurs, then the Principal Shareholders severally shall indemnify and
hold harmless TSA and its affiliates from and against: (i) all damages arising
from any misrepresentation or breach of warranty, covenant or agreement made by
the Principal Shareholders in their representations and warranties to TSA
contained in the Stock Exchange Agreement and any breach by Grapevine or the
Principal Shareholders of any covenant or agreement on its or his part contained
in the Stock Exchange Agreement; and (ii) all damages arising from any liability
for certain taxes payable by Grapevine, for any fiscal periods ending on or
prior to the Closing Date and for certain taxes payable by any of such entities
for the portion ending on the Closing Date of any fiscal period beginning prior
to the Closing Date. The Stock Exchange Agreement further provides that each
Principal Shareholder must indemnify for the damages described above but in no
event shall the Principal Shareholders collectively be required to indemnify TSA
for an amount in excess of 5% of the total value of the shares of TSA Class A
Common Stock exchanged valued at the Closing price of TSA Class A Common Stock
on the Nasdaq National Market on the business day prior to the Closing Date,
provided that the total value of the TSA Class A Common Stock exchanged cannot
be less than $11,100,000 or more than $14,800,000. Payment of any indemnity
will be made by transferring TSA Class A Common Stock
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valued at the closing price determined by the result of dividing the actual
exchange value by the total number of shares of TSA Class A Common Stock
exchanged. If the Principal Shareholders dispute the amount of damages or
fail to pay damages after demand therefor, the matter of the determination of
damages and the enforcement of the indemnification provided in the Stock
Exchange Agreement will be submitted for binding arbitration. Any obligation
of the Principal Shareholders under the Stock Exchange Agreement to indemnify
and hold harmless TSA and its affiliates applies only to claims made prior to
the first anniversary of the Closing Date in the absence of actual fraud.
The Stock Exchange Agreement further provides that the Principal
Shareholders are entitled to assume the defense of any claims for which TSA
seeks indemnification from the Principal Shareholders under the Stock
Exchange Agreement and which are brought by parties unaffiliated with TSA.
If the Principal Shareholders elect in writing to assume the defense of any
lawsuit or action with respect to any claim for which TSA is seeking
indemnification under the Stock Exchange Agreement, the Principal
Shareholders must take control of the defense and investigation of such
lawsuit or action and must employ and engage an attorney acceptable to TSA to
defend the same, at the Principal Shareholders' cost. TSA has the right to
employ counsel with respect to any such claim, but the fees and expenses of
such counsel shall be at the expense of TSA unless (i) the employment of
counsel by TSA has been authorized in writing by the Principal Shareholders,
or (ii) the Principal Shareholders have not employed counsel to assume the
defense of such claim, in each of which case, the fees and expenses of
counsel will be at the expense of the Principal Shareholders. Regardless of
which part is controlling the defense of any claim, no settlement of such
claim may be agreed to without the written consent of both the Principal
Shareholders and TSA, which consent may not be unreasonably withheld.
TERMINATION
The Stock Exchange Agreement will terminate if the Closing Date does not
occur within twenty days after the Registration Statement is declared effective
by the SEC, unless otherwise agreed by the parties. In addition, the Stock
Exchange Agreement may be terminated at any time prior to the Closing Date: (i)
by a mutual written consent of the Board of Directors of TSA and the Board of
Directors of Grapevine; (ii) by TSA, if (A) there has been a breach by Grapevine
or the Principal Shareholders of any of their representations and warranties
under the Stock Exchange Agreement, such that such representations and
warranties are not true and accurate in all material respects on and as of the
Closing Date or (B) there has been a willful breach on the part of Grapevine or
the Principal Shareholders of any of their covenants or agreements contained in
the Stock Exchange Agreement, such that in both case (A) and in case (B), such
breach has not been promptly cured within thirty days after notice to Grapevine
or the Principal Shareholders; or (iii) by Grapevine, if (A) there has been a
breach by TSA of any of its representations or warranties under the Stock
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<PAGE>
Exchange Agreement such that such representations and warranties of TSA are not
true and accurate in all material respects on and as of the Closing Date or (B)
there has been a willful breach on the part of TSA of any of its covenants or
agreements contained in the Stock Exchange Agreement, such that in both case (A)
and case (B) such breach has not been promptly cured within thirty days of
notice to TSA.
ACCOUNTING TREATMENT
The Stock Exchange Agreement provides that consummation of the Share
Exchange is conditioned upon the receipt by TSA of an opinion from TSA's
independent auditors to the effect that the Share Exchange qualifies for
accounting treatment as a "pooling of interests" if consummated in accordance
with the Stock Exchange Agreement. Under the pooling-of-interests method of
accounting, the historical basis of the assets and liabilities of TSA and
Grapevine will be combined at Closing and carried forward at their previously
recorded amounts, and the shareholders' equity accounts of Grapevine will be
combined on TSA's consolidated balance sheet. Consolidated statements of
operations and other financial statements of TSA issued after consummation of
the Share Exchange will be restated retroactively to reflect the consolidated
operations of TSA and Grapevine as if the Share Exchange had taken place prior
to the periods covered by such consolidated financial statements.
For the Share Exchange to qualify as a pooling of interests for
accounting purposes, substantially all (90 percent or more) of the
outstanding Grapevine Class A Common Stock must be exchanged for TSA Class A
Common Stock. If the holders of more than approximately 10 percent of
Grapevine Class A Common Stock should assert their dissenters' rights, the
Share Exchange would not qualify as a pooling of interests for accounting
purposes. See "The Special Meeting - Dissenters' Rights." The Stock
Exchange Agreement provides that as a condition to consummation of the Share
Exchange the number of dissenting shares of the Plan of Share Exchange shall
not exceed 10 percent of the outstanding shares of Grapevine's Class A Common
Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain of the intended U.S. Federal
income tax consequences of the Share Exchange. This summary is based upon the
Code, Treasury Regulations, judicial authority and administrative rulings and
pronouncements of the Internal Revenue Service now in effect, all of which are
subject to change at any time, possibly on a retroactive basis. This discussion
does not address all aspects of Federal income taxation
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<PAGE>
that may be relevant to particular shareholders and other parties to the Share
Exchange and may not be applicable to shareholders who are not citizens or
residents of the United States, nor does the discussion address the effect of
any applicable foreign, state, local or other tax laws. EACH SHAREHOLDER SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM
OR HER OF THE SHARE EXCHANGE, INCLUDING THE APPLICABILITY AND EFFECT OF FOREIGN,
STATE, LOCAL AND OTHER TAX LAWS.
The Stock Exchange Agreement provides that the parties intend to adopt the
agreement as a tax-free plan of reorganization and to consummate the Share
Exchange in accordance with the provisions of Section 368(a)(1)(B) of the Code.
TSA, Grapevine and the Principal Shareholders have each agreed not to, either
before or after the Share Exchange, take any action that would prevent the Share
Exchange from qualifying as a reorganization under Section 368(a)(1)(B) of the
Code. No ruling will be requested from the Internal Revenue Service as to the
Federal income tax consequences of the Share Exchange, and no opinion of counsel
or of an accountant will be obtained.
If the Share Exchange qualifies as a reorganization within the meaning of
Section 368(a) of the Code, it will have the following Federal income tax
consequences for the shareholders of Grapevine, Grapevine and TSA:
1. No gain or loss will be recognized by shareholders of Grapevine as a result
of the exchange of their shares of Grapevine Class A Common Stock or
Grapevine Class B Common Stock solely for TSA Class A Common Stock pursuant
to the Share Exchange.
2. The tax basis of the shares of TSA Class A Common Stock received by each
Grapevine shareholder for Grapevine Class A Common Stock or Grapevine Class
B Common Stock will equal the tax basis of such shareholder's Grapevine
Class A Common Stock or Grapevine Class B Common Stock exchanged for such
TSA Class A Common Stock pursuant to the Share Exchange (less any tax basis
allocated to a fractional share).
3. The holding period of the shares of TSA Class A Common Stock received by
each shareholder of Grapevine for Grapevine Class A Common Stock or
Grapevine Class B Common Stock will include the holding period of such
shareholder's Grapevine Class A Common Stock or Grapevine Class B Common
Stock exchanged for such TSA Class A Common Stock pursuant to the Share
Exchange.
4. Cash received by a shareholder of Grapevine in lieu of a fractional share
of TSA Class A Common Stock will be treated as having been received in
exchange for such fractional share of TSA Class A Common Stock.
Accordingly, such shareholder will recognize gain or loss equal to the cash
amount received
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for the fractional share of TSA Class A Common Stock reduced by the
shareholder's basis in such fractional share. Any such gain or loss
recognized would be treated as capital gain or loss and would generally be
long-term capital gain or loss if the fractional share of TSA Class A
Common Stock were treated as having been held for more than one year.
5. Neither TSA nor Grapevine will recognize gain or loss as a result of the
Share Exchange.
RESALE RESTRICTIONS
All shares of Class A Common Stock issued in connection with the Share
Exchange will be freely transferrable, except that shares of Class A Common
Stock received by persons who are deemed to be "affiliates" (as such term is
defined under the Securities Act) of Grapevine prior to the Share Exchange may
be resold by them only in transactions permitted by the resale provisions of
Rule 145 promulgated under the Securities Act (or Rule 144 in the case of such
persons who become affiliates of TSA), or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of TSA or Grapevine
generally include individuals or entities that control, are controlled by, or
are under common control with, such party and may include certain officers and
directors of such party as well as principal stockholders of such party. Rule
145 permits affiliates to sell up to one percent of the outstanding TSA Class A
Common Stock in each three month period commencing with the public announcement
of the results of thirty days of combined operations of TSA and Grapevine. It
is expected that no affiliates of Grapevine will own as much as one percent of
the outstanding shares of TSA Class A Common Stock following the Share Exchange.
Under the requirements for pooling of interests accounting treatment, however,
such affiliates have agreed not to sell their TSA Class A Common Stock until the
public announcement of at least thirty days of combined operations of TSA and
Grapevine.
GRAPEVINE
Information contained in this Prospectus Supplement concerning Grapevine
was provided by Grapevine.
DESCRIPTION OF BUSINESS
OVERVIEW
Grapevine Systems, Inc. (Grapevine or the Company) was formed December 1,
1986. Grapevine's fiscal year ends on December 31.
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Grapevine develops, markets and supports a broad line of software products
and services primarily focused on high availability (HA) and on-line transaction
processing (OLTP) systems worldwide. Solutions from Grapevine typically combine
both professional services and product software components and have been
successfully provided to some of the largest corporations in the world.
Grapevine's software products include ENGUARD-Registered Trademark-, a
system monitoring and alert notification package, and the Resolve-TM- family of
products which focus on streamlining software development and simplifying system
performance measurement.
HA/OLTP MARKET
The HA/OLTP market continues to expand at a rapid rate as more end-users
demand real-time information. The demand for Grapevine's products in both the
domestic and international markets is expected to grow substantially due to
technological advances, increasing consumer demand and the automation of systems
in the international market.
PROFESSIONAL SERVICES
During fiscal years 1993, 1994 and 1995 and the six months ended June 30,
1996, Grapevine generated professional services revenue of $3,054,000,
$3,405,000, $4,288,000 and $2,526,000, respectively, or 91%, 89%, 89% and 85%,
respectively, of total gross revenues. Grapevine offers four types of services:
technical services, architectural review, performance analysis and relational
database.
TECHNICAL SERVICES: Technical services cover a variety of tasks including
application design, development, project management and consulting services.
ARCHITECTURAL REVIEW/CAPACITY PLANNING: This service provides a
comprehensive review of analyzed data and maps out a plan to ensure that future
systems needs are met.
PERFORMANCE ANALYSIS: The focus of this analysis is tailored to specific
requirements and covers areas including current and future business issues,
current hardware/software designs, potential problems, possible bottlenecks, and
current operational procedures and recommendations.
RELATIONAL DATABASE: By optimizing relational database design and
application software, this service takes full advantage of flexible technology.
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<PAGE>
SOFTWARE PRODUCTS
Grapevine develops, markets and supports two products: Resolve, a
Stratus-Registered Trademark--based set of utility software (InterConnect,
MaxPro, and HPL), and ENGUARD. During fiscal years 1993, 1994 and 1995 and the
six months ended June 30, 1996, Grapevine generated product license and
maintenance fees of $297,000, $405,000, $517,000 and $433,000, respectively, or
9%, 11%, 11% and 15%, respectively, of total gross revenues.
INTERCONNECT: A comprehensive software platform developed specifically for
the Stratus VOS environment. InterConnect has been designed to focus the talents
of a development staff, while decreasing the effort required to implement any
software application.
MAXPRO: A complete performance product available for Stratus VOS systems.
MAX Pro provides everything from Stratus data collection to a real-time,
graphical display for Windows-Registered Trademark- in a single package.
HPL: (High Performance Labs) Is a cost effective way of providing System
Performance Reviews for Stratus VOS systems. These reviews can be done monthly,
quarterly, semi-annually or annually. They eliminate the burden of gathering
performance statistics, mapping trends, and identifying potential problem areas.
ENGUARD: ENGUARD is a non-intrusive monitoring system that alerts
operations and management personnel of hardware, system, and application
warnings, errors, and process state conditions that can lead to costly system
outages.
CUSTOMERS
As of June 30, 1996, Grapevine has 47 customers. Grapevine's typical
customers are large institutions in the banking, manufacturing, health care,
gaming, on-line services, and brokerage industries. Some of Grapevine's
largest customers included America Online (36.46% of gross revenues),
American Airlines, Andersen Windows, Chicago Board Options Exchange, Applied
Communications, Inc. (a subsidiary of TSA) (13.28% of gross revenues),
Stratus Computer (10.46% of gross revenues), and Blue Cross of Massachusetts.
SALES AND MARKETING
Grapevine's primary method of distribution is direct sales by employees
assigned to specific geographical areas. In addition, Grapevine uses
distributors to supplement its direct sales force with certain software products
in international and domestic markets.
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<PAGE>
RESEARCH AND DEVELOPMENT
Grapevine's product development efforts focus on new products and
improved versions of existing products. Grapevine is currently directing
development efforts towards further enhancing the functionality, reliability,
performance and flexibility of existing products. During fiscal years 1993,
1994 and 1995 and the six months ended June 30, 1996, Grapevine's capitalized
software development costs were $356,000, $358,000, $386,000 and $109,000,
respectively.
BACKLOG
As of June 30, 1996, Grapevine had non-recurring revenue backlog of $2.0
million in services. Grapevine includes in its non-recurring revenue backlog
all fees specified in contracts which have been executed by Grapevine to the
extent that Grapevine contemplates recognition of the related revenue within one
year. There can be no assurance that the contracts included in the non-
recurring revenue backlog will actually generate the specified revenues or that
the actual revenues will be generated within the one year period.
COMPETITION
The HA/OLTP market is highly competitive. There is no single significant
competitor in the Stratus professional services market with the exception of
Stratus' own professional services division. Grapevine's most significant
competition is the clients' desire to use in-house resources to address their
system development needs.
PROPRIETARY RIGHTS AND LICENSES
Grapevine relies on a combination of trade secret and license agreements,
nondisclosures and other contractual provisions and technical measures to
protect its proprietary rights. Grapevine distributes its software products
under software license agreements which typically grant customers non exclusive
licenses to use the products. Use of the software products is usually
restricted to designated computers at specified locations and is subject to
terms and conditions prohibiting unauthorized reproduction or transfer of the
software products.
Despite these precautions, there can be no assurance that misappropriation
of Grapevine's software product and technology will not occur.
EMPLOYEES
As of June 30, 1996, Grapevine had a total of 57 employees, of whom 6 were
engaged in administration, 9 in sales and marketing, 36 in system operations and
6 in product development and customer
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support. Grapevine's success is dependent upon its ability to attract and
retain qualified employees. None of Grapevine's employees are subject to a
collective bargaining agreement. Grapevine management believes that its
relations with its employees are good.
DISAGREEMENTS WITH AUDITORS
There have been no changes in or disagreements with accountants on
accounting and financial disclosure.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
REVENUE RECOGNITION AND PRICING
Grapevine's typical service engagement is under a time and materials
contract. Contracted hourly services are invoiced monthly. Services revenue is
recognized as the services are performed. Grapevine has certain long-term
contracts in which revenues are recognized using the percentage of completion
method of accounting. Under this method, the percentage of completion is
computed by relating the actual cost to date to the current estimated total
cost.
Grapevine typically charges a one-time license fee for the non-exclusive
use of its software products. This fee allows the licensee to use the licensed
software on specified equipment on a perpetual basis. A limited trial period is
included prior to execution of a binding contract which eliminates potential
returns and credits. Consequently, license fee revenue is recognized upon
execution of a binding contract and delivery and activation of the software with
no allowance for returns.
After a 30 - 90 day warranty period, the licensee is charged an annual
maintenance fee which is typically a percentage of the one-time license fee.
Maintenance revenue is recognized ratably over the contract term commencing with
customer acceptance of the maintenance agreement.
Grapevine currently has an agreement for the relicensing of its software
products with Stratus Computers, Inc. The agreement is non-exclusive. License
fee revenue is recognized gross of any distribution fees and hardware costs for
those licenses sold under this distribution agreement.
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RESULTS OF OPERATIONS
The following table sets forth certain financial data and the percentage of
total revenues of Grapevine for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended June 30,
12 Months Ended December 31, (Unaudited)
-------------------------------------------------------- ------------------------------------
1993 1994 1995 1995 1996
-------------------------------------------------------- ------------------------------------
$ % $ % $ % $ % $ %
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Amounts given in thousands) (Amounts given in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
CONSULTING FEES $3,054 91.15% $3,405 89.37% $4,288 89.25% $1,954 90.98% $2,526 85.36%
PRODUCT LICENSE & MAINT. FEES $297 8.85% $405 10.63% $517 10.75% $194 9.02% $433 14.64%
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
GROSS REVENUE $3,351 100.00% $3,810 100.00% $4,805 100.00% $2,148 100.00% $2,959 100.00%
OPERATING COSTS & EXPENSES
COST OF REVENUES $1,406 41.96% $1,583 41.54% $2,544 52.94% $1,146 53.36% $1,471 49.71%
RESEARCH & DEVELOPMENT -
TECHNICAL STAFF $291 8.69% $414 10.87% $432 8.99% $173 8.03% $334 11.27%
SALES & MARKETING $820 24.47% $968 25.43% $1,025 21.33% $464 21.62% $699 23.61%
GENERAL & ADMINISTRATIVE $568 16.94% $714 18.73% $739 15.38% $364 16.94% $442 14.95%
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
TOTAL OPERATING COSTS $3,085 92.06% $3,679 96.57% $4,740 98.64% $2,147 99.95% $2,946 99.54%
INCOME FROM OPERATIONS $266 7.94% $131 3.43% $65 1.36% $1 0.05% $13 0.46%
OTHER EXPENSES
INTEREST EXPENSE $17 0.52% $19 0.49% $50 1.04% $22 1.01% $25 0.87%
INTEREST INCOME ($0) 0.00% ($2) 0.06% ($0) 0.00% ($0) 0.00% ($0) 0.00%
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
OTHER EXPENSE - NET $17 0.52% $17 0.43% $50 1.04% $22 1.01% $25 0.87%
INCOME (LOSS) BEFORE INCOME
TAXES $249 7.42% $114 3.00% $15 0.32% ($21) -0.96% ($12) -0.41%
PROVISION (CREDIT) FOR INCOME
TAXES $99 2.94% $48 1.25% $6 0.13% ($9) -0.40% ($5) -0.17%
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
NET INCOME (LOSS) $150 4.48% $66 1.75% $9 0.19% ($12) -0.56% ($7) -0.24%
====== ======= ====== ======= ====== ======= ====== ======= ====== =======
</TABLE>
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REVENUES:
Grapevine's overall revenue growth rate was 13.7%, 26.1% and 37.8% for
fiscal years 1994 and 1995 and the six months ended June 30, 1996, respectively.
Professional service fee revenue increased 11.5%, 26.0% and 29.2% for
fiscal years 1994 and 1995 and the six months ended June 30, 1996, respectively.
These increases are primarily attributable to continued increases in demand for
Grapevine's services as a result of increased demand in HA/OLTP processing and
Grapevine as a solutions provider.
Product license fee revenue increased 73.7%, 28.4% and 111.8% for fiscal
years 1994 and 1995 and the six months ended June 30, 1996, respectively. These
increases are a result of the rollout of the Enguard product in late 1994 and
the signing of a distribution agreement with Stratus in 1995. There was a
transition period involved in the distribution agreement which resulted in lower
percentage growth during 1995. In late 1995, the distribution agreement was
amended to remove an exclusivity clause. This, coupled with a natural
maturation of the distribution agreement, resulted in a higher growth rate in
product licenses and more direct sales during the six months ended June 30,
1996.
Maintenance fees decreased 45.9% for fiscal year 1994 and increased 28.3%
and 193.8% for fiscal year 1995 and the six months ended June 30, 1996,
respectively. The decrease in 1994 was due in large part to the cancellation of
two long-term third party product maintenance agreements. The 1995 and 1996
increase was due to an overall increase in the installed base of Grapevine's
products.
EXPENSES
Grapevine's total operating expenses increased 19.3%, 28.8% and 37.2% for
fiscal years 1994 and 1995 and the six months ended June 30, 1996, respectively.
Cost of revenues as a percentage of gross revenue was 42.0%, 41.6% and
52.9% for fiscal years 1993, 1994 and 1995, respectively. The increase in 1995
is primarily attributable to a higher usage of contractors to staff several
long-term engagements and engagements which required extensive travel. This
allowed Grapevine to staff these projects quickly without hiring to peaks in
demand. This increase is also a result of distribution fees associated with the
Stratus distribution agreement. During the six months ended June 30, 1996, cost
of revenues were 49.7% of gross revenues compared to 53.4% for the comparable
period of 1995. The decrease is due to a more gradual hiring process to staff
projects as well as lower distributor commission costs.
S-32
<PAGE>
Research and development technical staff cost as a percentage of gross
revenue was 8.7%, 10.9%, and 9.0% for fiscal years ended 1993, 1994 and 1995,
respectively. The increase in 1994 is due to development costs associated with
the Enguard product. For the six months ended June 30, 1996, research and
development technical staff costs as a percentage of gross revenue were 11.3%
compared to 8.0% for the comparable period of 1995. This increase is due to an
increase in staff levels and associated training costs.
Selling and marketing costs as a percentage of gross revenues were 24.5%,
25.4%, and 21.3% for fiscal years 1993, 1994, and 1995, respectively. The 1994
increase was due to additional staffing requirements necessary to support the
increase in revenues and Grapevine's efforts to market its products. The
decrease in 1995 is due to the use of Stratus as a distribution agent in lieu of
direct sales. For the six months ended June 30, 1996, selling and marketing
costs as a percentage of gross revenues were 23.6% as compared to 21.6% for the
comparable period of 1995. The increase is a result of a focus on internal
product sales and less reliance on distributors as well as the creation of an
internal marketing department.
General and administrative (G&A) costs as a percentage of gross revenues
were 16.9%, 18.7%, and 15.4% for fiscal years 1993, 1994 and 1995,
respectively. The 1994 increase was a result of increased staffing
requirements, increased depreciation expense related to computer equipment
purchases and increased rent expense resulting from additional office space.
The 1995 decrease is due to an emphasis on administrative cost controls and an
increase in gross revenues. For the six months ended June 30, 1996, G&A costs
were 15.0% as compared to 16.9% for the comparable period of 1995. This decline
is due to the Company's continued emphasis on administrative costs controls and
an increase in gross revenues.
INCOME TAXES
The effective tax rate for the years ended December 31, 1993, 1994 and 1995
and the six months ended June 30, 1996 was 39.6%, 41.8%, 41.8% and 41.8%,
respectively.
As of June 30, 1996, the Company has deferred tax assets of $412,000 and
deferred tax liabilities of $719,000. Each quarter, the Company evaluates its
historical operating results as well as its projections for the next 24 months
to determine the realizability of the deferred tax assets. This analysis
indicated that $383,000 of the deferred tax assets were more likely than not to
be realized. Accordingly, the Company has recorded a valuation reserve of
$29,000 as of June 30, 1996.
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LIQUIDITY AND CAPITAL REQUIREMENTS
At June 30, 1996, Grapevine had negative working capital of $155,680, cash
and cash equivalents of $2,144, a $500,000 revolving line-of-credit of which
$360,000 was outstanding and $200,000 note payable due August 12, 1996. The
bank line-of-credit expires August 15, 1996. In connection with the line of
credit, Grapevine has agreed to certain covenants which, among other things,
require total stockholders' equity to remain above $250,000, minimum debt to
net worth, and current ratio requirements. As of June 30, 1996, Grapevine
was in violation of several covenants, all of which have been waived by the
bank. During the six months ended June 30, 1996, Grapevine has renewed the
term note payable as it has come due for amounts ranging from $50,000 to
$200,000.
For the years ended December 31, 1993, 1994, and 1995, the Company had cash
flows from operations of $353,230, $454,491, and $395,533, respectively. Cash
used in investing activities for these same periods was $424,549, $441,938, and
$412,701, respectively, of which $355,986, $357,513 and $385,808 consisted of
product development costs, respectively. For the six months ended June 30,
1996, the Company had negative cash flow from operations in the amount of
$38,424. Cash used in investing activities for this same period was $153,480 of
which $109,424 consisted of product development costs.
In the event that the share exchange contemplated in this document is not
consummated, management believes that it has the capability to refinance the
$200,000 note due on August 12, 1996 and to renew the line of credit which
expires August 15, 1996. Both of these debt instruments are with the same
financial institution and the Company has had preliminary discussions regarding
such refinancing and renewal. Management believes that these factors together
with cash flow generated from operations, are sufficient to meet its working
capital requirements for the foreseeable future.
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<PAGE>
SECURITY OWNERSHIP
The following table sets forth certain information regarding beneficial
ownership of Grapevine's Class A Common Stock as of the date of this Prospectus
Supplement, (i) by each stockholder known by the Company to be a beneficial
owner of more than five percent of Grapevine's Class A Common Stock, (ii) by
each of Grapevine's directors, (iii) by each of the named executive officers of
Grapevine and (iv) by all the directors and executive officers of Grapevine as a
group. Except as indicated in the footnotes to this table, the Company believes
that the persons named in the table have sole voting and investment power with
respect to all shares of Grapevine Class A Common Stock shown as beneficially
owned by them, subject to community property laws where applicable.
NUMBER OF PERCENT OF
SHARES SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS(1) OWNED(2) OWNED
- ------------------- ------------ ------------
Stephen J. Royer 237,500 18.28%
Michael Benson 250,000 19.24
James McFadden 250,000 19.24
James G. Strickland 250,000 19.24
Michael Engel 250,000 19.24
All Directors and
Executive Officers as
a Group (5 persons) 1,237,500 95.25
- --------------------
(1) The business address of Messrs. Royer, Benson, McFadden, Strickland and
Engel is 10842 Farnam Drive, Omaha, Nebraska 68154.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities.
The following table sets forth certain information regarding the beneficial
ownership of Grapevine's Class B Common Stock as of the date of this Prospectus
Supplement, (i) by each of Grapevine's directors, (ii) by each of the named
executive officers of Grapevine and (iii) by all of the directors and executive
officers of Grapevine as a group. Except as indicated in the footnotes to this
table, the Company believes that the persons named in the table have sole voting
and investment power with respect to all
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shares of Grapevine Class B Common Stock shown as beneficially owned by them,
subject to community property laws where applicable.
NUMBER OF PERCENT OF
SHARES SHARES
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED
- ------------------- ------------ ------------
Richard A. Berger 61,570 11.99%
David W. Konz 12,005 2.34
Michael Benson 19,225 3.74
Dennis Jorgensen 20,000 3.89
John S. Slowiaczek 2,500 *
All Directors and
Executive Officers as
a Group (5 persons) 115,300 22.44
- --------------------
* Less than 1% of the outstanding Grapevine Class B Common Stock
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities.
COMPARISON OF STOCKHOLDER RIGHTS
Upon consummation of the Share Exchange, holders of Grapevine Class A
Common Stock and holders of Grapevine Class B Common Stock will become
holders of Class A Common Stock of TSA, a Delaware corporation, and their
rights will be governed by the Delaware General Corporation Law ("DGCL"), the
Amended and Restated Certificate of Incorporation of TSA, as amended (the
"TSA Charter"), and the Amended and Restated Bylaws of TSA (the "TSA
Bylaws"), which differ in certain material respects from the NBCA, the
Articles of Incorporation of Grapevine, as amended (the "Grapevine Charter"),
and the Bylaws of Grapevine, as amended (the "Grapevine Bylaws"). The
following comparison of the rights of holders of Grapevine Class A Stock and
Grapevine Class B Common Stock with the rights of TSA stockholders is
qualified in its entirety by reference to the NBCA, Grapevine Charter and
Grapevine Bylaws and the DGCL, TSA Charter and TSA Bylaws. Copies of the
Grapevine Charter and Grapevine Bylaws are available upon written request
from TSA, 330 South 108th Avenue, Omaha, Nebraska 68154, Attention: General
Counsel. For information on how to obtain copies of the TSA Charter and the
TSA Bylaws, see "Available Information" in the accompanying Prospectus.
S-36
<PAGE>
AUTHORIZED CAPITAL STOCK
TSA. The TSA Charter provides that authorized capital stock of TSA
consists of 50,000,000 shares of Class A Common Stock, par value $.005 per
share, 5,000,000 shares of Class B Common Stock, par value $.005 per share, and
5,450,000 shares of preferred stock, par value of $.01 per share.
Grapevine. The Grapevine Charter provides that the authorized capital
stock of Grapevine consists of 2,500,000 shares, par value $.004 per share, of
which 1,937,125 shares are Grapevine Class A Common Stock and 562,875 shares are
Grapevine Class B Common Stock.
VOTING
TSA. The TSA Class A Common Stock and Class B Common Stock have the same
rights, except that holders of Class B Common Stock are not entitled to vote
except as provided by law or upon the automatic conversion of the Class B Common
Stock into shares of Class A Common Stock at such time as either (a) Norwest
Equity Capital, Inc. ("Norwest"), the holder of all currently outstanding shares
of Class B Common Stock, elects to convert them or (b) the transfer of the Class
B Common Stock to a person or entity that is both not an affiliate of Norwest
and not subject to the restrictions on ownership of shares of voting capital
stock by reason of the Bank Holding Company Act of 1956 or other statute or
regulation. Holders of Class A Common Stock are entitled to one vote per share
on all matters to be voted on by the stockholders.
Grapevine. Grapevine Class A Common Stock and Grapevine Class B Common
Stock have equal preferences, powers and rights except Grapevine Class B Common
Stock has no voting rights except as specifically required by the NBCA. Holders
of Grapevine Class A Common Stock are entitled to one vote per share on each
matter submitted to a vote at a meeting of shareholders.
SPECIAL MEETINGS
TSA. The TSA Bylaws provide that a special meeting of stockholders for any
purposes may be called by the President and must be promptly called by the
President or by the Secretary at the written request of (a) two or more
Directors or (b) any holder or holders of at least 25% of the outstanding
preferred stock, upon not fewer than ten nor more than sixty days' written
notice.
Grapevine. The Grapevine Bylaws provide that a special meeting of the
shareholder, for any purpose or purposes, unless otherwise prescribed by
statute, may be called by the President or by the Board of Directors, and shall
be called by the President at the request of the holders of not less than one-
tenth of the
S-37
<PAGE>
outstanding shares of the corporation entitled to vote at the meeting.
DIRECTORS
TSA. The TSA Bylaws provide that the number of directors of TSA is to be
fixed from time to time by the Board of Directors but shall be no fewer than
three nor more than nine. TSA's Board of Directors currently consists of six
members.
The TSA Bylaws further provide that any stockholder entitled to vote in the
election of Directors generally may nominate one or more persons for election as
Directors at a meeting only if written notice of such stockholders' intent to
make such nomination or nominations has been received by the Secretary of TSA
not less than eighty days in advance of such meeting; provided, however, that in
the event that the date of the meeting was not publicly announced by the Company
by mail, press release or otherwise more than ninety days prior to the meeting,
notice by the stockholder to be timely must be delivered to the Secretary of the
Company not later than the close of business on the tenth day following the day
on which such announcement of the date of the meeting was communicated to
stockholders. In the event that a person is designated as a nominee by the
Board of Directors or a stockholder and thereafter becomes unable or unwilling
to stand for election to the Board of Directors, the Board of Directors or the
stockholder who proposed such nominee, as the case may be, may designate a
substitute nominee upon delivery, not fewer than five days prior to the date of
the meeting for the election of such nominee of a written notice to the
Secretary, which notice shall include a signed consent to serve as a Director of
the Company, if elected, of each such substitute nominee.
Grapevine. The Grapevine Bylaws provide that the number of directors of
Grapevine shall be up to nine and shall not exceed that number. Grapevine's
Board of Directors currently consists of 7 members.
The Grapevine Bylaws do not contain any restrictions regarding nomination
of director candidates.
VACANCIES
TSA. The TSA Bylaws provide that newly created directorships resulting
from an increase in the number of Directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled only by the affirmative vote of a majority of the
remaining Directors then in office, even though less than a quorum of the Board
of Directors.
S-38
<PAGE>
Grapevine. The Grapevine Bylaws provide that any vacancy occurring in the
Board of Directors may be filled by the affirmative vote of a majority of the
remaining Directors, though less than a quorum of the Board of Directors. Any
Directorship to be filled by reason of an increase in the number of directors
will be filled by election at an annual meeting or a special meeting of the
shareholders called for that purpose.
STOCKHOLDER ACTION BY WRITTEN CONSENT
TSA. The DGCL provides that, unless otherwise provided in the certificate
of incorporation, shareholders may take action without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the actions taken is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted, and is delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. The TSA Charter does not address
stockholder action by written consent.
Grapevine. The Grapevine Bylaws provide that any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting if a consent in
writing, setting forth the action so taken, is signed by all of the shareholders
entitled to vote with respect to the subject matter thereof.
NOTICE OF STOCKHOLDER BUSINESS
TSA. The TSA Bylaws provide that only business which is properly brought
before an annual meeting of stockholders will be conducted at such meeting. To
be properly brought before an annual meeting, business must be (a) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (b) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (c) otherwise properly
requested to be brought before the meeting by a stockholder. For business to be
properly requested to be brought before an annual meeting by a stockholder, the
stockholder must deliver or mail written notice thereof in writing to the
Secretary of the Company, and such written notice must be received at the
principal executive offices of the Company not less than eighty days prior to
the meeting; provided, however, that in the event that the date of the meeting
is not publicly announced by the Company by mail, press release or otherwise
more than ninety days prior to the meeting, notice by the stockholder must be
delivered
S-39
<PAGE>
to the Secretary of the Company not later than the close of business on the
tenth day following the day on which such announcement of the date of the
meeting was communicated to stockholders. The chairman of an annual meeting
will, if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting and, if he should so determine,
declare to the meeting that such business not properly brought before the
meeting shall not be transacted.
Grapevine. The Grapevine Bylaws provide that written or printed notice
stating the place, day and hour of a shareholders meeting, and in the case of a
special meeting, the purpose or purposes of which the meeting is called, must be
delivered not less than ten, nor more than fifty, days before the date of the
meeting, either personally or by mail, to each shareholder of record entitled to
vote at such meeting. The NBCA provides that, unless the NBCA or the articles
of incorporation require otherwise, notice of an annual meeting shall not be
required to include a description of the purpose or the purposes for which the
meeting is called. The Grapevine Charter does not contain any requirements
regarding notice of the business to be conducted at an annual meeting of
shareholders.
INDEMNIFICATION
TSA. The DGCL permits indemnification by a corporation of certain
officers, directors, employees and agents. Consistent therewith, the TSA
Charter provides that TSA, to the fullest extent authorized by the DGCL, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Company to provide broader
indemnification rights than such law permitted the Company to provide prior to
such amendment), shall indemnify a director or officer of the Company or a
person who is or was serving at the request of the Company as director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan, who was or is made (or threatened to be made) a party to a civil,
criminal, administrative or investigative proceeding (an "indemnified person").
The TSA Charter also provides that expenses incurred by an indemnified person
will be paid in advance by the Company; provided, however, that, if the DGCL
requires, an advancement of expenses incurred by an indemnified person incurred
in his or her capacity as a director or officer shall be made only if the
Company receives an undertaking by or on behalf of the indemnified person to
repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal that such
indemnified person is not entitled to be indemnified for such expenses.
S-40
<PAGE>
Grapevine. The NBCA permits, and in certain circumstances requires,
indemnification by a corporation of certain officers and directors, and
advancement of expenses under certain conditions in connection therewith. The
Grapevine Charter and the Grapevine Bylaws do not contain any provision which
obligates Grapevine to indemnify its officers or directors, or to advancement
expenses in connection therewith.
INSURANCE
TSA. The TSA Bylaws provide that the Company must purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director, officer, employee or agent of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him or on his behalf in any such
capacity or arising out of his status as such, whether or not the Company would
have the power to indemnify him against such liability under the provisions of
the TSA Bylaws, provided that such insurance is available on acceptable terms as
determined by a vote of a majority of the entire Board of Directors.
Furthermore, the TSA Charter provides that the Company may maintain insurance,
at its expense, to protect itself and any director, officer, employee or agent
of the Company or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Company would have the power to indemnify such person against such expense,
liability or loss under the DGCL.
Grapevine. Neither the Grapevine Charter nor the Grapevine Bylaws contain
any provision regarding the purchase or maintenance of insurance by Grapevine on
behalf of any person. The NBCA provides that a corporation may purchase and
maintain insurance on behalf of an individual who is a director or officer of
the corporation, or who, while a director or officer of the corporation, serves
at the corporation's request as a director, officer, member of a limited
liability company, partner, trustee, employee, or agent of another domestic or
foreign corporation, limited liability company, partnership, joint venture,
trust, employee benefit plan, or other entity, against liability asserted
against or incurred by him or her in that capacity or arising from his or her
status as a director or officer whether or not the corporation would have power
to indemnify or advance expenses to him or her against the same liability under
the NBCA.
LIMITATION OF LIABILITY
TSA. The TSA Charter provides that a director of the Company will not be
personally liable to the Company or its stockholders
S-41
<PAGE>
for monetary damages for breach of fiduciary duty as a director, except
liability for (i) any breach of the director's duty of loyalty to the Company of
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) the unlawful
payment of a dividend or unlawful stock purchase or redemption or (iv) any
transaction from which the director derived an improper personal benefit.
Delaware law does not permit a corporation to eliminate a director's duty of
care, and this provision of the TSA Charter has no effect on the availability of
equitable remedies, such as injunction or rescission, based upon a director's
breach of the duty of care. The TSA Charter further provides that if the DGCL
is amended to authorize corporate action further eliminating or limiting the
personal liability of the directors, then the liability of a director of the
Company shall be eliminated or limited to the fullest extent permitted by the
DGCL, as so amended.
Grapevine. The Grapevine Charter and Grapevine Bylaws do not contain any
provisions eliminating or limiting the liability of a director to Grapevine or
its shareholders.
RESTRICTIONS ON BUSINESS COMBINATIONS
TSA. The TSA Charter provides that the Company shall be subject to Section
203 of the DGCL ("Section 203"), and any successor provision thereto. Under
Section 203, certain "business combinations" between a Delaware corporation
whose stock generally is publicly traded or held of record by more than 2,000
stockholders and an "interested stockholder" are prohibited for a three-year
period following the date that such stockholder became an interested
stockholder, unless (i) the corporation has elected in its original certificate
of incorporation not to be governed by Section 203 (the Company did not make
such an election), (ii) the business combination was approved by the board of
directors of the corporation before the other party to the business combination
became an interested stockholder, (iii) upon consummation of the transaction
that made it an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the commencement
of the transaction (excluding voting stock owned by directors who are also
officers or held in employee benefit plans in which the employees do not have a
confidential right to tender or vote stock held by the plan) or (iv) the
business combination was approved by the board of directors of the corporation
and ratified by two-thirds of the voting stock which the interested stockholder
did not own. The three-year prohibition also does not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of the majority
S-42
<PAGE>
of the corporation's directors. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware corporation
and an "interested stockholder," transactions with an "interested stockholder"
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as a stockholder who, together with affiliates and associates, owns
(or, within three years prior, did own) 15% or more of a Delaware corporation's
voting stock.
Grapevine. Under the Nebraska Shareholders Protection Act, certain
"business combinations" between certain Nebraska corporations which have one
hundred or more shareholders and an "interested shareholder" are prohibited
for a five-year period after the interested shareholders' acquisition of
shares, unless the business combination or the acquisition of shares made by
the interested shareholder is approved by the Nebraska corporation's board of
directors prior to the date of the interested shareholder's acquisition of
shares. The Nebraska Shareholders Protection Act, however, does not apply to
a corporation, like Grapevine, which does not have a class of voting stock
that is listed on a national securities exchange or is authorized for
quotation on an interdealer quotation system of a registered national
securities association, or which has fewer than one hundred shareholders.
SHAREHOLDER VOTE FOR MERGERS, SHARE EXCHANGES AND SALE OF ASSETS
TSA. The DGCL generally requires the affirmative vote of a majority of the
outstanding stock of each constituent corporation entitled to vote thereon in a
merger (except with respect to certain mergers between parent and subsidiary
corporations) or consolidation. With respect to the sale, lease or exchange of
all or substantially all of a corporation's property and assets, the DGCL
generally requires the affirmative vote of the holders of a majority of the
outstanding stock. The DGCL does not address statutory share exchanges.
Grapevine. The NBCA generally requires the approval of a two-thirds
majority of all the votes entitled to be cast by each voting group entitled to
vote separately of each corporation party to a merger and the corporation whose
shares will be acquired in a share exchange. With respect to the sale, lease or
exchange of all or substantially all of a corporation's property otherwise than
in the usual and regular course of business, the NBCA generally requires the
approval by a two-thirds majority of all the votes entitled to be cast on the
transaction.
APPRAISAL OR DISSENTERS' RIGHTS
TSA. The DGCL provides that appraisal rights are generally not available
for shares of stock which, at the record date fixed to determine the
stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon an agreement of merger or consolidation, are (i)listed
on a national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders.
TSA's Class A Common Stock is subject to quotation on the Nasdaq National
Market.
S-43
<PAGE>
Grapevine. The NBCA provides that shareholders have dissenters' rights,
under certain circumstances, in the event of a merger or share exchange. See
"The Special Meeting - Dissenters' Rights."
PREFERRED STOCK
TSA. The TSA Board of Directors has the authority, without any further
vote or action by the stockholders, to provide for the issuance of up to
5,450,000 shares of preferred stock from time to time in one or more series with
such designations, rights, preferences and limitations as the Board of Directors
may determine. See "Description of Capital Stock - Preferred Stock" in
accompanying Prospectus. TSA does not have any preferred stock currently
outstanding. However, the rights, preferences and privileges of holders of
Class A Common Stock and Class B 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.
Grapevine. The Grapevine Charter does not authorize Grapevine to issue
preferred stock.
EXPERTS
The financial statements of Grapevine as of December 31, 1995 and 1994
and for each of the three years in the period ended December 31, 1995
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and
elsewhere in the registration statement, and have been so included in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
S-44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Grapevine Systems, Inc.:
Independent Auditors' Report............................................F-1
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996
(unaudited)........................................................F-2
Statements of Operations for the years ended December 31, 1993,
1994 and 1995 and the six months ended June 30, 1995
(unaudited) and 1996 (unaudited)...................................F-3
Statements of Changes in Stockholders' Equity for the year ended
December 31, 1993, 1994 and 1995 and the six months ended
June 30, 1996 (unaudited) .........................................F-4
Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995 and the six months ended June 30, 1995
(unaudited) and 1996 (unaudited)...................................F-5
Notes to Financial Statements....................................F-6 - F-13
Transaction Systems Architects, Inc.:
Pro Forma Consolidated Balance Sheet as of June 30, 1996...............F-15
Pro Forma Consolidated Statement of Operations for the year ended
September 30, 1993................................................F-16
Pro Forma Consolidated Statement of Operations for the year ended
September 30, 1994................................................F-17
Pro Forma Consolidated Statement of Operations for the year ended
September 30, 1995................................................F-18
Pro Forma Consolidated Statement of Operations for the nine months
ended June 30, 1996...............................................F-19
Notes to Pro Forma Consolidated Financial Statements...................F-20
S-45
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Grapevine Systems, Inc.
We have audited the accompanying balance sheets of Grapevine Systems, Inc. as of
December 31, 1994 and 1995, and the related statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. 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, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1994 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
February 9, 1996
F-1
<PAGE>
GRAPEVINE SYSTEMS, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- -------------
ASSETS 1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,464 $ 8,660 $ 2,144
Accounts receivable 629,097 821,131 1,085,704
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note B) 16,280 29,550 -
Income taxes receivable 62,811 - -
Prepaid expenses 8,391 33,573 25,055
------------ ------------ ------------
Total current assets 720,043 892,914 1,112,903
------------ ------------ ------------
PROPERTY AND EQUIPMENT:
Furniture and fixtures 107,357 122,266 129,266
Equipment 472,022 564,143 732,697
Leasehold improvements 12,976 12,975 12,975
------------ ------------ ------------
592,355 699,384 874,938
Accumulated depreciation and amortization (369,071) (472,082) (530,677)
------------ ------------ ------------
Total property and equipment 223,284 227,302 344,261
------------ ------------ ------------
PRODUCT DEVELOPMENT, net of accumulated
amortization of $412,651, $696,290,
and $853,757 (unaudited), respectively 672,777 774,946 726,902
------------ ------------ ------------
$ 1,616,104 $ 1,895,162 $ 2,184,066
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit (Note C) $ 295,000 $ 250,000 $ 360,000
Note payable (Note D and E) - 100,000 200,000
Current portion of capital lease
obligations (Note F) 11,810 24,453 55,402
Accounts payable 108,171 122,018 204,031
Accrued expenses 62,482 182,680 154,380
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note B) 40,180 40,400 6,250
Deferred revenue 61,645 126,424 77,429
Deferred income taxes (Note G) 132,306 105,733 211,091
------------ ------------ ------------
------------ ------------ ------------
Total current liabilities 711,594 951,708 1,268,583
------------ ------------ ------------
DEFERRED INCOME TAXES (Note G) 202,755 235,762 125,345
------------ ------------ ------------
LONG-TERM DEBT:
Capital lease obligations, less current
portion (Note F) 9,930 8,088 85,485
------------ ------------ ------------
Total long-term debt 9,930 8,088 85,485
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Note H and J)
STOCKHOLDERS' EQUITY (Note H):
Common stock, Class A, voting, $.004 par
value, 1,937,125 shares authorized 6,180 6,180 6,180
Common stock, Class B, nonvoting, $.004 par
value, 562,875 shares authorized 2,251 2,251 2,251
Additional paid-in capital 114,692 117,343 124,930
Retained earnings 626,432 635,387 628,345
Less common stock held in treasury:
Class A (32,830) (34,565) (34,565)
Class B (15,671) (22,232) (16,533)
Nonvested employee stock compensation (9,229) (4,760) (5,955)
------------ ------------ ------------
Total stockholders' equity 691,825 699,604 704,653
------------ ------------ ------------
$ 1,616,104 $ 1,895,162 $ 2,184,066
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to financial statements.
F-2
<PAGE>
GRAPEVINE SYSTEMS, INC.
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Professional service fees $ 3,053,919 $ 3,404,691 $ 4,288,498 $ 1,954,377 $ 2,525,933
Product license and maintenance fees 296,684 404,940 516,552 193,652 433,388
------------ ------------ ------------ ------------ ------------
Gross revenue 3,350,603 3,809,631 4,805,050 2,148,029 2,959,321
------------ ------------ ------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Cost of revenues 1,405,979 1,582,708 2,544,105 1,146,150 1,470,943
Research and development technical staff 291,293 414,122 431,808 172,593 333,604
Sales and marketing 819,718 968,597 1,024,984 464,240 698,794
General and administrative 567,660 713,601 738,932 363,917 442,499
------------ ------------ ------------ ------------ ------------
Total operating costs and expenses 3,084,650 3,679,028 4,739,829 2,146,900 2,945,840
------------ ------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 265,953 130,603 65,221 1,129 13,481
------------ ------------ ------------ ------------ ------------
OTHER EXPENSE (INCOME):
Interest expense 17,470 18,513 49,867 21,862 25,665
Interest income (77) (2,189) (35) (44) (83)
------------ ------------ ------------ ------------ ------------
Other expense - net 17,393 16,324 49,832 21,818 25,582
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
INCOME TAXES 248,560 114,279 15,389 (20,689) (12,101)
PROVISION (CREDIT) FOR INCOME
TAXES (Note G) 98,517 47,780 6,434 (8,650) (5,059)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 150,043 $ 66,499 $ 8,955 $ (12,039) $ (7,042)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
GRAPEVINE SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------------------
CLASS A CLASS B ADDITIONAL
---------------------------- ---------------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1993 63,150 $ 6,315 18,000 $ 1,800 $ 84,661 $ 409,890
Issuance of Class B common stock - - 3,000 300 27,677 -
Repurchase of Class A common stock - - - - - -
Repurchase of Class B common stock - - - - - -
Amount vested during 1993 - - - - - -
1993 net income - - - - - 150,043
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, December 31, 1993 63,150 6,315 21,000 2,100 112,338 559,933
Stock split 1,515,600 - 504,000 - - -
Issuance of Class B common stock - - 4,125 16 2,354 -
Conversion of Class A common stock
to Class B common stock (33,750) (135) 33,750 135 - -
Repurchase of Class B common stock - - - - - -
Amount vested during 1994 - - - - - -
1994 net income - - - - - 66,499
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, December 31, 1994 1,545,000 6,180 562,875 2,251 114,692 626,432
Issuance of Class B common stock - - - - 2,651 -
Repurchase of Class A common stock - - - - - -
Repurchase of Class B common stock - - - - - -
Amount vested during 1995 - - - - - -
1995 net income - - - - - 8,955
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, December 31, 1995 1,545,000 6,180 562,875 2,251 117,343 635,387
Issuance of Class B common stock
(unaudited) - - - - 7,587 -
Repurchase of Class B common stock
(unaudited) - - - - - -
Amount vested during 1996 (unaudited) - - - - - -
1996 six month net loss (unaudited) - - - - - (7,042)
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, June 30, 1996 (Unaudited) 1,545,000 $ 6,180 562,875 $ 2,251 $ 124,930 $ 628,345
----------- ---------- ---------- ---------- ----------- -----------
----------- ---------- ---------- ---------- ----------- -----------
<CAPTION>
TREASURY STOCK
---------------------------------------------------------- NON-VESTED
CLASS A CLASS B EMPLOYEE
----------------------------- --------------------------- STOCK
SHARES AMOUNT SHARES AMOUNT COMPENSATION TOTAL
BALANCE, January 1, 1993 10,400 $ (36,239) 2,100 $ (4,220) $ (22,582) $ 439,625
Issuance of Class B common stock - - (1,850) 3,082 (31,059) -
Repurchase of Class A common stock 600 (3,281) - - - (3,281)
Repurchase of Class B common stock - - 730 (3,774) - (3,774)
Amount vested during 1993 - - - - 28,012 28,012
1993 net income - - - - - 150,043
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, December 31, 1993 11,000 (39,520) 980 (4,912) (25,629) 610,625
Stock split 264,000 - 23,520 - - -
Issuance of Class B common stock - - (5,675) 947 (3,317) -
Conversion of Class A common stock
to Class B common stock (33,750) 6,690 33,750 (6,690) - -
Repurchase of Class B common stock - - 19,900 (5,016) - (5,016)
Amount vested during 1994 - - - - 19,717 19,717
1994 net income - - - - - 66,499
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, December 31, 1994 241,250 (32,830) 72,475 (15,671) (9,229) 691,825
Issuance of Class B common stock - - (19,850) 5,003 (7,654) -
Repurchase of Class A common stock 4,500 (1,735) - - - (1,735)
Repurchase of Class B common stock - - 30,265 (11,564) - (11,564)
Amount vested during 1995 - - - - 12,123 12,123
1995 net income - - - - - 8,955
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, December 31, 1995 245,750 (34,565) 82,890 (22,232) (4,760) 699,604
Issuance of Class B common stock
(unaudited) - - (37,500) 7,159 (14,746) -
Repurchase of Class B common stock
(unaudited) - - 3,775 (1,460) 113 (1,347)
Amount vested during 1996 (unaudited) - - - - 13,438 13,438
1996 six month net loss (unaudited) - - - - - (7,042)
----------- ---------- ---------- ---------- ----------- -----------
BALANCE, June 30, 1996 (Unaudited) 245,750 $ (34,565) 49,165 $ (16,533) $ (5,955) $ 704,653
----------- ---------- ---------- ---------- ----------- -----------
----------- ---------- ---------- ---------- ----------- -----------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
GRAPEVINE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 150,043 $ 66,499 $ 8,955 $ (12,039) $ (7,042)
Adjustments to reconcile net income (loss)
to net cash flows from operating activities:
Depreciation and amortization expense 306,518 259,203 386,652 157,177 216,063
Nonmonetary exchange of equipment - - (50,000) - -
Vesting of stock under employee stock
incentive plan 28,012 19,717 12,123 4,184 13,551
Changes in assets and liabilities:
Accounts receivable (251,965) 10,094 (192,034) (224,586) (264,573)
Costs and estimated earnings in excess
of billings on uncompleted contracts 5,783 (6,230) (13,270) 16,280 29,550
Income taxes receivable (15,786) (44,224) 62,811 52,274 -
Prepaid expenses (5,197) 3,729 (25,182) (8,952) 8,518
Accounts payable 26,375 14,598 13,847 100,262 82,013
Accrued expenses 21,599 3,298 120,198 54,940 (28,300)
Billings in excess of costs and estimated
earnings on uncompleted contracts (32,467) 40,180 220 (35,155) (34,150)
Deferred revenue 21,798 39,847 64,779 (18,186) (48,995)
Deferred income taxes 98,517 47,780 6,434 (8,650) (5,059)
----------- ------------ ------------ ----------- ------------
Net cash flows from operating activities 353,230 454,491 395,533 77,549 (38,424)
----------- ------------ ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (68,563) (84,425) (26,893) (4,171) (44,056)
Additions to product development (355,986) (357,513) (385,808) (273,322) (109,424)
----------- ------------ ------------ ----------- ------------
Net cash flows from investing activities (424,549) (441,938) (412,701) (277,493) (153,480)
----------- ------------ ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from bank line of credit 75,000 20,000 55,000 35,000 110,000
Payments on long-term debt (2,324) (28,647) (19,337) (7,349) (23,152)
Purchase of treasury stock (7,055) (5,016) (13,299) - (1,460)
Net borrowings on notes payable - - - 170,000 100,000
----------- ------------ ------------ ----------- ------------
Net cash flows from financing activities 65,621 (13,663) 22,364 197,651 185,388
----------- ------------ ------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (5,698) (1,110) 5,196 (2,293) (6,516)
CASH AND CASH EQUIVALENTS - Beginning of Period 10,272 4,574 3,464 3,464 8,660
----------- ------------ ------------ ----------- ------------
CASH AND CASH EQUIVALENTS - End of Period $ 4,574 $ 3,464 $ 8,660 $ 1,171 $ 2,144
----------- ------------ ------------ ----------- ------------
----------- ------------ ------------ ----------- ------------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
GRAPEVINE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Grapevine Systems, Inc. (the Company) is an Omaha,
Nebraska, based professional software company that provides development
services, product software, and consulting services for projects, large and
small, to companies primarily in the United States who are engaged in a
wide variety of industries. The Company specializes in providing
programming services on Stratus hardware.
Grapevine Systems, Inc. has developed special concentrations in the areas
of application development, communication and performance analysis.
BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL STATEMENTS - The
balance sheet as of June 30, 1996 and the related statements of operations
and cash flows for the six months ended June 30, 1995 and 1996, are
unaudited. However, in the opinion of management, the interim financial
statements include all adjustments, which consist of only normal recurring
adjustments, necessary for fair presentation of the Company's financial
position and results of operations. The unaudited results of operations
for the six months ended June 30, 1996, are not necessarily indicative of
the results which may be expected for the entire year.
REVENUE RECOGNITION - The Company recognizes revenues upon the delivery of
its products and services for the majority of its contracts. The Company
has certain long-term contracts in which revenues are recognized using the
percentage of completion method of accounting. Under this method, the
percentage of completion is determined by relating the actual cost to date
to the current estimated total cost. The asset, "costs and estimated
earnings in excess of billings on uncompleted contracts," represents the
excess of contract revenue recognized to date over actual billings to date.
The liability, "billings in excess of costs and estimated earnings on
uncompleted contracts," represents the excess of billings to date over the
contract revenue recognized to date.
NEW ACCOUNTING PRONOUNCEMENTS - The Company has evaluated the impact that
will result from adopting SFAS No. 121, ACCOUNTING FOR IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which will
be required to be adopted in the first quarter of 1996. The Company does
not expect the impact from adoption to be material to its financial
statements.
PRODUCT DEVELOPMENT - Product development costs related to the Company's
software products are recognized as expenses when incurred until
technological feasibility has been established for the product.
Thereafter, up to the general release of the products to the customer, all
product development costs are capitalized. Such costs are then amortized
on a straight-line basis over the remaining estimated economic life of the
product, not to exceed three years. At each balance sheet date, the
unamortized product development cost is analyzed for net realizable value
by estimating future gross revenues by product reduced by future
estimated costs of completing and disposing of that product.
During the year ended December 31, 1993, 1994 and 1995 and the six months
ended June 30, 1996, $355,986, $357,513, $385,808 and $109,424 (unaudited)
of product development costs were capitalized, respectively. Research and
development expenses incurred prior to capitalization of product costs were
$647,278, $771,638, $817,616, $445,915 (unaudited) and $443,028 (unaudited)
for the years ended December 31, 1993, 1994 and 1995 and the six months
ended June 30, 1995 and 1996, respectively.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost and
includes the cost of equipment leased by the Company under capital leases.
F-6
<PAGE>
Depreciation on property and equipment is provided utilizing accelerated
methods over the following ranges of estimated useful lives:
LIFE IN YEARS
Furniture and fixtures 7
Equipment 5-7
Leasehold improvements 31-1/2
Equipment under capital lease 3-7
DEFERRED REVENUE - Deferred revenue primarily relates to amounts received
on maintenance contracts. Revenue is recognized ratably over the term of
the contract.
INCOME TAXES - Deferred income taxes have been provided in the financial
statements to record appropriate amounts relating to temporary differences
for income tax return and financial statement purposes. The Company uses
the cash basis of accounting for income tax purposes, and the accrual basis
of accounting for financial statement purposes. The Company follows
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES.
CASH FLOW REPORTING - For purposes of the statements of cash flows, the
Company considers all temporary investments purchased with a maturity of
three months or less to be cash equivalents.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- -------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid during the year for:
Interest on borrowings $ 15,463 $ 20,522 $ 48,113 $ 25,945 $ 18,364
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income taxes paid (refunded) $ 25,347 $ 51,002 $ (72,205) $ (49,200) $ 2,036
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Schedule of non-cash financing
activities:
Employee compensation paid
through employee stock
incentive plan (Note H):
Book value of Class B
common stock shares issued $ 31,059 $ 3,317 $ 7,654 $ - 14,746
Book value of Class B
common stock shares vested (28,012) (19,717) (12,123) (4,184) (13,438)
--------- --------- --------- --------- ---------
$ 3,047 $ (16,400) $ (4,469) $ (4,184) $ 1,308
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Schedule of non-cash investing
activities:
Acquisition of property in
exchange for capital lease
obligation $ 8,395 $ 26,315 $ 30,137 $ 30,137 $ 131,498
--------- --------- --------- --------- ---------
Acquisition of property in
exchange for services
rendered $ - $ 3,081 $ 50,000 $ - $ -
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-7
<PAGE>
In 1995, the Company received title to a computer with a fair value of
$50,000. In exchange for this computer, the Company provided consulting
services. In 1995, the Company recognized $50,000 of revenue on this
transaction.
In 1991, the Company received title to a mainframe computer with a fair
value of $220,000. In exchange for this computer the Company agreed to
complete development of certain software as well as honor a maintenance
agreement with a vendor. In 1993, the Company recognized $27,000 of
revenue on this transaction.
STOCK SPLIT - On November 18, 1994 the Company amended its Articles of
Incorporation for a 25 to 1 stock split. The amendment increased the
authorized capital stock from 100,000 shares at $.10 par value to 2,500,000
shares at $.004 par value. The Corporation then issued 25 shares of Class
A and Class B common stock at $.004 per share in exchange for each
outstanding share of Class A and Class B common stock at $.10 per share.
The Company also converted 33,750 shares of Class A common stock to Class B
common stock at $.004 per share, from each of the respective classes
Treasury stock.
RECLASSIFICATIONS - Certain amounts in the 1993 and 1994 financial
statements have been reclassified to conform to the 1995 presentation
format.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principals requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
B. LONG-TERM CONTRACTS IN PROGRESS
Information with respect to contracts in progress is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- ----------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Costs incurred and estimated earnings
on uncompleted contracts $ 16,280 $ 69,550 $ 22,500
Less billings to date 40,180 80,400 28,750
------------ ------------ -----------
$ (23,900) $ (10,850) $ (6,250)
------------ ------------ -----------
------------ ------------ -----------
These balances are included in the accompanying balance sheets under the following captions:
DECEMBER 31, JUNE 30,
------------------------------------- ----------
1994 1995 1996
(UNAUDITED)
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 16,280 $ 29,550 $ -
Billings in excess of costs and
estimated earnings on uncompleted
contracts 40,180 40,400 6,250
------------ ------------ -----------
$ (23,900) $ (10,850) $ (6,250)
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
F-8
<PAGE>
C. BANK LINE OF CREDIT
The line of credit consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------- -------------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
$500,000 revolving line of credit with a bank,
due August 15, 1996, payments of interest
at the bank's base rate of 10.75% at
December 31, 1995, and 10.75% at June 30,
1996 (unaudited), due monthly, secured by all
Company assets and guarantees by certain
officers and shareholders of the Company $ 295,000 $ 250,000 $ 360,000
----------- ----------- -----------
</TABLE>
In connection with the line of credit the Company has agreed to certain
covenants which, among other things, require total stockholders' equity to
remain above $250,000, minimum debt to net worth, and current ratio
requirements. At December 31, 1995, the Company was in violation of
several covenants, all which have been waived by the bank. At June 30,
1996, the Company was in violation of several covenants, all of which have
been waived by the bank.
The line of credit is subject to a maximum borrowing base of 80% of
accounts receivable outstanding less than 90 days. At December 31, 1995
and June 30, 1996, $500,000 was available on the line of credit, of which
$250,000 and $360,000 (unaudited) was outstanding.
D. NOTE PAYABLE
The term loan consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------- --------------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Note payable with a bank, due August 12,
1996, with interest at 10.75% at
December 31, 1995 and 10.50% at June 30,
1996 (unaudited), due along with principal
at maturity, secured by all Company assets
and guarantees by certain officers and
shareholders of the Company $ - $ 100,000 $ 200,000
----- ----------- -----------
</TABLE>
E. STOCKHOLDER NOTES PAYABLE
Stockholder notes payable of $18,000 were paid off in 1994.
F-9
<PAGE>
F. CAPITAL LEASE OBLIGATIONS
Capital lease obligations were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- -------------
1994 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
Capital lease obligations, effective interest
rates ranging from 8.5% to 10.75% $ 21,740 $ 32,541 $ 140,887
Less current portion 11,810 24,453 55,402
---------- ---------- -----------
Long-term capital lease obligations $ 9,930 $ 8,088 $ 85,485
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
G. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ---------------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal $ - $ - $ - $ - $ -
State - - - - -
Deferred 98,517 47,780 6,434 (8,650) (5,059)
---------- ---------- --------- ----------- -----------
$ 98,517 $ 47,780 $ 6,434 $ (8,650) $ (5,059)
---------- ---------- --------- ----------- -----------
---------- ---------- --------- ----------- -----------
</TABLE>
Total tax expense for the year varies from the amount which would be
provided by applying the statutory income tax rate to earnings before
income taxes. The major reasons for this difference (expressed as a
percentage of pre-tax income) are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -----------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0% 34.0% 34.0%
State income tax effect 5.1% 5.51% 5.51% 5.51% 5.51%
Other 0.5% 2.29% 2.29% 2.29% 2.29%
------ ------ ------ ------ ------
39.6% 41.8% 41.8% 41.8% 41.8%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
F-10
<PAGE>
The net deferred income tax liability resulting from reporting revenue and
expenses in different periods for tax and financial reporting purposes is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1994 1995
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforward $ 18,530 $ 62,190
Income tax credits 101,120 116,521
Accounts payable 45,111 52,262
Other 59,486 127,118
------------ ------------
Total 224,247 358,091
------------ ------------
Valuation allowance (38,644) (48,082)
------------ ------------
Deferred tax liabilities:
Accounts receivable (230,463) (285,236)
Product development costs (262,383) (303,422)
Other (27,818) (62,846)
------------ ------------
Total (520,664) (651,504)
------------ ------------
Net deferred income tax liability $ (335,061) $ (341,495)
------------ ------------
------------ ------------
At December 31, 1995, the Company had the following tax net operating losses:
Expiration Federal State
Year 2009 $ 26,793 $ 84,597
Year 2010 115,355 115,355
</TABLE>
H. EMPLOYEE STOCK INCENTIVE PLAN
In 1988, the Company established an employee stock incentive plan to
provide the employees of the Company with an opportunity to share in the
growth of the Company on a voluntary basis.
Under the current plan, the employees are not required to pay for the stock
but instead those choosing to participate receive the stock as
compensation. The stock is subject to buy-sell agreements which give the
Company right of first refusal to repurchase the stock at book value under
certain conditions as well as other restrictions.
The stock is issued at its net book value, which the Board of Directors
has determined to approximate market value, and ownership vests over three
years from the date of issue. Compensation to the employee, equal to the
net book value of the stock, is recognized by the Company as the ownership
vests.
F-11
<PAGE>
The Company has authorized 562,875 shares of Class B non-voting common
stock for issuance under this plan. During fiscal year 1993, 1994, 1995
and the six months ended June 30, 1996, the Company issued 121,250, 9,800,
19,850, and 10,000 (unaudited) shares under the plan, respectively. The
Company also issued 27,500 (unaudited) shares of Class B non-voting common
stock as compensation to certain individuals during the six months ended
June 30, 1996. The Company repurchased 18,250, 19,900, 30,265, and 3,775
(unaudited) shares of the stock issued under the plan at a cost of $3,774,
$5,016, $11,564, and $1,460 (unaudited) as of December 31, 1993, 1994,
1995, and the six months ended June 30, 1996, respectively. Of the
remaining 486,610 shares (unaudited) at June 30, 1996 issued under the
plan, 472,157 (unaudited) have vested with participating employees. If
the Company decides to repurchase these vested shares, a contingent
liability exist to the Company upon repurchase of $182,184 at
December 31, 1995. The above shares have been restated to reflect the
25 to 1 stock split that occurred in 1994.
In addition, the Company issued 60,000 and 31,250 shares of Class A voting
common stock under the plan during 1988 and 1992, respectively. No shares
were issued under the Plan during 1993, 1994, or 1995. The Company
repurchased 15,000, -0-, 4,500 and -0- (unaudited) of such shares at a cost
of $3,281, $-0-, $1,735 and $-0- (unaudited) as of December 31, 1993, 1994,
1995 and the six months ended June 30, 1996, respectively. Of the
remaining 61,750 shares issued under the plan, 61,750 have vested with
participating employees. If the Company decides to repurchase these
vested shares, a contingent liability exist to the Company upon
repurchase of $24,280 at December 31, 1995. The above shares have been
restated to reflect the 25 to 1 stock split that occurred in 1994.
I. DEFINED CONTRIBUTION PLAN
The Company adopted a 401(k) Defined Contribution Plan on January 1, 1993.
The Plan year ends December 31. Employer contributions are discretionary.
Employees may contribute up to 10% of their compensation subject to an
annual limit established by the Internal Revenue Service. For the years
ended December 31, 1993, 1994 and 1995 and the six months ended June 30,
1995 and 1996 (unaudited), the Company elected not to make a contribution
to the Plan.
J. COMMITMENTS
The Company leases office space under an operating lease. Total rent
expense amounted to $154,854, $184,515, $186,663, $92,591 (unaudited) and
$99,112 (unaudited) for the years ended December 31, 1993, 1994 and 1995
and the six months ended June 30, 1995 and 1996, respectively.
The future minimum rental payments under the operating leases as of
December 31, 1995 are as follows:
1996 $ 117,137
1997 58,568
-----------
$ 175,705
-----------
-----------
In addition to the basic annual rent noted above, the Company is required
to pay a portion of the direct expenses of the building through "additional
rent". The direct expenses charged back to the Company are capped at an
annual increase of 5%. The Company estimates the additional rent cap for
1996 will be approximately $81,200.
F-12
<PAGE>
At December 31, 1995, the Company has entered into a 36 month lease
agreement to acquire computer equipment. This computer equipment will be
treated as a capital lease with a fair value of $96,336. The Company had
not yet received the equipment as of December 31, 1995 and, accordingly,
has not recorded this agreement in the accounting records of the Company at
that date.
The Company has issued Class A Common Stock to the founders and certain
officers which gives the Company right of first refusal to repurchase the
stock at book value under certain conditions as well as other restrictions.
At December 31, 1995, 1,237,500 shares were outstanding and have vested.
If the Company decides to repurchase these vested shares, a contingent
liability exist to the Company under repurchase of $486,585 at
December 31, 1995.
K. MAJOR CUSTOMERS
The Company has major customers who have accounted for a significant
portion of revenues over the three years ended December 31, 1995. Sales to
major customers were $1,209,352, $1,166,752, $1,948,418, $1,068,393
(unaudited) and $1,693,589 (unaudited) which represents 39%, 34%, 44%, 56%
(unaudited) and 61% (unaudited) of total revenues for the years ended
December 31, 1993, 1994, 1995 and the six months ended June 30, 1995 and
1996, respectively. The major customers for 1996 were not the same as
those for 1995, 1994 and 1993.
L. SUBSEQUENT EVENTS (UNAUDITED)
On July 15, 1996, the Company entered into a merger agreement whereby all
of the common stock of the Company will be exchanged for a specified number
of common stock shares of Transaction Systems Architects, Inc. in
accordance with the merger agreement. The merger will be accounted for as
a pooling of interests transaction.
F-13
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements give
effect to the share exchange pursuant to the Stock Exchange Agreement dated
July 15, 1996 between TSA and Grapevine. The pro forma consolidated balance
sheet assumes that the share exchange occurred on June 30, 1996. The pro
forma consolidated statements of operations assume that the share exchange
occurred as of October 1, 1992. The share exchange will be accounted for as
a pooling of interests. In addition, the pro forma consolidated statements
of operations for the year ended September 30, 1995 and the nine months ended
June 30, 1996 give effect to TSA's acquisition of substantially all of the
net assets of TXN Solution Integrators (TXN) as if it occurred October 1,
1994. The TXN acquisition occurred on June 3, 1996 and was accounted for
under the purchase method of accounting. The pro forma consolidated
financial statements presented herein are shown for illustrative purposes
only and are not necessarily indicative of the future financial position or
future results of operations of the Company, or of the financial position or
results of operations of the Company that would have actually occurred had
the transactions been in effect as of the date or for the periods presented.
The Grapevine financial information was derived by segregating audited annual
financial numbers into the four quarters ended for the respective periods and
summarizing this quarterly information into the pro forma periods shown.
F-14
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED, IN THOUSANDS AND U.S. DOLLARS)
<TABLE>
<CAPTION>
TSA Grapevine Pro Forma Pro Forma
Historical Historical Adjustments Combined
------------ ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 22,946 $ 2 $ $ 22,948
Receivables, net 48,943 1,086 50,029
Other 4,772 25 4,797
------------ ------------ ------------ ------------
Total current assets 76,661 1,113 0 77,774
Property and equipment, net 12,338 344 12,682
Software, net 5,083 727 5,810
Intangible assets, net 7,206 7,206
Installment receivables 1,029 1,029
Investment and notes receivable 7,275 7,275
Other 2,046 2,046
------------ ------------ ------------ ------------
Total assets $ 111,638 $ 2,184 $ 0 $ 113,822
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 741 $ 560 $ $ 1,301
Current portion of capital lease obligations 314 55 369
Accounts payable 5,654 204 5,858
Accrued employee compensation 3,861 3,861
Accrued liabilities 6,273 163 6,436
Income taxes 4,607 336 4,943
Deferred revenue 18,753 77 18,830
------------ ------------ ------------ ------------
Total current liabilities 40,203 1,395 0 41,598
Long-term debt 1,421 1,421
Capital lease obligations 126 85 211
------------ ------------ ------------ ------------
Total liabilities 41,750 1,480 0 43,230
------------ ------------ ------------ ------------
Stockholders' equity:
Common Stock 127 8 (6)(a) 129
Additional paid-in capital 93,557 119 (45)(a) 93,631
Accumulated translation adjustments (272) (272)
Accumulated deficit (23,512) 628 (22,884)
Treasury stock at cost (12) (51) 51 (a) (12)
------------ ------------ ------------ ------------
Total stockholders' equity 69,888 704 0 70,592
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 111,638 $ 2,184 $ 0 $ 113,822
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to pro forma consolidated financial statements
F-15
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30, 1993
(unaudited, in thousands and in U.S. dollars)
<TABLE>
<CAPTION>
TSA Grapevine Pro Forma TSA/Grapevine
Historical (b) Historical Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Software license fees $ - $ 200 $ $ 200
Maintenance fees - 111 111
Services - 2,904 2,904
------------ ------------ ------------ ------------
Total revenues - 3,215 0 3,215
------------ ------------ ------------ ------------
Expenses:
Cost of software license fees:
Software costs - 216 216
Cost of maintenance and services - 1,168 1,168
Research and development:
Research and development costs - 139 139
Selling and marketing - 818 818
General and administrative:
General and administrative costs - 556 556
------------ ------------ ------------ ------------
Total expenses - 2,897 0 2,897
------------ ------------ ------------ ------------
Operating income - 318 0 318
------------ ------------ ------------ ------------
Other income (expense):
Interest expense - (19) (19)
------------ ------------ ------------ ------------
Total other - (19) 0 (19)
------------ ------------ ------------ ------------
Income before income taxes - 299 0 299
Provision for income taxes - (118) (118)
------------ ------------ ------------ ------------
Net income $ - $ 181 $ 0 $ 181
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to pro forma consolidated financial statements
F-16
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30,1994
(unaudited, in thousands, except share and per
share amounts, and in U.S. dollars)
<TABLE>
<CAPTION>
TSA Grapevine Pro Forma TSA/Grapevine
Historical (c) Historical Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Software license fees $ 36,696 $ 296 $ $ 36,992
Maintenance fees 18,570 55 18,625
Services 15,095 3,179 (154)(d) 18,120
Hardware, net 3,702 3,702
------------ ------------ ------------ ------------
Total revenues 74,063 3,530 (154) 77,439
------------ ------------ ------------ ------------
Expenses:
Cost of software license fees:
Software costs 7,310 224 7,534
Amortization of purchased software 2,342 2,342
Purchased contracts in progress 12,398 12,398
Cost of maintenance and services 18,352 1,175 (154)(d) 19,373
Research and development:
Research and development costs 8,432 154 8,586
Charge for purchased research and development 22,712 22,712
Selling and marketing 17,761 917 18,678
General and administrative:
General and administrative costs 13,007 652 13,659
Amortization of goodwill and purchased
intangibles 834 834
------------ ------------ ------------ ------------
Total expenses 103,148 3,122 (154) 106,116
------------ ------------ ------------ ------------
Operating income (loss) (29,085) 408 0 (28,677)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 416 416
Interest expense (3,042) (16) (3,058)
Other 172 172
------------ ------------ ------------ ------------
Total other (2,454) (16) 0 (2,470)
------------ ------------ ------------ ------------
Income (loss) before income taxes (31,539) 392 0 (31,147)
Provision for income taxes (1,999) (165) (2,164)
------------ ------------ ------------ ------------
Net income (loss) $ (33,538) $ 227 $ 0 $ (33,311)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per common and equivalent share $ (1.66) $ (1.61)
------------ ------------
------------ ------------
Weighted average shares outstanding 20,208 370(a) 20,578
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to pro forma consolidated financial statements
F-17
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30, 1995
(unaudited, in thousands, except share and per
share amounts, and in U.S. dollars)
<TABLE>
<CAPTION>
TSA/
TSA Grapevine Pro Forma Grapevine TXN Pro Forma Pro Forma
Historical Historical Adjustments Combined Historical Adjustments Combined
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software license fees $ 57,758 $ 270 $ $ 58,028 $ 2,219 $ (1,446)(e) $ 58,801
Maintenance fees 29,109 58 29,167 3,573 (741)(e) 31,999
Services 23,467 3,309 (52)(d) 26,724 4,401 (178)(e) 30,947
Hardware, net 4,554 4,554 1,046 (11)(e) 5,589
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues 114,888 3,637 (52) 118,473 11,239 (2,376) 127,336
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Cost of software license fees:
Software costs 12,827 312 13,139 1,472 (1,457)(e) 13,154
Amortization of purchased software 3,165 3,165 123 (f) 3,288
Purchased contracts in progress 2,956 2,956 2,956
Cost of maintenance and services 26,863 1,675 (52)(d) 28,486 6,386 (66)(g) 33,887
(919)(e)
Research and development 12,323 269 12,592 12,592
Selling and marketing 29,089 985 30,074 1,148 (3)(g) 31,219
General and administrative:
General and administrative costs 17,898 753 18,651 783 (4)(g) 19,430
Amortization of goodwill and
purchased intangibles 344 344 228 (h) 572
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses 105,465 3,994 109,407 9,789 (2,098) 117,098
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income(loss) 9,423 (357) 0 9,066 1,450 (278) 10,238
----------- ----------- ----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income 1,075 2 1,077 100 (190)(i) 987
Interest expense (1,707) (44) (1,751) (40) (1,791)
Other 12 12 15 27
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total other (620) (42) 0 (662) 75 (190) (777)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 8,803 (399) 0 8,404 1,525 (468) 9,461
Provision for income taxes (2,253) 167 0 (2,086) (423)(j) (2,509)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before extraordinary
loss 6,550 (232) 0 6,318 1,525 (891) 6,952
Extraordinary loss (2,750) (2,750) (2,750)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 3,800 $ (232) 0 $ 3,568 $ 1,525 (891) 4,202
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income per common and equivalent
share:
Before extraordinary loss $ 0.29 $ 0.27 $ 0.30
Extraordinary loss (0.12) (0.12) (0.12)
----------- ----------- -----------
Net income (loss) $ 0.17 $ 0.15 $ 0.18
----------- ----------- -----------
Weighed average shares outstanding 22,871 370(a) 23,241 23,241
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to pro forma consolidated financial statements
F-18
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended June 30, 1996
(unaudited, in thousands, except share and per
share amounts, and in U.S. dollars)
<TABLE>
<CAPTION>
TSA/
TSA Grapevine Pro Forma Grapevine TXN Pro Forma Pro Forma
Historical Historical Adjustments Combined Historical Adjustments Combined
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software license fees $ 55,614 $ 590 $ $ 56,204 $ 1,263 $ (837)(e)$ 56,630
Maintenance fees 25,786 103 25,889 2,400 (584)(e) 27,705
Services 25,778 3,481 (405)(d) 28,854 3,755 (193)(e) 32,416
Hardware, net 3,279 3,279 141 (81)(e) 3,339
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues 110,457 4,174 (405) 114,226 7,559 (1,695) 120,090
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Cost of software license fees:
Software costs 13,516 433 13,949 859 (918)(e) 13,890
Amortization of purchased
software 2,356 2,356 82 (f) 2,438
Cost of maintenance and services 27,245 1,753 (405)(d) 28,593 4,877 (61)(g) 32,632
(777)(e)
Research and development 10,944 237 11,181 11,181
Selling and marketing 23,594 988 24,582 656 (2)(g) 25,236
General and administrative:
General and administrative costs 18,226 641 18,867 429 (3)(g) 19,293
Amortization of goodwill and
purchased intangibles 452 452 152 (h) 604
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses 96,333 4,052 (405) 99,980 6,821 (1,527) 105,274
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) 14,124 122 0 14,246 738 (168) 14,816
----------- ----------- ----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income 1,580 1,580 80 (120)(i) 1,540
Interest expense (145) (37) (182) (2) (184)
Other (180) (180) 23 (157)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total other 1,255 (37) 0 1,218 101 (120) 1,199
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 15,379 85 0 15,464 839 (288) 16,015
Provision for income taxes (6,250) (35) (6,285) (220)(j) (6,505)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 9,129 $ 50 $ 0 $ 9,179 $ 839 $ (508) $ 9,510
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income per common and
equivalent share $ 0.34 $ 0.34 $ 0.35
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding 26,658 370 (a) 27,028 27,028
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to pro forma consolidated financial statements
F-19
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Note 1: The unaudited pro forma consolidated financial statements reflect the
following adjustments:
ADJUSTMENTS RELATED TO THE GRAPEVINE SHARE EXCHANGE:
(a) Adjustment to reflect the combination of TSA and Grapevine
Stockholders' Equity accounts.
(b) TSA was formed on November 2, 1993, therefore, there were no results
of operations for TSA for the year ended September 30, 1993.
(c) Includes results of operations of TSA for the period from inception
(November 2, 1993) through September 30, 1994.
(d) Adjustment to eliminate revenue and expenses associated with
Grapevine services provided to TSA.
ADJUSTMENTS RELATED TO THE TXN PURCHASE:
(e) Adjustment to eliminate royalties paid by TXN to TSA.
(f) Adjustment to reflect additional amortization of purchased software.
(g) Adjustment to reflect reduction in depreciation expense related to
assets not acquired by TSA.
(h) Adjustment to reflect amortization of goodwill.
(i) Adjustment to eliminate interest earned on cash used to pay purchase
price.
(j) Adjustment to increase provision for income taxes arising from
inclusion of the results of TXN's operations.
F-20
<PAGE>
ANNEX A
PAGE 1
REVISED STATUTES OF NEBRASKA (1995)
@ 21-20,137. Dissenters' rights; terms, defined
For purposes of sections 21-20,137 to 21-20,150:
(1) Beneficial shareholder shall mean the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder;
(2) Corporation shall mean the issuer of the shares held by a dissenter
before the corporate action or the surviving or acquiring corporation by merger
or share exchange of that issuer;
(3) Dissenter shall mean a shareholder who is entitled to dissent from
corporate action under section 21-20,138 and who exercises that right when and
in the manner required by sections 21-20,140 to 21-20,148;
(4) Fair value, with respect to a dissenter's shares, shall mean the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable;
(5) Interest shall mean interest from the effective date of the corporate
action until the date of payment at the rate specified in section 45-104, as
such rate may from time to time be adjusted by the Legislature;
(6) Record shareholder shall mean the person in whose name shares are
registered in the records of a corporation or the beneficial shareholder to the
extent of the rights granted by a nominee certificate on file with a
corporation; and
(7) Shareholder shall mean the record shareholder or the beneficial
shareholder.
<PAGE>
PAGE 2
@ 21-20,138. Right to dissent
(1) A shareholder shall be entitled to dissent from, and obtain payment of
the fair value of his or her shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party:
(i) If shareholder approval is required for the merger by section
21-20,130 or the articles of incorporation and the shareholder is entitled to
vote on the merger; or
(ii) If the corporation is a subsidiary that is merged with its parent
under section 21-20,131;
(b) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
(d) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) Alters or abolishes a preferential right of the shares;
(ii) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or repurchase
of the shares;
(iii) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(iv) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through issuance of
shares or other securities with similar voting rights; or
<PAGE>
PAGE 3
R.R.S. Neb. @ 21-20,138 (1995)
(v) Reduces the number of shares owned by the shareholder to a fraction
of a share if the fractional share so created is to be acquired for cash under
section 21-2038; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, the bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for his or her
shares under sections 21-20,137 to 21-20,150 may not challenge the corporate
action creating his or her entitlement unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(3) The right to dissent and obtain payment under sections 21-20,137 to
21-20,150 shall not apply to the shareholders of a bank, trust company,
stock-owned savings and loan association, industrial loan and investment
company, or the holding company of any such bank, trust company, stock-owned
savings and loan association, or industrial loan and investment company.
<PAGE>
PAGE 4
@ 21-20,139. Dissent by nominees and beneficial owners
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his or her name only if he or she dissents with respect
to all shares beneficially owned by any one person and notifies the corporation
in writing of the name and address of each person on whose behalf he or she
asserts dissenters' rights. The rights of a partial dissenter under this
subsection shall be determined as if the shares as to which he or she dissents
and his or her other shares were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held
on his or her behalf only if:
(a) He or she submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(b) He or she does so with respect to all shares of which he or she is the
beneficial shareholder or over which he or she has power to direct the vote.
<PAGE>
PAGE 5
@ 21-20,140. Notice of dissenters' rights
(1) If proposed corporate action creating dissenters' rights under section
21-20,138 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under sections 21-20,137 to 21-20,150 and be accompanied by a copy of
such sections.
(2) If corporate action creating dissenters' rights under section 21-20,138
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send those shareholders the dissenters' notice described in section
21-20,142.
<PAGE>
PAGE 6
@ 21-20,141. Dissenters' rights; notice of intent to demand payment
(1) If proposed corporate action creating dissenters' rights under section
21-20,138 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights (a) shall deliver to the corporation before
the vote is taken written notice of his or her intent to demand payment for his
or her shares if the proposed action is effectuated and (b) shall not vote his
or her shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1) of
this section shall not be entitled to payment for his or her shares under
sections 21-20,137 to 21-20,150.
<PAGE>
PAGE 7
@ 21-20,142. Dissenters' notice
(1) If proposed corporate action creating dissenters' rights under section
21-20,138 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of section 21-20,141.
(2) The dissenters' notice shall be sent no later than ten days after the
corporate action was taken and shall:
(a) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he or she acquired beneficial ownership of the shares
before that date;
(d) Set a date by which the corporation shall receive the payment demand
which date may not be fewer than thirty nor more than sixty days after the date
the notice required by subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of sections 21-20,137 to 21-20,150.
<PAGE>
PAGE 8
@ 21-20,143. Dissenters' rights; duty to demand payment
(1) A shareholder who was sent a dissenters' notice described in section
21-20,142 shall demand payment, certify whether he or she acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to subdivision (2)(c) of section 21-20,142, and
deposit his or her certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits his or her shares under
subsection (1) of this section shall retain all other rights of a shareholder
until such rights are canceled or modified by the taking of the proposed
corporate action.
(3) A shareholder who does not demand payment or does not deposit his or her
share certificates where required, each by the date set in the dissenters'
notice, shall not be entitled to payment for his or her shares under sections
21-20,137 to 21-20,150.
<PAGE>
PAGE 9
@ 21-20,144. Dissenters' rights; share restrictions
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions are released under section 21-20,146.
(2) The person for whom dissenters' rights are asserted as to uncertificated
shares shall retain all other rights of a shareholder until such rights are
canceled or modified by the taking of the proposed corporate action.
<PAGE>
PAGE 10
@ 21-20,145. Dissenters' rights; payment
(1) Except as provided in section 21-20,147, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who complied with section 21-20,143 the amount the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
(2) The payment shall be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year, and the
latest available interim financial statements, if any;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under section
21-20,148; and
(e) A copy of section 21-20,137 to 21-20,150.
<PAGE>
PAGE 11
@ 21-20,146. Dissenters' rights; failure to take action
(1) If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(2) If, after returning deposited certificates and releasing transfer
restriction, the corporation takes the proposed action, it shall send a new
dissenter's notice under section 21-20,142 and repeat the payment demand
procedure.
<PAGE>
PAGE 12
@ 21-20,147. Dissenters' rights; after-acquired shares
(1) A corporation may elect to withhold payment required by section 21-20,145
from a dissenter unless he or she was the beneficial shareholder before the date
set forth in the dissenters' notice as the date of the first announcement to
news media or to shareholders of the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under subsection
(1) of this section after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay this
amount to each dissenter who agrees to accept it in full satisfaction of his or
her demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under
section 21-20,148.
<PAGE>
PAGE 13
@ 21-20,148. Dissenters' rights; procedure if shareholder dissatisfied with
payment or offer
(1) A dissenter may notify the corporation in writing of his or her own
estimate of the fair value of his or her shares and amount of interest due, and
demand payment of his or her estimate, less any payment under section 21-20,145,
or reject the corporation's offer under section 21-20,147 and demand payment of
the fair value of his or her shares and interest due if:
(a) The dissenter believes that the amount paid under section 21-20,145 or
offered under section 21-20,147 is less than the fair value of his or her shares
or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under section 21-20,145 within
sixty days after the date set for demanding payment; or
(c) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for demanding
payment.
(2) A dissenter waives his or her right to demand payment under this section
unless he or she notifies the corporation of his or her demand in writing under
subsection (1) of this section within thirty days after the corporation made or
offered payment for his or her shares.
<PAGE>
PAGE 14
@ 21-20,149. Dissenters' rights; court action
(1) If a demand for payment under section 21-20,148 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(2) The corporation shall commence the proceeding in the district court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the district court of the county in this state where the registered office of
the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section shall be plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. Appraisers shall have the powers
described in the order appointing them or in any amendment to such order. The
dissenters shall be entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding shall be entitled to
judgment (a) for the amount, if any, by which the court finds the fair value of
his or her shares, plus interest, exceeds the amount paid by the corporation or
(b) for the fair value, plus accrued interest, of his or her after-acquired
shares for which the corporation elected to withhold payment under section
21-20,147.
<PAGE>
PAGE 15
@ 21-20,150. Dissenters' rights; court costs and attorney's fees
(1) The court in an appraisal proceeding commenced under section 21-20,149
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under section 21-20,148.
(2) The court may also assess the attorney's fees and expenses and the fees
and expenses of experts for the respective parties in amounts the court finds
equitable:
(a) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of sections 21-20,140 to 21-20,148; or
(b) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by sections 21-20,137 to 21-20,150.
(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
those services should not be assessed against the corporation, the court may
award to counsel reasonable fees to be paid out of the amounts awarded to the
dissenters who were benefited.
<PAGE>
ANNEX B
STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT (this "Agreement") is entered into as of
this 15 day of July, 1996, by and among TRANSACTION SYSTEMS ARCHITECTS, INC.,
a Delaware corporation, ("TSA") GRAPEVINE SYSTEMS, INC., a Nebraska corporation,
("Grapevine"), and STEPHEN J. ROYER, JAMES J. McFADDEN, MICHAEL F. BENSON,
JAMES G. STRICKLAND and MICHAEL R. ENGEL (the "Principal Shareholders").
RECITALS
A. TSA, the Principal Shareholders and Grapevine have determined to
engage in the transactions contemplated hereby, pursuant to which Grapevine
will adopt a Plan of Share Exchange in accordance with Section 21-20,129 of the
Nebraska Business Corporation Act and its shareholders will exchange (the
"Exchange") all of their shares of Grapevine Common Stock, par value $.004 per
share ("Grapevine Common Stock"), for shares of TSA's Class A Common Stock, par
value $.005 per share ("TSA Common Stock"), upon the terms and subject to the
conditions set forth herein.
B. The Principal Shareholders of Grapevine are hereby making certain
representations, warranties, covenants and agreements in support of the
transactions contemplated by this Agreement.
C. The Exchange is intended to be treated as a "pooling of interests" for
accounting purposes and a tax-free reorganization pursuant to the provisions of
Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE I
THE EXCHANGE
SECTION 1.01 THE EXCHANGE.
(a) Subject to the terms and conditions of this Agreement, on the Closing
Date (as defined in subsection (b) below), the Grapevine shareholders will
exchange, assign, transfer and deliver all of the shares of Grapevine Common
Stock for shares of TSA Common Stock
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and TSA agrees to exchange therefor and assign, transfer and deliver that number
of shares of TSA Common Stock as calculated in accordance with the provisions of
this Agreement.
(b) The closing of the Exchange (the "Closing") will take place as soon as
practicable after the parties hereto are in a position to satisfy or waive the
conditions set forth in Article VII. The Closing shall take place at a date and
time to be mutually agreed upon by the parties but not later than twenty (20)
business days after the Registration Statement is declared effective by the
Securities and Exchange Commission (the "Closing Date") at the offices of
Erickson & Sederstrom, P.C., Omaha, Nebraska 68114.
(c) On the Closing Date, TSA shall deliver for exchange in accordance
with this Section 1.01 certificates evidencing TSA Common Stock in exchange for
outstanding shares of Grapevine Common Stock.
(d) Notwithstanding any other provision of this Agreement, no fractional
shares of TSA Common Stock shall be issued in connection with the Exchange. In
lieu of any such fractional shares, each holder of shares of Grapevine Common
Stock who would otherwise have been entitled to receive a fraction of a share of
TSA Common Stock upon surrender of Certificates for exchange pursuant to this
Section 1.01 shall be entitled to receive from TSA a cash payment equal to such
fraction multiplied by the Average Closing Price of TSA Common Stock.
SECTION 1.02 EXCHANGE FACTORS.
(a) On the Closing Date each share of Class A Grapevine Common Stock
outstanding immediately prior to the Closing Date shall be exchanged for .2074
of a share of TSA Common Stock.
(b) On the Closing Date each share of fully vested Class B Grapevine
Common Stock outstanding immediately prior to the Closing Date, as set forth on
Exhibit 2.29, shall be exchanged for .1971 of a share of TSA Common Stock.
(c) On the Closing Date each share of twenty-five percent (25%) vested
Class B Grapevine Common Stock outstanding immediately prior to the Closing
Date, as set forth on Exhibit 2.29, shall be exchanged for .1675 of a share of
TSA Common Stock.
(d) On the Closing Date each share of fifty percent (50%) vested Class B
Grapevine Common Stock outstanding immediately prior to the Closing Date, as set
forth on Exhibit 2.29, shall be exchanged for .1774 of a share of TSA Common
Stock.
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(e) On the Closing Date each share of seventy-five percent (75%) vested
Class B Grapevine Common Stock outstanding immediately prior to the Closing
Date, as set forth on Exhibit 2.29, shall be exchanged for .1872 of a share of
TSA Common Stock.
The total number of shares of TSA Common Stock to be issued in the Exchange
(i.e., 370,000) and the exchange ratios set forth in paragraph 1.02(a) through
1.02(e) will be adjusted in the event that the average per share closing price
of TSA Common Stock on NASDAQ for the five (5) business days after the
Registration Statement (described in Section 2.28) is declared effective by the
Securities and Exchange Commission ("Average Closing Price") is less than Thirty
Dollars ($30.00) per share or more than Forty Dollars ($40.00) per share. If
the Average Closing Price is less than Thirty Dollars ($30.00) per share, then
the total number of shares of TSA Common Stock to be issued in the Exchange
shall be determined by dividing $11,100,000 (which is 370,000 x $30.00) by the
Average Closing Price. If the Average Closing Price is greater than Forty
Dollars ($40.00), then the total number of shares of TSA to be issued in the
Exchange shall be determined by dividing $14,800,000 (which is 370,000 x $40.00)
by the Average Closing Price. In the case of either such adjustment, the
exchange ratios set forth in paragraphs 1.02(a) through 1.02(e) shall be
adjusted accordingly.
SECTION 1.03 EFFECT OF SHARE EXCHANGE UNDER NEBRASKA BUSINESS CORPORATION
ACT.
Articles of Share Exchange shall be filed with the Secretary of State of
Nebraska as soon as practicable after the Closing. The effective date of
Articles of Share Exchange as specified in the Plan of Share Exchange (the
"Effective Date") shall be the Closing Date or on such other date as the parties
may mutually agree upon. Subject to the terms and conditions of this Agreement
and the Plan of Share Exchange, TSA will acquire all of the Grapevine Common
Stock in a statutory share exchange pursuant to the Plan of Share Exchange and
in accordance with applicable provisions of Delaware and Nebraska law so as to
cause each share of Grapevine Common Stock that is issued and outstanding
immediately prior to the Effective Date to be exchanged for the number of fully
paid and nonassessable shares of TSA Common Stock calculated in accordance with
Section 1.02 of this Agreement without further action on the part of any holder
thereof.
SECTION 1.04 TAX-FREE REORGANIZATION.
The parties intend to adopt this Agreement as a tax-free plan of
reorganization and to consummate the Exchange in accordance with the provisions
of Code (Internal Revenue Code of 1986, as amended) Section 368(a)(1)(B). The
shares of TSA Common Stock issued in the Exchange will be issued solely in
exchange for the issued and outstanding shares of Grapevine Common Stock
pursuant to this Agreement, and no other transaction other than
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the Exchange represents, provides for or is intended to be an adjustment of the
consideration paid for the Grapevine Common Stock. Except for cash paid in lieu
of fractional shares or for dissenting shares of Grapevine Shareholders pursuant
to their rights under Sections 21-20,137 to 21-20,150 of the Nebraska Business
Corporation Act, no consideration that would constitute "other property" within
the meaning of Code Section 356 will be paid by TSA for shares of Grapevine
Common Stock in the Exchange. In addition, TSA represents that it presently
intends, and that at the Effective Date it will intend, to continue Grapevine's
historic business or use a significant portion of Grapevine business assets in a
business.
SECTION 1.05 POOLING OF INTERESTS.
The parties intend that the transaction be treated as a "pooling of
interests" for accounting purposes.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF GRAPEVINE
AND THE GRAPEVINE PRINCIPAL SHAREHOLDERS
Grapevine and the Grapevine Principal Shareholders, jointly and severally
represent and warrant to TSA as set forth below:
SECTION 2.01 CORPORATE EXISTENCE AND POWER. Grapevine is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Nebraska, and has all corporate powers required to carry on its
business as now conducted. Grapevine is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on Grapevine. For purposes of this Agreement, the term
"Material Adverse Effect" means, with respect to any person or entity, a
material adverse effect on the condition (financial or otherwise), business,
properties, assets, liabilities (including contingent liabilities), results of
operations or prospects of such person or entity and its subsidiaries taken as a
whole; and the term "Material Adverse Change" means a change which would have a
Material Adverse Effect. Grapevine has delivered to TSA true and complete
copies of Grapevine's Articles of Incorporation and Bylaws as currently in
effect.
SECTION 2.02 CORPORATE AUTHORIZATION. The execution, delivery and
performance by Grapevine of this Agreement, the Plan of Share Exchange, the
Articles of Share Exchange and the consummation by Grapevine of the transactions
contemplated hereby are within
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Grapevine's corporate powers and have been and, to the extent not executed as of
the date hereof, will be prior to execution, duly authorized by all necessary
corporate action. This Agreement , the Plan of Share Exchange and the Articles
of Share Exchange constitute, or upon execution will constitute valid and
binding agreements of Grapevine, enforceable against Grapevine in accordance
with their respective terms and will constitute valid and binding agreements of
the Grapevine Shareholders, enforceable against them in accordance with their
respective terms.
SECTION 2.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Grapevine and the Grapevine Principal Shareholders of this
Agreement the consummation of the transactions contemplated hereby and the
continued operation of the businesses of Grapevine after the Closing Date
require no action by or in respect of, or filing with, any governmental body,
agency, official or authority.
SECTION 2.04 NON-CONTRAVENTION. The execution, delivery and performance by
Grapevine and the Grapevine Principal Shareholders of this Agreement and the
consummation by Grapevine of the transactions contemplated hereby do not and
will not:
(a) contravene or conflict with the Articles of Incorporation or
Bylaws of Grapevine;
(b) contravene or conflict with or constitute a violation of any
provision of any law, regulation, judgment, injunction, order or decree binding
upon or applicable to Grapevine;
(c) constitute a default under or give rise to a right of
termination, cancellation or acceleration or loss of any material benefit under
any agreement, contract or other instrument binding upon Grapevine or under any
license, franchise, permit or other similar authorization held by Grapevine; or
(d) result in the creation or imposition of any Lien (as defined below) on
any material asset of Grapevine.
For purposes of this Agreement, the term "Lien" means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest or encumbrance of
any kind in respect of such asset.
SECTION 2.05 CAPITALIZATION. The authorized capital stock of Grapevine
consists of 2,500,000 Shares of Grapevine Common Stock, of which 1,937,125
shares are Class A Common Stock and 562,875 shares are Class B Common Stock. As
of the date hereof, there
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are outstanding 1,812,960 shares of Grapevine Common Stock, of which 1,299,250
shares are Class A Common Stock and 513,710 shares are Class B Common Stock.
All outstanding shares of capital stock of Grapevine have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth in this Section 2.05, there are outstanding (i) no shares of capital
stock or other voting securities of Grapevine, (ii) no securities of Grapevine
convertible into or exchangeable for shares of capital stock or voting
securities of Grapevine, and (iii) no options or other rights to acquire
securities from Grapevine and no obligation of Grapevine to issue any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or other voting securities of Grapevine. Except with respect to
each of the Principal Shareholders other than Stephen J. Royer, Grapevine has
entered into agreements ("Stockholder Agreements") with each of its shareholders
to provide for the purchase of a shareholder's shares of Grapevine Common Stock
in the event of such shareholder's death, disability, termination of employment
or otherwise in the event of a shareholder's desire to sell his or her shares
before his or her death, disability or termination of employment (a "Triggering
Event"). Grapevine has no outstanding obligations under any Stockholders
Agreement with any of its shareholders with respect to which a Triggering Event
has occurred.
SECTION 2.06 SUBSIDIARIES.
(a) Grapevine has no subsidiaries.
SECTION 2.07 FINANCIAL STATEMENTS. Grapevine has delivered to TSA (i) an
unaudited balance sheet of Grapevine dated as of May 31, 1996, (the "Grapevine
Balance Sheet Date") and the related unaudited statement of income, shareholders
equity and cash flows for the month period then ended, and (ii) the audited
balance sheets of Grapevine dated as of December 31 , 1995 ("the Grapevine
Balance Sheet") and the related audited statements of income, shareholders'
equity and cash flows for said period along with the same audited financial
statements for the periods ending December 31, 1994 and 1993 together with the
notes thereto and the reports of Deloitte & Touche thereon. Such financial
statements of Grapevine present fairly, in conformity with generally accepted
accounting principles (GAAP), the financial position of Grapevine as of the
dates thereof and its results of operations and cash flows for the periods then
ended.
SECTION 2.08 RECEIVABLES. The receivables shown on the Grapevine Balance
Sheet arose in the ordinary course of business and have been collected or are
collectible in the book amounts thereof, less an amount not in excess of the
allowance for doubtful accounts provided for in such balance sheet. The
receivables of Grapevine arising after the date of the Grapevine Balance Sheet
and prior to the Closing Date arose or will arise in the ordinary course of
business and have been collected or are or will be collectible in the book
amounts
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thereof, consistent with the past practice of Grapevine less an appropriate
allowance for doubtful accounts.
SECTION 2.09 COMPLIANCE WITH LAW. Grapevine is in compliance in all
material respects with and has conducted its business so as to comply in all
material respects with all laws, rules and regulations, judgments, decrees or
orders of any court, administrative agency, commission, regulatory authority or
other governmental authority or instrumentality, domestic or foreign (a
"Governmental Authority") applicable to its operations and with respect to which
compliance is a condition of engaging in the business thereof. There are no
judgments or orders, injunctions, decrees, stipulations or awards (whether
rendered by a court or administrative agency or by arbitration), including any
such actions relating to affirmative action claims or claims of discrimination,
against Grapevine or against any of its properties or businesses, which are
continuing in effect and could reasonably be expected to have a Material Adverse
Effect on Grapevine.
SECTION 2.10 NO DEFAULTS. Grapevine is not and has not received notice
that it would be with the passage of time, (i) in violation of any provision of
its Articles of Incorporation or Bylaws or other similar organizational document
or (ii) in default or violation of any term, condition or provision of (A) any
judgment, decree, order, injunction or stipulation applicable to Grapevine or
(B) any material agreement, note, mortgage, indenture, contract, lease or
instrument, permit, concession, franchise or license to which Grapevine is a
party or by which Grapevine or its properties or assets may be bound.
SECTION 2.11 LITIGATION. There is no action, suit, proceeding, claim or
investigation pending or threatened, against Grapevine which in any manner
challenges or seeks to prevent, enjoin, alter or materially delay any of the
transactions contemplated hereby. Grapevine has delivered to TSA correct and
complete copies of all audit response letters prepared by its counsel for
Grapevine's independent public accountants in connection with the last three
completed audits of Grapevine's financial statements, including the audit
conducted in connection with the Grapevine Balance Sheet, and any such
correspondence since the Grapevine Balance Sheet Date.
SECTION 2.12 ABSENCE OF CERTAIN CHANGES. Except as expressly allowed or
contemplated by this Agreement, since the Grapevine Balance Sheet Date,
Grapevine has conducted its business in the ordinary course and there has not
occurred:
(a) Any Material Adverse Change with respect to Grapevine;
(b) Any amendments or changes in the Articles of Incorporation or Bylaws
or other similar organizational document of Grapevine;
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(c) Any redemption, repurchase or other acquisition of shares of capital
stock of Grapevine by Grapevine or any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or property) with
respect to the capital stock of Grapevine;
(d) Any increase in or modification of the compensation or benefits
payable or to become payable by Grapevine to any of its respective directors,
employees or consultants, except in the ordinary course of business consistent
with past practice, which past practice has been previously disclosed to TSA;
(e) Any acquisition or sale of a material amount of property or assets by
or of Grapevine;
(f) Any entry into, amendment of, relinquishment, termination or non-
renewal by Grapevine of any material contract, lease transaction, commitment or
other right or obligation other than in the ordinary course of business;
(g) Any labor dispute, other than routine individual grievances, or, to
the best of its knowledge, any activity or proceeding by a labor union or
representative thereof to organize any employees of Grapevine; or
(h) Any agreement or arrangement made by Grapevine to take any action
after the date hereof which, if taken prior to the date hereof, would have made
any representation or warranty set forth in this Section 2.12 untrue or
incorrect as of the date when made.
SECTION 2.13 CERTAIN AGREEMENTS. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby or
thereby will (i) result in any payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any director or employee of Grapevine from Grapevine , under
any Grapevine Employee Plan (as defined in Section 2.14 (a) below) or otherwise,
(ii) materially increase any benefits otherwise payable under any Grapevine
Employee Plan, or (iii) result in the acceleration of the time of payment or
vesting of any such benefits.
SECTION 2.14 EMPLOYEE BENEFITS.
(a) Grapevine has set forth in the Grapevine Disclosure Schedule (attached
hereto as Exhibit A) a list which identifies each "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and each employment agreement, compensation agreement,
bonus, commission or similar arrangement, and fringe benefit arrangement which
is maintained, administered or
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contributed to by Grapevine or any affiliate thereof ( and covers any employee
or former employee of Grapevine or any affiliate or under which Grapevine or any
affiliate has any liability. Copies (or, if not in writing, detailed summaries)
of such plans (and, it applicable, related trust agreements) and all amendments
thereto and written interpretations thereof have been furnished to TSA together
with (to the extent existing) (x) the most recent annual report (Form 5500
including, if applicable, Schedule B thereto) prepared in connection with any
such plan and (y) the most recent actuarial valuation report prepared in
connection with any such plan. Such plans are referred to collectively herein
as the "Grapevine Employee Plans."
(b) No Grapevine Employee Plan constitutes a "multi employer plan" as
defined in Section 3(37) of ERISA (a "Multi employer Plan"), no Grapevine
Employee Plan is maintained in connection with any trust described in Section
501 (e) (9) of the Code and no Grapevine Employee Plan is subject to Title IV of
ERISA or Section 412 of the Code. Nothing done or omitted to be done and no
transaction or holding of any asset under or in connection with any Grapevine
Employee Plan has or will make Grapevine or any officer or director thereof,
subject to any liability under Title I of ERISA or liable for any tax pursuant
to Section 4915 of the Code.
(c) Each Grapevine Employee Plan which is intended to be qualified under
Section 401 (a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof is
exempt from tax pursuant to Section 501 (a) of the Code.
(d) There is no contract, agreement, plan or arrangement covering any
employee or former employee of Grapevine or any affiliate that would obligate
Grapevine or any affiliate to pay any additional compensation, including
severance pay, as a result of the consummation of the transactions contemplated
by this Agreement or that, individually or collectively, could give rise to the
payment by Grapevine of any amount that would not be deductible pursuant to the
terms of Sections 162(a)(1) or 280G of the Code.
(e) Neither Grapevine nor any of its affiliates maintain or administer any
"defined benefit plans" for the benefit of their employees. Neither Grapevine
nor its affiliates have any projected liability in respect of post-retirement
health, life and medical benefits for retired employees of Grapevine and its
affiliates. Other than provisions of applicable law, no condition exists that
would prevent Grapevine from amending or terminating any Grapevine Employee
Plan.
(f) There has been no amendment to, written interpretation or announcement
(whether or not written) by Grapevine or any of its affiliates relating to, or
change in employee participation or coverage under, any Grapevine Employee Plan
which would
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materially increase the expense of maintaining such Grapevine Employee Plan
above the level of the expense incurred in respect thereof for the most recent
fiscal year,
SECTION 2.15 MAJOR CONTRACTS. The Grapevine Disclosure Schedule (attached
hereto as Exhibit A) sets forth a list of the following agreements and covenants
to which Grapevine is a party to or is subject to:
(a) Any union contract or any employment contract or arrangement providing
for future compensation, written or oral, with any officer, consultant, director
or employee which is not terminable by it on 30 days' notice or less without
penalty or obligation to make payments related to such termination;
(b) Any plan, contract or arrangement, written or oral, providing for
bonuses, pensions. deferred compensation, severance pay or benefits, retirement
payments, profit sharing, or the like;
(c) Any joint venture contract or arrangement or any other agreement which
has involved or is expected to involve a sharing of profits with other persons;
(d) Any royalty, service or distribution agreement or other similar
agreement pursuant to which Grapevine has granted or received exclusive rights
related to any product, group of products or territory;
(e) Any lease for personal property in which the amount of payments which
Grapevine is required to make on an annual basis exceeds $25,000;
(f) Any material license agreement, either as licensor or licensee;
(g) Any contract containing covenants purporting to limit Grapevine's
freedom to compete in any line of business in any geographic area; or
(h) Any other agreement, contract or commitment which is material to
Grapevine. .
SECTION 2.16 TAX RETURNS.
(a) All Tax returns, statements, reports and forms (including estimated
Tax returns and reports and information returns and reports) required to be
filed with any Taxing Authority with respect to any taxable period ending on or
before the Closing Date by or on behalf of Grapevine (collectively, the
"Grapevine Tax Returns"), the non-filing of which would have a Material Adverse
Effect on Grapevine or would result in criminal penalties
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against Grapevine or any officer or employee thereof, have been or will be filed
when due (including any extensions of such due date).
(b) Grapevine has timely paid, withheld or made provision on its books
for all Taxes due and payable with respect to all fiscal periods ending on or
prior to the Closing Date and for the portion ending on the Closing Date of any
fiscal period beginning prior to the Closing Date and ending after the Closing
Date.
(c) Grapevine has not granted any extension or waiver of the limitation
period applicable to any Grapevine Tax Returns.
(d) There is no claim, audit, action, suit, proceeding, or investigation
now pending or threatened in writing against or with respect to Grapevine in
respect of any Tax or assessment.
(e) There are no liens for Taxes upon the assets of Grapevine except
liens for current Taxes not yet due.
(f) Grapevine will not be required to include any adjustment in Taxable
income for any tax period (or portion thereof) ending after the Closing Date
pursuant to Section 481 (c) of the Code (or any similar provision of the Tax
laws of any jurisdiction) as a result of a change in method of accounting for
any tax period (or portion thereof) ending on or before the Closing Date or
pursuant to the provisions of any agreement entered into with any Taxing
Authority with regard to the Tax liability of Grapevine for any tax period (or
portion thereof) ending on or before the Closing Date.
(g) For the purposes of this Agreement, "Tax" (and, with correlative
meaning, "Taxes" and "Taxable") means, for any entity, (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, value added, transfer, franchise, profits, license, withholding on
amounts paid to or by such entity or any Subsidiary thereof, payroll,
employment, excise, severance, stamp, occupation, property, environmental or
windfall profit tax, or other tax, together with any interest or any penalty,
addition to tax or additional amount imposed by any governmental authority (a
"Taxing Authority") responsible for the imposition of any such tax (domestic or
foreign), (ii) liability of such entity thereof for the payment of any amounts
of the type described in (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any Taxable period and (iii)
liability of such entity for the payment of any amounts of the type described
in (i) or (ii) as a result of any express or implied obligation to indemnify any
other person.
SECTION 2.17 INTERESTS OF OFFICERS, DIRECTORS AND OTHER AFFILIATES. The
Grapevine Disclosure Schedule (attached hereto as Exhibit A) sets forth a
description of any interest
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held, directly or indirectly, by any officer, director or other affiliate of
Grapevine in any property, real or personal, tangible or intangible, used in or
pertaining to Grapevine's business, including any interest in the Grapevine
Intellectual Property Rights.
SECTION 2.18 INTELLECTUAL PROPERTY.
(a) Grapevine owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary for the
operation of the business of Grapevine as presently conducted. Each item of
Intellectual Property owned or used by Grapevine immediately prior to the
Closing hereunder will be owned or available for use by Grapevine on identical
terms and conditions immediately subsequent to the Closing hereunder. Grapevine
has taken all necessary or desirable action to protect each item of Intellectual
Property that it owns or uses.
(b) Grapevine has not interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Intellectual Property rights of third
parties, and Grapevine has never received any charge, compliant, claim, or
notice alleging any such interference, infringement, misappropriation, or
violation. No third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of Grapevine.
(c) Set forth in the Grapevine Disclosure Schedule (attached hereto as
Exhibit A) is a list of each patent or registration which has been issued to
Grapevine with respect to any of its Intellectual Property and each pending
patent application or application for registration which Grapevine has made with
respect to any of its Intellectual Property, and a list of each license,
agreement, or other permission which Grapevine has granted to any third party
with respect to any of its Intellectual Property (together with any exceptions).
With respect to each item of Intellectual Property that Grapevine owns:
(i) it possesses all right, title, and interest in and to the item;
(ii) the item is not subject to any outstanding judgment, order,
decree, stipulation, injunction, or charge;
(iii) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending or is threatened which
challenges the legality, validity, enforceability, use, or ownership of the
item; and
(iv) Grapevine has never agreed to indemnify any person or entity for
or against any interference, infringement, misappropriation, or other
conflict with
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respect to the item, except as set forth in Grapevine's standard end-user
license agreement.
(d) Set forth in the Grapevine Disclosure Schedule (attached hereto as
Exhibit A) is each item of Intellectual Property that any third party owns and
that Grapevine uses pursuant to license, sublicense, agreement, or permission.
With respect to each such item of used Intellectual Property:
(i) the license, sublicense, agreement or permission covering the
item is legal, valid, binding, enforceable, and in full force and effect;
(ii) the license, sublicense, agreement, or permission will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the Closing;
(iii) no party to the license, sublicense, agreement, or permission is
in breach or default, and no event has occurred which with notice or lapse
of time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or permission has
repudiated any provision thereof;
(v) with respect to each sublicense, the representations and
warranties set forth in subsections (i) through (iv) above are true and
correct with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not subject to
any outstanding judgment, order decree, stipulation, injunction, or charge;
and
(vii) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending or is threatened which
challenges the legality, validity, or enforceability of the underlying item
of Intellectual Property.
(e) For the purposes of this Agreement, Grapevine Intellectual Property
means: all of Grapevine's right, title and interest in and to (a) all
inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent applications, and
patent disclosures, together with all reissuances, continuations, continuations-
in-part, revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names, and corporate names, together
with all translations, adaptations, derivations, and combinations thereof and
including all
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goodwill associated therewith, and all applications, registrations, and renewals
in connection therewith, (c) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (d) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (e) all computer software whether owned or
licensed from a third party (including data and related documentation), (f) all
other proprietary rights, and (g) all copies and tangible embodiments thereof
(in whatever form or medium).
SECTION 2.19 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no material
agreement, judgment, injunction, order or decree binding upon Grapevine which
has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of Grapevine, any acquisition of
property by Grapevine or the conduct of business by Grapevine as currently
conducted or as currently proposed to be conducted by Grapevine.
SECTION 2.20 TITLE TO PROPERTIES, ABSENCE OF LIENS AND ENCUMBRANCES,
CONDITION OF EQUIPMENT.
(a) The Grapevine Disclosure Schedule (attached hereto as Exhibit A) sets
forth a true and complete list of all real property leased by Grapevine and the
aggregate annual rental or other fee payable under any such lease.
(b) Grapevine has valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used in its business, free and
clear of any Liens, except for such imperfections of title and encumbrances, if
any, which are not substantial in character, amount or extent, and which do not
materially detract from the value, or interfere with the present use, of the
property subject thereto or affected thereby.
(c) The equipment owned or leased by Grapevine is (i) adequate for the
conduct of the business of Grapevine consistent with its past practice, (ii)
suitable for the uses to which it is currently employed. (iii) in good operating
condition, normal wear and tear excepted, (iv) regularly and properly
maintained, (v) not obsolete, dangerous or in need of renewal or replacement,
except for renewal or replacement in the ordinary course of business, and (vi)
free from any known defects, except, with respect to clauses (ii) through (v) of
this Section 2.20 (c) as would not have a Material Adverse Effect on Grapevine.
SECTION 2.21 GOVERNMENTAL AUTHORIZATIONS AND LICENSES. Grapevine is the
holder of all material licenses, authorizations, consents, approvals, permits
(including all necessary environmental permits), concessions, certificates and
other franchises of any Governmental Entity required to operate its business
(collectively, the "Governmental Authorizations").
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SECTION 2.22 ENVIRONMENTAL MATTERS.
(a) Except as set forth on the Grapevine Disclosure Schedule (attached
hereto as Exhibit A) Grapevine has not within the five years preceding the date
hereof received any written notice, demand, citation, summons, complaint or
order or any notice of any penalty, Lien or assessment, and no investigation or
review is pending by any governmental entity, with respect to any material (i)
alleged violation by Grapevine of any Environmental Law (as defined in
subsection (b) below), or (ii) alleged failure by Grapevine to have any
environmental permit, certificate, license, approval, registration or
authorization required in connection with the conduct of its business.
(b) For the purposes of this Section 2.22, "Environmental Laws" shall mean
any and all foreign and domestic federal, state and local laws (including case
law), regulations, ordinances, rules, judgments, orders, decrees, codes, plans,
injunctions, permits, concessions, grants, franchises, licenses, agreements and
governmental restrictions relating to human health, the environment or to
emissions, discharges or releases of pollutants, contaminants, hazardous
substances or wastes into the environment.
SECTION 2.23 INSURANCE. The Grapevine Disclosure Schedule (attached hereto
as Exhibit A) lists all insurance policies and fidelity bonds covering the
assets, business, equipment, properties, operations, employees, officers and
directors of Grapevine. Copies of all such policies have been delivered to TSA
prior to the date hereof. There is no claim by Grapevine pending under any of
such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums payable
under all such policies and bonds have been paid and Grapevine is otherwise in
full compliance with the terms of such policies and bonds (or other policies and
bonds providing substantially similar insurance coverage). Grapevine does not
know of any threatened termination of or material premium increase with respect
to, any of such policies.
SECTION 2.24 LABOR MATTERS. Grapevine is in compliance with all
currently applicable laws and regulations respecting employment, discrimination
in employment, verification of immigration status, terms and conditions of
employment and wages and hours and occupational safety and health and employment
practices, and are not engaged in any unfair labor practice. Grapevine has
not received any notice from any Governmental Authority, and there has not been
asserted before any Governmental Authority, any claim, action or proceeding to
which Grapevine is a party or involving Grapevine , and there is neither
pending nor threatened any investigation or hearing concerning Grapevine
arising out of or based upon any such laws, regulations or practices.
SECTION 2.25 EMPLOYEES. The Grapevine Disclosure Schedule (attached hereto
as Exhibit A) lists each salaried employee and sales representative of Grapevine
and his or her
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current position, salary, commission and general compensation arrangement.
Except for agreements listed in the Grapevine Disclosure Schedule, complete and
accurate copies of which have been delivered to TSA, Grapevine is not a party
to any effective consulting or employment agreements with individual
consultants or employees (including officers and directors).
SECTION 2.26 CUSTOMERS. The Grapevine Disclosure Schedule (attached hereto
as Exhibit A) sets forth a list of those customers of Grapevine which during the
last fiscal year provided revenue to Grapevine in an aggregate amount in excess
of $100,000. Except as set forth in the Grapevine Disclosure Schedule,
Grapevine has no reason to believe that any of such customers intends to
terminate its business relationship with Grapevine.
SECTION 2.27 FINDERS' FEES. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of the Grapevine Shareholders or Grapevine who might be entitled to any
fee or commission from TSA upon consummation of the transactions contemplated by
this Agreement.
SECTION 2.28 INFORMATION SUPPLIED. TSA shall file a Registration Statement
on Form S-4 (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") in connection with the issuance of the TSA Common Stock
in or as a result of the Exchange. None of the information supplied or to be
supplied by Grapevine for inclusion in the Registration Statement contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading or will, in the case of the Registration Statement, at the
time the Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
SECTION 2.29 GRAPEVINE SHAREHOLDERS. Exhibit 2.29 attached hereto
contains the name of each Grapevine shareholder and the number of shares of
Grapevine Common Stock owned by each shareholder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TSA
TSA represents and warrants to Grapevine as set forth below:
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SECTION 3.01 CORPORATE EXISTENCE AND POWER. TSA is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. TSA has all corporate power and all material Governmental
Authorizations required to carry on its business as now conducted. TSA is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect on TSA.
SECTION 3.02 CORPORATE AUTHORIZATION. The execution, delivery and
performance by TSA of this Agreement and the consummation by TSA of the
transactions contemplated hereby are within its corporate powers and have been
and, to the extent not executed as of the date hereof, will be prior to
execution, duly authorized by all necessary corporate action. This Agreement
upon execution will constitute a valid and binding agreement of TSA, enforceable
against TSA in accordance with their respective terms.
SECTION 3.03 GOVERNMENTAL CONSENTS AND APPROVALS. The execution, delivery
and performance by TSA of this Agreement and the consummation of the Exchange by
TSA, require no action by or in respect of, or filing with, any governmental
body, agency, official or authority other than:
(a) compliance with any applicable requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder
(the "Exchange Act");
(b) compliance with any applicable requirements of the Securities Act of
1933 and the rules and regulations promulgated thereunder ("the Securities
Act")
(c) compliance with any applicable state securities or "blue sky" laws.
SECTION 3.04 NON-CONTRAVENTION. The execution, delivery and performance by
TSA of this Agreement and the consummation by TSA of the transactions
contemplated hereby do not and will not:
(a) contravene or conflict with the Restated Articles of Incorporation or
Bylaws of TSA;
(b) assuming compliance with the matters referred to in Section 3.03,
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to TSA or any other Subsidiary of TSA;
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(c) constitute a default under or give rise to a right of termination,
cancellation, acceleration or loss of any material benefit under any agreement,
contract or other instrument binding upon TSA or any subsidiary of TSA or any
license, franchise, permit or other similar authorization held by TSA or any
such subsidiary; or
(d) result in the creation or imposition of any Lien on any material asset
of TSA or any Subsidiary of TSA.
SECTION 3.05 CAPITALIZATION OF TSA.
(a) The authorized capital stock of TSA consists of 50,000,000 shares of
Class A Common Stock, par value $.005 per share, 5,000,000 shares of Class B
Common Stock, par value $.005 per share, and 5,450,000 shares of Preferred
Stock, par value $.01 per share. As of July 1, 1996, there were outstanding:
(i) 22,468,166 shares of Class A Common Stock,
(ii) 2,971,252 shares of Class B Common Stock, and
(iii) no shares of TSA Preferred Stock.
All outstanding shares of TSA Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable.
(b) All shares of TSA Common Stock issued in the Exchange shall, upon
issuance, be fully paid, validly issued and nonassessable. TSA has reserved
and, to the extent additional authorized shares are required, will reserve upon
authorization thereof by TSA's shareholders, sufficient shares of TSA Common
Stock for issuance in the Exchange.
SECTION 3.06 SEC FILINGS.
(a) TSA has delivered to Grapevine:
(i) its annual report on Form 10-K for its fiscal year ended
September 30, 1995;
(ii) its quarterly reports on Form 10-Q for its fiscal quarters ending
December 31, 1995 and March 31, 1996;
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(iii) its proxy or information statements relating to meetings of, or
actions taken without a meeting by, the shareholders of TSA held since
September 30, 1994; and
(iv) all of its other reports, statements, schedules and registration
statements filed with the SEC since September 30, 1994.
SECTION 3.07 FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited interim financial statements of TSA included in its
annual reports on Form 10-K and quarterly reports on Form 10-Q referred to in
Section 3.06 present fairly, in conformity with GAAP, the consolidated financial
position of TSA and its consolidated subsidiaries as of the dates thereof and
their consolidated results of operations and cash flows for the periods then
ended (subject to normal year-end adjustments in the case of any interim
financial statements). For purposes of this Agreement, "TSA Balance Sheet"
means the consolidated balance sheet of TSA as of March 31, 1996, and the notes
thereto, contained in TSA's quarterly report on Form 10-Q filed for its fiscal
quarter then ended, and "TSA Balance Sheet Date" means March 31, 1996.
SECTION 3.08 ABSENCE OF CERTAIN CHANGES. Since the TSA Balance Sheet Date,
TSA has conducted its business in the ordinary course and there has not occurred
any Material Adverse Change with respect to TSA.
SECTION 3.09 COMPLIANCE WITH LAW. Each of TSA and its subsidiaries is in
compliance in all material respects with and has conducted its business as to
comply in all material respects with all laws, rules, regulations, judgments,
decrees or orders of any Governmental Authority applicable to its operations and
with respect to which compliance is a condition of engaging in the business
thereof. There are no judgments or orders, injunctions, decrees, stipulations
or awards (whether rendered by a court or administrative agency or by
arbitration) including any such actions relating to affirmative action claims or
claims of discrimination, against TSA or any of its subsidiaries or against any
of their respective properties, which are continuing in effect and could
reasonably be expected to have a Material Adverse Effect on TSA.
SECTION 3.10 FINDERS' FEES. There is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of TSA or any Subsidiary thereof who might be entitled to any fee or
commission from the Grapevine Shareholders or Grapevine or any of its affiliates
upon consummation of the transactions contemplated by this Agreement.
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ARTICLE IV
COVENANTS OF GRAPEVINE AND THE GRAPEVINE
PRINCIPAL SHAREHOLDERS
Grapevine and the Grapevine Principal Shareholders agree that:
SECTION 4.01 CONDUCT OF GRAPEVINE. From the date hereof until the Closing
Date, Grapevine shall in all material respects conduct its business in the
ordinary course. Without limiting the generality of the foregoing, from the
date hereof until the Closing Date:
(a) Grapevine will not adopt or propose any change in its Articles of
Incorporation or Bylaws;
(b) Grapevine will not:
(i) enter into any contract, agreement, plan or arrangement covering
any director, officer or employee of Grapevine that provides for the
making of any payments, the acceleration of vesting of any benefit or right
or any other entitlement contingent upon (A) the Exchange or (B) the
termination of employment after the occurrence of any such contingency if
such payment, acceleration or entitlement would not have been provided but
for such contingency; or
(ii) amend any existing contract, agreement, plan or arrangement so to
provide;
(c) Grapevine will not issue any Grapevine Common Stock or other
securities;
(d) Grapevine will keep in full force and effect all of its existing
insurance and will not modify or reduce the coverage thereunder;
(e) Grapevine will not sell, transfer, license, sublicense or otherwise
dispose of any of its material assets, including Intellectual Property Rights,
and will not pay any dividend or make any other distribution to holders of its
capital stock;
SECTION 4.02 ACCESS TO INFORMATION.
(a) From the date hereof until the Closing Date, Grapevine will give TSA,
its counsel, financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to the offices, properties, books
and records of Grapevine and will furnish to TSA, its counsel, financial
advisors, auditors and other authorized
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representatives such financial and operating data and all other information with
respect to the business of Grapevine as such persons may reasonably request and
will instruct Grapevine's employees, counsel and financial advisors to cooperate
with TSA in its investigation of the business of Grapevine and in the planning
for the combination of the businesses of Grapevine following the consummation
of the Exchange; provided that no investigation pursuant to this Section shall
affect any representation or warranty given by Grapevine or the Grapevine
Shareholders to TSA hereunder.
(b) From the date hereof until the Closing Date, reasonably promptly
following the end of each month, Grapevine will deliver to TSA a balance sheet
and statement of operations of Grapevine for such month.
SECTION 4.03 OTHER OFFERS. From the date hereof until the earlier of the
Closing Date or the termination of this Agreement, Grapevine, and the officers,
directors, employees or other agents of Grapevine will not, directly or
indirectly, (i) take any action to solicit, initiate or encourage the making of
any acquisition proposal, or (ii) engage in negotiations with, or, except as
required by a court of competent jurisdiction, disclose any nonpublic
information relating to Grapevine or afford access to the properties, books or
records of Grapevine to any person or entity that may be considering making, or
has made, an acquisition proposal.
ARTICLE V
COVENANTS OF TSA
TSA agrees that:
SECTION 5.01 ACCESS TO INFORMATION. From the date hereof until the Closing
Date, TSA will give Grapevine, its counsel, financial advisors, auditors and
other authorized representatives access to all information regarding TSA which
may be reasonably requested by Grapevine or such representatives.
SECTION 5.02 COMPENSATION TO KEY EMPLOYEES. Upon consummation of the
Exchange, TSA agrees to offer Stephen J. Royer, James J. McFadden and Michael F.
Benson compensation plans similar to those for executives in similar positions
with other TSA subsidiaries.
SECTION 5.03 PERFORMANCE PLAN. Upon consummation of the Exchange, TSA
agrees in conjunction with the officers of Grapevine to establish a bonus
compensation plan for
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Grapevine employees consistent with the bonus plans for other TSA operating
entities or units.
SECTION 5.04 ISSUANCE AND REGISTRATION OF SECURITIES. In connection with
the issuance of TSA Common Stock in the Exchange, TSA shall promptly prepare and
file with the SEC under the Securities Act the Registration Statement and shall
use all reasonable efforts to cause the Registration Statement to be declared
effective as promptly as practicable. TSA shall take any action required to be
taken under state securities or "blue sky" laws in connection with the issuance
and sale of TSA Common Stock in the Exchange.
ARTICLE VI
COVENANTS OF ALL PARTIES
TSA, Grapevine and the Principal Shareholders agree that:
SECTION 6.01 ADVICE OF CHANGES. Each party will promptly advise the other
such party in writing (i) of any event occurring subsequent to the date of this
Agreement that would render any representation or warranty of such party
contained in this Agreement, if made on or as of the date of such event or the
Closing Date, untrue, inaccurate or misleading in any material respect (other
than an event so affecting a representation or warranty which is expressly
limited to a state of facts existing at a time prior to the occurrence of such
event) and (ii) of any Material Adverse Change in the business condition of the
party and its subsidiaries, taken as a whole.
SECTION 6.02 REGULATORY APPROVALS. Prior to the Closing Date, each party
shall execute and file, or join in the execution and filing of, any application
or other document that may be necessary in order to obtain the authorization,
approval or consent of any governmental body, federal, state, local or foreign,
which may be reasonably required, or that the other company may reasonably
request, in connection with the consummation of the transactions contemplated by
this Agreement. Each party shall use its reasonable best efforts to obtain all
such authorizations, approvals and consents.
SECTION 6.03 NECESSARY CONSENTS. Prior to the Closing Date, each party
will use its reasonable best efforts to obtain such written consents and take
such other actions as may be necessary or appropriate to allow the consummation
of the transactions contemplated hereby and to allow it to carry on its business
after the Closing Date.
SECTION 6.04 ACTIONS CONTRARY TO STATED INTENT. No party hereto will,
either before or after the Exchange, take any action that would prevent the
Exchange from qualifying as
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a reorganization under Sections 368 (a)(1) (B) of the Code or prevent the
transaction from qualifying for the Pooling of Interest method of accounting.
SECTION 6.05 PUBLIC ANNOUNCEMENTS. The timing and content of all
announcements regarding any aspect of the Exchange to the financial community,
government agencies, employees or the public generally shall be determined
solely by TSA.
SECTION 6.06 CONFIDENTIALITY.
Except as expressly authorized by TSA in writing, Grapevine will not
directly or indirectly divulge to any person or entity or use any TSA
Confidential Information except as required for the performance of its duties
under this Agreement. Except as expressly authorized by Grapevine in writing,
TSA will not directly or indirectly divulge to any person or entity or use any
Grapevine Confidential Information, except as required for the performance of
its duties under this Agreement. As used herein, "TSA Confidential Information"
consists of (a) any information designated by TSA as confidential whether
developed by TSA or disclosed to TSA by a third party, (b) the source and object
code to any TSA software and any trade secrets relating to any of the foregoing,
and (c) any information relating to TSA's product plans, product designs,
product costs, product prices, product names, finances, marketing plans,
business opportunities, personnel, research development or know-how. As used
herein, "Grapevine Confidential Information" consists of (x) any information
designated by Grapevine as confidential whether developed by Grapevine or
disclosed to Grapevine by a third party (y) the source and object code to any
Grapevine software, and any trade secrets related to any of the foregoing and
(z) any information relating to Grapevine product plans, product designs,
product costs, product prices, product names, finances, marketing plans,
business opportunities, personnel, research development or know-how. "TSA
Confidential Information" and "Grapevine Confidential Information" also include
the terms and conditions of this Agreement, except as disclosed in accordance
with Section 6.05 of this Agreement. The foregoing restriction will apply to
information about a party whether or not it was obtained from such party's
employees, acquired or developed by the other party during such other party's
performance under this Agreement, or otherwise learned. The foregoing
restrictions will not apply to information that (i) has become publicly-known
through no wrongful act of the receiving party, (ii) has been rightfully
received from a third party authorized by the party which is the owner, creator,
or compiler to make such disclosure without restriction, (iii) has been approved
or released by written authorization of the party which is the owner, creator,
or compiler, or (iv) is being or has heretofore been disclosed pursuant to a
valid court order after a reasonable attempt has been made to notify the party
which is the owner, creator, or compiler.
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ARTICLE VII
CONDITIONS TO THE EXCHANGE
SECTION 7.01 CONDITIONS TO OBLIGATIONS OF TSA. The obligations of TSA
hereunder are subject to the fulfillment or satisfaction, on and as of the
Closing Date, of each of the following conditions (any one or more of which may
be waived by TSA, but only in a writing signed by TSA):
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES AND COMPLIANCE WITH
COVENANTS. The representations and warranties of Grapevine and the Grapevine
Shareholders contained in Article II shall be true and accurate in all material
respects (and without regard to any knowledge limitation contained therein) on
and as of the Closing Date with the same force and effect as if they had been
made on the Closing Date and Grapevine and the Grapevine Shareholders shall have
performed and complied with all of their covenants contained in Articles IV and
VI in all material respects on or before the Closing Date. Grapevine shall have
provided TSA with a certificate executed by the President and the Chief
Financial Officer of Grapevine, dated as of the Closing Date, certifying
compliance with this subsection (a) (except for any exceptions thereto which may
be noted in such certificate). There shall be no personal liability to any
Grapevine officer based on such officer executing this certificate except for
any misstatements therein made with such officer's knowledge.
(b) NO MATERIAL ADVERSE CHANGE. There shall have been no Material Adverse
Change in Grapevine since the Grapevine Balance Sheet Date.
(c) CONSENTS. All written consents, assignments, waivers or
authorizations ("Consents") that are required as a result of the Exchange for
the continuation in full force and effect of any material contracts or leases of
Grapevine shall have been obtained.
(d) GRAPEVINE SHAREHOLDER APPROVAL. The Grapevine shareholders shall have
approved the Grapevine Plan of Share Exchange.
(e) DELIVERY OF GRAPEVINE COMMON STOCK CERTIFICATES AND STOCK POWERS. The
Grapevine shareholders shall execute and deliver stock certificates and related
stock powers for all of their shares of Grapevine Common Stock to the Principal
Shareholders, who shall in turn deliver such stock certificates and stock powers
to TSA, and such stock certificates and stock powers shall be in forms
reasonably satisfactory to TSA.
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(f) POOLING OF INTERESTS. TSA shall receive written assurance from its
financial advisors that the proposed transaction as set forth in this Agreement
will qualify for Pooling of Interests accounting.
(g) REGISTRATION STATEMENT. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceeding seeking a stop order.
(h) PLAN OF SHARE EXCHANGE. The Grapevine Articles of Share Exchange
shall have been declared effective and the number of dissenting shares to the
Plan of Share Exchange shall not exceed ten percent (10%) of the Grapevine
outstanding shares.
SECTION 7.02 CONDITIONS TO OBLIGATIONS OF GRAPEVINE AND THE GRAPEVINE
SHAREHOLDERS. The obligations hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing Date, of each of the following conditions
(any one or more of which may be waived by Grapevine in a writing signed by
Grapevine ):
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of TSA set forth in Article III shall be true and accurate in all
material respects (and without regard to any knowledge limitation contained
therein) on and as of the Closing Date with the same force and effect as if they
had been made on the Closing Date and TSA shall have performed and complied with
all of its covenants contained in Articles V and VI in all material respects on
or before the Closing Date. TSA shall have provided Grapevine with a
certificate executed by the President and the Chief Financial Officer of TSA,
dated as of the Closing Date, certifying compliance with this subsection (a).
There shall be no personal liability to any TSA officer executing this
certificate except for any misstatements therein made with such officer's
knowledge.
(b) NO MATERIAL ADVERSE CHANGE. There shall have been no Material Adverse
Change in TSA since the TSA Balance Sheet Date.
ARTICLE VIII
TERMINATION OF AGREEMENT
SECTION 8.01 TERMINATION PRIOR TO THE CLOSING DATE. Unless otherwise
agreed by the parties hereto, this Agreement shall be terminated if the Closing
Date does not occur within twenty (20) business days after the Registration
Statement (described in Section 2.28) is declared effective by the Securities
and Exchange Commission.
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SECTION 8.02 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date:
(i) by a mutual written consent of the Board of Directors of TSA and
the Board of Directors of Grapevine ;
(ii) by TSA, if (A) there has been a breach by Grapevine or the
Principal Shareholders of any of their representations and warranties
hereunder such that Section 7.01 (a) will not be satisfied or (B) there has
been the willful breach on the part of Grapevine or the Principal
Shareholders of any of their covenants or agreements contained in this
Agreement such that in both case (A) and case (B), such breach has not been
promptly cured within thirty (30) days after notice (in reasonable detail)
to Grapevine or the Principal Shareholders; or
(iii) by Grapevine, if (A) there has been a breach by TSA of any of
its representations and warranties hereunder such that Section 7.02 (a)
will not be satisfied or (B) there has been the willful breach on the part
of TSA of any of its covenants or agreements contained in this Agreement
such that in both case (A) and case (B), such breach has not been promptly
cured within thirty (30) days after notice (in reasonable detail) to TSA.
SECTION 8.03 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become void, and
there shall be no liability on the part of either TSA or Grapevine, except that
the agreements contained or referred to in Sections 6.06, 8.03, 9.03 shall
survive the termination hereof.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 DEFINITIONS. The following terms are defined in the Section
of this Agreement referenced below:
Defined Term Reference
------------ ---------
Articles of Share Exchange 1.03 and
7.01(h)
Average Closing Price 1.02
Closing 1.01(b)
Closing Date 1.01(b)
Code 1.04
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Dissenting Shares 1.04 and
7.01(h)
Environmental Laws 2.22(b)
ERISA 2.14(a)
Exchange Recital A
Exchange Act 3.03
GAAP 2.07
Governmental Authority 2.09
Grapevine Preamble
Grapevine Balance Sheet 2.07
Grapevine Balance Sheet Date 2.07
Grapevine Common Stock Recital A
Grapevine Disclosure Schedule 2.14
Grapevine Employee Plans 2.14(a)
Grapevine Shareholders Preamble
Grapevine Tax Returns 2.16(a)
Intellectual Property Rights 2.18(e)
Lien 2.04(d)
Material Adverse Change 2.01
Material Adverse Effect 2.01
Multi Employer Plan 2.14(b)
Pooling of Interests 1.05 and
7.01(f)
Plan of Share Exchange Recital A and
2.02
Principal Shareholders Preamble
Registration Statement 2.28
Securities Act 3.03(b)
Stockholders Agreement(s) 2.05
Tax 2.16(g)
Taxing Authority 2.16(g)
Triggering Event 2.05
TSA Preamble
TSA Common Stock Recital A
SECTION 9.02 FURTHER ASSURANCES. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
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SECTION 9.03 FEES AND EXPENSES. Each party shall bear its own fees and
expenses.
SECTION 9.04 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, INDEMNITY.
(a) SURVIVAL OF REPRESENTATIONS. Except as otherwise expressly provided
herein, the representations, warranties, covenants and agreements of the parties
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing Date and shall in no way be affected
by any investigation of the subject matter thereof made by or on behalf of any
other party. The representations, warranties, covenants and agreements of the
Principal Shareholders contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing Date but
shall expire on the first anniversary of the Closing Date in the absence of
actual fraud.
(b) INDEMNIFICATION. If the Closing of the Exchange shall occur, then,
subject to the provisions of this Section 9.04, the Principal Shareholders
severally shall indemnify and hold harmless TSA and its affiliates from and
against:
(i) all Damages arising from any misrepresentation or breach of
warranty, covenant or agreement made by the Principal Shareholders in
Article II and any breach by Grapevine or the Principal Shareholders of any
covenant or agreement on its or his part contained in this Agreement;
(ii) all Damages arising from any liability for Taxes payable by
Grapevine, for any fiscal periods ending on or prior to the Closing Date
and for any Taxes payable by any of such entities for the portion ending on
the Closing Date of any fiscal period beginning prior to the Closing Date.
Each Principal Shareholder shall indemnify for the damages set forth in
Section 9.04(b)(i) and (ii) but in no event shall the Principal Shareholders
collectively be required to indemnify TSA for an amount in excess of five
percent (5%) of the total value of the TSA shares exchanged valued at the
closing price of TSA shares on NASDAQ on the business day prior to the Closing
Date provided that the total value of the TSA shares exchanged cannot be less
than $11,100,000.00 or more than $14,800,000.00. Payment of any indemnity shall
be made by transferring TSA Common Stock valued at the closing price determined
by the result of dividing the actual exchange value by the total number of TSA
shares exchanged. If the Principal Shareholders shall dispute the amount of
Damages or shall fail to pay Damages after demand therefor, the matter of the
determination of Damages and the enforcement of the indemnification provided in
this Agreement shall be submitted for Binding Arbitration.
28
<PAGE>
(c) PRINCIPAL SHAREHOLDERS' PARTICIPATION IN DEFENSE AGAINST THIRD PARTY
CLAIMS. The Principal Shareholders shall be entitled to assume the defense of
any claims for which TSA shall seek indemnification from the Principal
Shareholders under this Agreement and which are brought by parties unaffiliated
with TSA. If the Principal Shareholders elect in writing to assume the defense
of any lawsuit or action with respect to any claim for which TSA is seeking
indemnification under this Agreement, the Principal Shareholders shall take
control of the defense and investigation of such lawsuit or action and shall
employ and engage an attorney acceptable to TSA to defend the same, at the
Principal Shareholders' cost. TSA shall have the right to employ counsel with
respect to any such claim, but the fees and expenses of such counsel shall be at
the expense of TSA unless (i) the employment of counsel by TSA has been
authorized in writing by the Principal Shareholders, or (ii) the Principal
Shareholders shall not in fact have employed counsel to assume the defense of
such claim, in each of which case, the fees and expenses of counsel shall be at
the expense of the Principal Shareholders. Regardless of which party is
controlling the defense of any claim, (i) both the Principal Shareholders and
TSA shall act in good faith, (ii) no settlement of such claim may be agreed to
without the written consent of both the Principal Shareholders and TSA, which
consent shall not be unreasonably withheld, and (iii) the fees and expenses of
the counsel retained to defend such claim shall be payable by the Principal
Shareholders except as provided in the foregoing sentence.
SECTION 9.05 NOTICES. Whenever any party hereto desires or is required to
give any notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is delivered
by personal service or mailed, United States registered or certified mail,
postage prepaid, or sent by prepaid overnight courier or confirmed telecopier,
addressed as follows:
IF TO TSA:
General Counsel
Transaction Systems Architects, Inc.
330 South 108th Avenue
Omaha, NE 68154
IF TO GRAPEVINE:
10842 Farnam Drive
Omaha, NE 68154
29
<PAGE>
IF TO THE PRINCIPAL SHAREHOLDERS:
Stephen J. Royer
41 Ginger Woods Road
Valley, NE 68064
James J. McFadden
3125 Armbrust Drive
Omaha, NE 68124
Michael F. Benson
22716 Rifle Ridge Terrace
Elkhorn, NE 68022
James G. Strickland
2415 South 100th Street
Omaha, NE 68124
Michael R. Engel
612 Morrison Drive
Omaha, NE 68154
Such communications shall be effective when they are received by the
addressee thereof. Any party may change its address or telecopier number for
such communications by giving notice thereof to the other parties in conformity
with this Section.
SECTION 9.06 GOVERNING LAWS. The laws of the State of Nebraska
(irrespective of its choice of law principles) shall govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties.
SECTION 9.07 BINDING UPON SUCCESSORS AND ASSIGNS. No assignment or
transfer by TSA, the Grapevine Shareholders or Grapevine of their respective
rights and obligations hereunder shall be made except for such transfers as are
effected by death or testamentary succession or otherwise by operation of law.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their permitted successors and assigns (including without
limitation the administrators, executors, representatives, heirs, legatees and
devisees of the Grapevine Shareholders), and any reference to such a party
hereto shall also be a reference to permitted successors or assigns.
SECTION 9.08 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason or to any extent be invalid or
unenforceable, the remainder of
30
<PAGE>
this Agreement and application of such provision to other persons or
circumstances shall continue in full force and effect and in no way be affected,
impaired or invalidated.
SECTION 9.09 ENTIRE AGREEMENT. This Agreement and the other agreements
and instruments referenced herein constitute the entire understanding and
agreement of the parties with respect to the subject matter hereof and thereof
and supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect hereto.
SECTION 9.10 OTHER REMEDIES. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party shall be deemed cumulative
with and not exclusive of any other remedy conferred hereby or by law on such
party, and the exercise of any one remedy shall not preclude the exercise of any
other.
SECTION 9.11 AMENDMENT AND WAIVERS. Any term or provision of this
Agreement may be amended. and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by the party to be bound thereby.
The waiver by a party of any breach hereof or default in the performance hereof
shall not be deemed to constitute a waiver of any other default or any
succeeding breach or default. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions. This Agreement may not be amended
or supplemented by any party hereto except pursuant to a written amendment
executed by all parties.
SECTION 9.12 CONSTRUCTION OF AGREEMENT. A reference to an Article,
Section, Schedule or Exhibit shall mean an Article of, a Section in, or Schedule
or Exhibit to, this Agreement unless otherwise explicitly set forth. The titles
and headings herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement which shall be considered as a whole.
The words "include," "includes," and "including" when used herein shall be
deemed in each case to be followed by the words "without limitation."
SECTION 9.13 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provision of
this Agreement is intended, not will be interpreted, to provide to create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, employee, partner or any party hereto or any
other person or entity and all provisions hereof will be personal solely between
the parties to this Agreement.
31
<PAGE>
SECTION 9.14 MUTUAL DRAFTING. This Agreement is the joint product of the
parties hereto, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of such parties, and shall not be
construed for or against any party hereto.
SECTION 9.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the paries reflected hereon as signatories.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
32
<PAGE>
TRANSACTION SYSTEMS ARCHITECTS, INC.
BY: /s/ William E. Fisher
------------------------------------
ITS: President
-----------------------------------
GRAPEVINE SYSTEMS, INC.
BY: /s/ Stephen J. Royer
------------------------------------
ITS: President
-----------------------------------
GRAPEVINE PRINCIPAL SHAREHOLDERS
/s/ Stephen J. Royer
---------------------------------------
STEPHEN J. ROYER
/s/ James J. McFadden
---------------------------------------
JAMES J. MCFADDEN
/s/ Michael F. Benson
---------------------------------------
MICHAEL F. BENSON
/s/ James G. Strickland
---------------------------------------
JAMES G. STRICKLAND
/s/ Michael R. Engel
---------------------------------------
MICHAEL R. ENGEL
33
<PAGE>
PLAN OF SHARE EXCHANGE
1. The name of the Acquiring Corporation is Transaction Systems
Architects, Inc., a Delaware Corporation.
2. The name of the Acquired Corporation is Grapevine Systems, Inc., a
Nebraska Corporation.
3. The terms and conditions of the exchange are as follows:
The Shareholders of Grapevine Systems, Inc. ("Acquired Corporation")
will exchange all of their shares of common stock of the Acquired Corporation
(the "Grapevine Common Stock"), par value .004 cents per share for shares of the
Class A Common Stock of Transaction Systems Architects, Inc. (the "Acquiring
Corporation"), par value .005 cents per share ("TSA Common Stock").
4. The manner and basis of exchanging the shares of the Acquired
Corporation into shares, obligations or other securities of the Acquiring
Corporation, or any other corporation, or into cash or other property are as
follows:
The terms and conditions of the exchange are more particularly set
forth in the Stock Exchange Agreement of July 15, 1996, among Acquiring
Corporation, Acquired Corporation and the Principal Shareholders of Acquired
Corporation, which Agreement by this reference is made a part hereof. The
following is a summary of exchange factors which are pertinent:
a. On the date of closing of the exchange (the "Closing Date") each
share of Class A Grapevine Common Stock outstanding immediately prior to
the Closing Date shall be exchanged for .2074 of a share of TSA Common
Stock.
b. On the Closing Date, each share of fully vested Class B Grapevine
Common Stock outstanding immediately prior to the Closing Date shall be
exchanged for .1971 of a share of TSA Common Stock.
c. On the Closing Date, each share of twenty-five percent (25%)
vested Class B Grapevine Common Stock outstanding immediately prior to the
Closing Date shall be exchanged for .1675 of a share of TSA Common Stock.
d. On the Closing Date, each share of fifty percent (50%) vested
Class B Grapevine Common Stock outstanding immediately prior to the Closing
Date shall be exchanged for .1774 of a share of TSA Common Stock.
e. On the Closing Date, each share of seventy-five percent (75%)
vested Class B Grapevine Common Stock outstanding immediately prior to the
Closing Date shall be exchanged for .1872 of a share of TSA Common Stock.
<PAGE>
The total number of shares of TSA Common Stock to be issued in the
exchange (i.e., 370,000) and the exchange ratios set forth in items (a) through
(e) above shall be adjusted in the event that the average per share closing
price of the TSA Common Stock on NASDAQ for the five (5) business days after the
Registration Statement on Form S-4 (filed by the Acquiring Corporation) was
declared effective by the Securities and Exchange Commission ("Average Closing
Price") is less than thirty dollars ($30.00) per share or more than forty
dollars ($40.00) per share. If the Average Closing Price is less than thirty
dollars ($30.00) per share, then the total number of shares of TSA Common Stock
to be issued in the exchange shall be determined by dividing $11,100,000 (which
is 370,000 x $30.00) by the Average Closing Price. If the Average Closing Price
is more than forty dollars ($40.00) per share, then the total number of shares
of TSA Common Stock to be issued in the exchange shall be determined by dividing
$14,800,000 (which is 370,000 x $40.00) by the Average Closing Price. In the
case of either such adjustment, the exchange ratios set forth in items (a)
through (e) above shall be adjusted accordingly.
Acquiring Corporation and Acquired Corporation intend this Plan of
Share Exchange to be a tax-free plan of reorganization in accordance with the
provisions of Section 368(a)(1)(B) of the Internal Revenue Code of 1986
("Code"), as amended. Cash will only be paid in lieu of fractional shares or
for dissenting shares of the shareholders of Acquired Corporation pursuant to
their rights under the Nebraska Business Corporation Act. Acquiring Corporation
and Acquired Corporation further intend that the transaction be treated as a
"pooling of interests" for accounting purposes.
5. This Plan of Share Exchange has been approved in accordance with the
Nebraska Business Corporation Act.
Dated this ______ day of ____________________, 1996.
TRANSACTION SYSTEMS ARCHITECTS, INC.
ACQUIRING CORPORATION
BY: ________________________________
ITS:________________________________
GRAPEVINE SYSTEMS, INC.
ACQUIRED CORPORATION
BY:_________________________________
ITS:________________________________
<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-09811
PROSPECTUS
TRANSACTION SYSTEMS ARCHITECTS, INC.
1,500,000 SHARES OF CLASS A COMMON STOCK
-----------------------
This Prospectus relates to 1,500,000 shares of Class A Common Stock, par
value $.005 per share (the "Class A Common Stock"), of Transaction Systems
Architects, Inc., a Delaware corporation ("TSA" or the "Company"), which may be
offered and issued or reserved for issuance by the Company from time to time in
connection with acquisitions by the Company, directly or indirectly, of other
businesses or properties, or interests therein. Class A Common Stock may be
issued in exchange for shares of capital stock, partnership interests, or other
assets representing an interest, direct or indirect, in other companies or
entities, or in exchange for assets used in or related to the business of such
other companies or entities. See "Securities Covered by This Prospectus."
The Class A Common Stock is subject to quotation on the Nasdaq National
Market under the symbol "TSAI."
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
-----------------------
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
DAVID P. STOKES, GENERAL COUNSEL AND SECRETARY, TRANSACTION SYSTEMS ARCHITECTS,
INC., 330 SOUTH 108TH AVENUE, OMAHA, NEBRASKA 68154, TELEPHONE NUMBER (402) 390-
7600. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD
BE MADE FIVE BUSINESS DAYS PRIOR TO THE DATE ON WHICH THE FINAL INVESTMENT
DECISION MUST BE MADE.
-----------------------
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 August 16, 1996.
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus or any Prospectus Supplement, and, if given or made, such information
or representations must not be relied upon as having been authorized. Neither
this Prospectus nor any Prospectus Supplement constitutes an offer to sell or a
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus nor any Prospectus Supplement nor any
offer or 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.
TABLE OF CONTENTS
Page
------
AVAILABLE INFORMATION......................................................- 3 -
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..........................- 3 -
RISK FACTORS...............................................................- 4 -
THE COMPANY................................................................- 9 -
SECURITIES COVERED BY THIS PROSPECTUS.....................................- 10 -
DESCRIPTION OF CAPITAL STOCK..............................................- 10 -
EXPERTS...................................................................- 14 -
LEGAL MATTERS.............................................................- 15 -
- 2 -
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549 and at the
Commission's Regional Offices at 14th Floor, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661 and 13th Floor, Seven World Trade
Center, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. 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, and the address of such site is http://www.sec.gov. In addition,
reports, proxy statements and other information can be inspected at the offices
of The Nasdaq Stock Market, Reports Section, 1735 K Street, N.W., Washington,
D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-4, including amendments thereto, if any (the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the shares of Class A Common Stock. This Prospectus and any accompanying
Prospectus Supplement, if any, do not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit or schedule to the Registration
Statement, reference is made to the exhibit or schedule, as applicable, for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. For further information
pertaining to the Company and the shares of Class A Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
thereto, which may be examined or copied at the locations described above.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company hereby incorporates the following documents in this Prospectus
by reference: (a) the Company's Annual Report on
- 3 -
<PAGE>
Form 10-K for the fiscal year ended September 30, 1995; (b) the Company's
Quarterly Report on Form 10-Q for the period ended December 31, 1995; (c) the
Company's Quarterly Report on Form 10-Q for the period ended March 31, 1996; (d)
the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996;
(e) the Company's Current Report on Form 8-K dated June 3, 1996; (f) the
Company's Current Report on Form 8-K(A) dated June 3, 1996; and (g) the
description of the Company's Class A Common Stock included in the Company's
Registration Statement on Form 8-A filed with the Commission on January 11, 1995
under the Exchange Act, including any amendment or reports filed for the purpose
of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the shares of Class A Common Stock covered by
this Prospectus shall be deemed to be incorporated by reference into this
Prospectus and to be a part of this Prospectus from the respective dates of the
filing of such documents.
Any statement contained in a document incorporated herein by reference
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained in this Prospectus or in any other
subsequently filed document which also is or is deemed to be incorporated herein
by reference modifies or supersedes such statement. Any statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
DAVID P. STOKES, GENERAL COUNSEL AND SECRETARY, TRANSACTION SYSTEMS ARCHITECTS,
INC., 330 SOUTH 108TH AVENUE, OMAHA, NEBRASKA 68154, TELEPHONE NUMBER (402) 390-
7600. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD
BE MADE FIVE BUSINESS DAYS PRIOR TO THE DATE ON WHICH THE FINAL INVESTMENT
DECISION MUST BE MADE.
A 2-FOR-1 SPLIT OF THE COMPANY'S CLASS A COMMON STOCK AND CLASS B COMMON
STOCK WAS EFFECTED JULY 1, 1996. INFORMATION INCORPORATED BY REFERENCE IN THIS
PROSPECTUS ON OR AFTER THAT DATE HAS BEEN OR WILL BE ADJUSTED TO REFLECT THE
STOCK SPLIT.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS AND THE PROSPECTUS
SUPPLEMENT, IF ANY, AND INFORMATION INCORPORATED HEREIN BY REFERENCE, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PURCHASING THE CLASS A COMMON STOCK OFFERED BY THIS
- 4 -
<PAGE>
PROSPECTUS. UNLESS THE CONTEXT REQUIRES OTHERWISE, AS USED IN THIS PROSPECTUS,
"TSA" OR THE "COMPANY" MEANS TRANSACTION SYSTEMS ARCHITECTS, INC. AND ALL OF ITS
SUBSIDIARIES.
RELIANCE ON BASE24; LACK OF PRODUCT DIVERSIFICATION
The Company has derived a substantial majority of its total revenues from
licensing its BASE24 family of software products and providing services and
maintenance related to those products. The BASE24 products and related services
and maintenance are expected to provide the substantial majority of the
Company's revenues in the foreseeable future. The Company's results will depend
upon continued market acceptance of its BASE24 products and related services as
well as the Company's ability to continue to adapt and modify them to meet the
changing needs of its customers. Any reduction in demand for, or increase in
competition with respect to, BASE24 products would have a material adverse
effect on the Company's financial condition and results of operations.
INTERNATIONAL OPERATIONS
The Company has derived a majority of its total revenues from sales to
customers outside the United States. International operations generally are
subject to certain risks, including difficulties in staffing and management,
reliance on independent distributors, fluctuations in foreign currency exchange
rates, compliance with foreign regulatory requirements, variability of foreign
economic conditions and changing restrictions imposed by U.S. export laws.
There can be no assurance that the Company will be able to manage the risks
related to selling its products and services in international markets.
DEPENDENCE ON BANKING INDUSTRY
The Company's business is concentrated in the banking industry, making the
Company susceptible to a downturn in that industry. For example, a decrease in
bank spending for software and related services could result in a smaller
overall market for EFT software. Furthermore, U.S. banks are continuing to
consolidate, decreasing the overall potential number of buyers for the Company's
products and services. These factors as well as others negatively affecting the
banking industry could have a material adverse effect on the Company's financial
condition and results of operations.
- 5 -
<PAGE>
RELATIONSHIP WITH TANDEM
Historically, the Company has derived a substantial portion of its total
revenues from the licensing of software products that operate on Tandem
computers. The BASE24 product line runs exclusively on Tandem equipment. These
products are expected to provide a substantial portion of the Company's revenues
in the foreseeable future. The Company's future results depend on market
acceptance of Tandem computers and the financial success of Tandem. Tandem
securities are publicly traded and its financial statements are publicly
available. Any reduction in demand for these computers or in Tandem's ability
to deliver products on a timely basis could have a material adverse effect on
the Company's financial condition and results of operations.
Although the Company has several written agreements with Tandem, none of
those agreements governs the primary relationship between the Company and
Tandem, which is that the Company's major product line, BASE24, runs exclusively
on Tandem computers. While the cooperation and past affiliation between the
Company and Tandem have facilitated the Company's ability to develop and market
Tandem-compatible products, this cooperation is not mandated by contract, and
the cessation of such cooperation would adversely affect the Company's business.
None of the Company's agreements with Tandem would protect the Company if
Tandem's cooperation ceased or if Tandem were unable to deliver products on a
timely basis. The written agreements cover such discrete matters as commissions
on the sale of certain Tandem products, certain limited resales by the Company
of Tandem products and the distribution of the Company's products by Tandem
affiliates in a limited number of countries.
MANAGEMENT OF GROWTH
The Company is experiencing a period of growth which is placing demands on
its managerial and operations resources. The Company's inability to manage its
growth effectively or to maintain its current level of growth could have a
material adverse effect on its financial condition and results of operations.
ATTRACTION AND RETENTION OF KEY PERSONNEL
The Company's success depends on certain of its executive officers, the
loss of one or more of whom could have a material adverse effect on the
Company's financial condition and results of operations. None of the Company's
U.S.-based executive officers is a party to an employment agreement. The
Company believes that its future success also depends on its ability to attract
and retain highly-skilled technical, managerial and marketing personnel,
including, in particular, additional personnel in the areas of
- 6 -
<PAGE>
research and development and technical support. Competition for personnel is
intense. There can be no assurance that the Company will be successful in
attracting and retaining the personnel it requires.
COMPETITION
The market for EFT software is highly competitive. Many applications
software vendors offer products that are directly competitive with BASE24 and
other products of the Company. The Company also experiences competition from
software developed internally by potential customers and experiences competition
for its consulting services from professional services organizations. In
addition, processing companies provide services similar to those made possible
by the Company's products. Many of the Company's current and potential
competitors have significantly greater financial, marketing, technical and other
competitive resources than the Company. Current and potential competitors,
including providers of transaction-based software, processing, or professional
services, may establish cooperative relationships with one another or with third
parties to compete more effectively against the Company. It is also possible
that new competitors may emerge and acquire market share. In either case, the
Company's financial condition and results of operations could be adversely
affected.
NEW PRODUCTS AND TECHNOLOGICAL CHANGE
The market for software in general is characterized by rapid change in
computer hardware and software technology and is highly competitive with respect
to the need for timely product innovation and new product introductions. The
Company believes that its future success depends upon its ability to enhance its
current applications and develop new products that address the increasingly
complex needs of customers. In particular, the Company believes that it must
continue to respond quickly to users' needs for additional functionality and
multi-platform support. The introduction and marketing of new or enhanced
products requires the Company to manage the transition from current products in
order to minimize disruption in customer purchasing patterns. There can be no
assurance that the Company will continue to be successful in the timely
development and marketing of product enhancements or new products that respond
to technological advances, that its new products will adequately address the
changing needs of the domestic and international markets or that it will
successfully manage the transition from current products.
The Company is continually developing new products, product versions and
individual features within a large, complex software system. Development
projects can be lengthy and are subject to
- 7 -
<PAGE>
changing requirements, programming difficulties and unforeseen factors which can
result in delays in the introduction of new products and features. Delays could
have a material adverse effect on the Company's financial condition and results
of operations.
In addition, new products, versions or features, when first released by the
Company, may contain undetected errors that, despite testing by the Company, are
discovered only after a product has been installed and used by customers. To
date, undetected errors have not caused significant delays in product
introduction and installation or required substantial design modifications.
However, there can be no assurance that the Company will avoid problems of this
type in the future.
A substantial majority of the Company's license fee revenue is generated by
licenses for software products designed to run on fault-tolerant or mainframe
computers. Industry sources indicate that sales of mainframe computers are
declining on a unit basis, and the Company expects this trend to continue. The
Company has developed, and continues to develop, certain products for other
platforms, but to date revenues from these products have not been significant.
There can be no assurance that the Company will be successful in selling these
software products or other products under development. The Company's failure in
this regard could have a material adverse effect on its financial condition and
results of operations.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company relies on a combination of trade secret and copyright laws,
nondisclosure and other contractual and technical measures to protect its
proprietary rights in its products. There can be no assurance that these
provisions will be adequate to protect its proprietary rights. In addition, the
laws of certain foreign countries do not protect intellectual property rights to
the same extent as the laws of the United States. Although the Company believes
that its intellectual property rights do not infringe upon the proprietary
rights of third parties, there can be no assurance that third parties will not
assert infringement claims against the Company.
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's quarterly revenues and operating results may fluctuate
depending on the timing of executed contracts, license upgrades and the delivery
of contracted business during the quarter. In addition, quarterly operating
results may fluctuate due to the timing of the Company's hiring of additional
staff, new product development and other expenses. No assurance can be given
- 8 -
<PAGE>
that operating results will not vary due to these factors. Fluctuations in
quarterly operating results may result in volatility in the Company's stock
price.
CUSTOMER CANCELLATION OF CONTRACTS
The Company derives a substantial portion of its total revenues from
maintenance fees and monthly software license fees pursuant to contracts which
the customer has the right to cancel. A substantial number of cancellations of
these maintenance or monthly license fee contracts would have a material adverse
effect on the Company's financial condition and results of operations.
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced extreme price and volume
fluctuations, particularly in the high technology sector, which have often been
unrelated to the operating performance of particular companies. Any
announcement with respect to any variance in revenue or earnings from levels
generally expected by securities analysts for a given period could have an
immediate and significant effect on the trading price of the Class A Common
Stock. In addition, factors such as announcements of technological innovations
or new products by the Company, its competitors or other third parties, as well
as changing market conditions in the computer software or hardware industries,
may have a significant impact on the market price of the Class A Common Stock.
CONTROL BY EXISTING STOCKHOLDERS
The Company's directors and officers and their affiliates in the aggregate
beneficially own a substantial percentage of the outstanding Class A Common
Stock. As a result, these stockholders, if acting together, would be able to
influence most matters requiring approval by the Company's stockholders,
including the election of directors. In addition, the Company's Certificate of
Incorporation contains provisions that may discourage acquisition bids for the
Company. The effect of such provisions may be to limit the price that investors
might be willing to pay in the future for shares of the Class A Common Stock.
THE COMPANY
The Company develops, markets and supports a broad line of software
products and services primarily focused on facilitating electronic payments and
electronic commerce. The Company's
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software products are used to process transactions involving credit cards, debit
cards, smart cards, checks, automated teller machines (ATM), point-of-sale (POS)
terminals, manned teller devices, home banking, wire transfers and automated
clearing house (ACH) functions. The Company's products and services assist
customers in operating large, complex networks performing such functions as
transaction authorization, transaction routing, debit and credit card
management, transaction settlement and reporting.
The Company was formed for the purpose of acquiring Applied Communications,
Inc. and Applied Communications Inc. Limited, which were acquired on December
31, 1993. On January 3, 1994, the Company acquired U.S. Software, Inc. The
principal executive offices of the Company are located at 330 South 108th
Avenue, Omaha, Nebraska 68154, and its telephone number is (402) 390-7600.
SECURITIES COVERED BY THIS PROSPECTUS
This Prospectus relates to 1,500,000 shares of Class A Common Stock which
may be offered and issued or reserved for issuance by the Company from time to
time in connection with the acquisition by the Company, directly or indirectly,
of other businesses or properties, or interests therein. It is expected that
the terms of acquisitions involving the issuance of Class A Common Stock covered
by this Prospectus will be determined by direct negotiations with the owners or
controlling persons of the businesses or properties, or interest therein, to be
acquired by the Company, or, in the case of entities that are more widely held,
through exchange offers to stockholders or documents soliciting stockholder
approval of mergers, consolidations, plans of share exchange, or sales of
assets. It is also expected that the shares of Class A Common Stock issued will
be valued at prices reasonably related to quoted market prices either at the
time the terms of an acquisition are agreed upon or at or about the time of
delivery of such shares.
DESCRIPTION OF CAPITAL STOCK
The Company's Amended and Restated Certificate of Incorporation provides
that authorized capital stock of the Company consists of 50,000,000 shares of
Class A Common Stock, par value $0.005 per share, 5,000,000 shares of Class B
Common Stock, par value $0.005 per share, and 5,450,000 shares of preferred
stock, par value of $0.01 per share. Unless otherwise indicated, references in
this Prospectus to "Common Stock" refer to both the Company's Class A Common
Stock and Class B Common Stock.
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COMMON STOCK
The Class A Common Stock and Class B Common Stock have the same rights
except that holders of Class B Common Stock are not entitled to vote except as
provided by law. Holders of Class A Common Stock are entitled to one vote per
share on all matters to be voted on by the stockholders. Subject to preferences
that may be applicable to any preferred stock outstanding at the time, holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
the Company, holders of all Common Stock are entitled to share ratably in all
assets remaining after payment of the Company's liabilities and the liquidation
preference, if any, of any outstanding preferred stock. Holders of Common Stock
have no preemptive rights and no rights to convert their Class A Common Stock
into any other securities, and there are no redemption provisions with respect
to shares of Common Stock. All of the outstanding shares of Common Stock are
fully paid and non-assessable. 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.
PREFERRED STOCK
The Board of Directors has the authority, without any further vote or
action by the stockholders, to provide for the issuance of up to 5,450,000
shares of preferred stock from time to time in one or more series with such
designations, rights, preferences and limitations as the Board of Directors may
determine, including the consideration received therefor; the number of shares
comprising each series, dividend rates, redemption provisions, liquidation
preferences, sinking fund provisions, conversion rights and voting rights, all
without approval by the holders of Common Stock. Although it is not possible to
state the effect that any issuance of preferred stock might have on the rights
of holders of Common Stock, the issuance of preferred stock may have one or more
of the following effects (i) restrict Common Stock dividends if preferred stock
dividends have not been paid, (ii) dilute the voting power and equity interest
of holders of Common Stock, or (iii) prevent current holders of Common Stock
from participating in the Company's assets upon liquidation until any
liquidation preferences granted to holders of preferred stock are satisfied. In
addition, the issuance of preferred stock may, under certain circumstances, have
the effect of discouraging a change in control of the Company by, for example,
granting voting rights to holders of preferred stock that require approval by
the separate vote of the holders of preferred stock for any amendment to the
Company's Amended and Restated Certificate of Incorporation or any
reorganization,
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consolidation, merger (or other similar transaction involving the Company). As
a result, the issuance of such preferred stock may discourage bids for the
Company's Common Stock at a premium over the market price therefor and could
have a material adverse effect on the market value of the Common Stock. No
shares of preferred stock are currently outstanding.
REGISTRATION RIGHTS
Certain rights with respect to registration of their stock under the
Securities Act exist for holders of shares of Common Stock issued upon
conversion of the Company's Senior Convertible Preferred Stock ("Senior
Conversion Shares"), holders of shares of Common Stock issued upon exercise of
certain stock purchase warrants ("Warrant Exercise Shares"), and holders of
shares of Common Stock issued upon conversion of the Company's Junior
Convertible Preferred Stock, shares of Class A Common Stock issuable upon
exercise of stock options issuable to employees of the Company pursuant to the
Company's Incentive Stock Option Plan and certain other shares of Class A Common
Stock (collectively "Junior Restricted Stock"). The Senior Conversion Shares,
Warrant Exercise Shares, and Junior Restricted Stock are hereafter collectively
referred to as the "Restricted Stock." The registration rights arise pursuant
to an agreement entered into at the time of the sale of underlying shares of
Preferred Stock and warrants. Holders of not less than 30% of the outstanding
Senior Conversion Shares may demand that the Company register for sale all or a
portion of their shares. With certain exceptions, the Company is not generally
required to effect more than two such registrations. In the event that the
holders making the demand request registration of less than all their Senior
Conversion Shares, the Company is required to effect a registration only if the
demand covers at least 20% of the total number of Senior Conversion Shares
originally issued (or a lesser percentage if the reasonably anticipated
aggregate public offering price would exceed $5,000,000). Subject to certain
limitations, at such time as the Company is eligible to register its shares on
Form S-3, holders of the Warrant Exercise Shares may demand, on one occasion,
that the Company register Warrant Exercise Shares on that form, provided that
the reasonably anticipated aggregate offering price would exceed $4,000,000.
Furthermore, if the Company proposes to register any of its securities, either
for its own account or that of selling security holders, the Company is required
to notify holders of Restricted Stock, and subject to certain limitations, to
include in such registration all the shares requested to be included by such
holders. The Company is generally obligated to bear the expenses, other than
underwriting discounts and sale commissions, of all of these registrations and
to indemnify the sellers against certain liabilities, including liabilities
under the Securities Act.
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LIMITATION OF LIABILITY
The Company's Amended and Restated Certificate of Incorporation limits the
liability of directors to the maximum extent permitted by Delaware law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
including gross negligence, except liability for (i) breach of the directors'
duty of loyalty, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) the unlawful
payment of a dividend or unlawful stock purchase or redemption and (iv) any
transaction from which the director derives an improper personal benefit.
Delaware law does not permit a corporation to eliminate a director's duty of
care, and this provision of the Company's revised Restated Certificate of
Incorporation has no effect on the availability of equitable remedies, such as
injunction or rescission, based upon a director's breach of the duty of care.
The Company's Amended and Restated Certificate of Incorporation authorizes
the Company to purchase and maintain insurance for the purpose of
indemnification.
DELAWARE LAW
Under Section 203 of the Delaware General Corporation Law ("Section 203"),
certain "business combinations" between a Delaware corporation whose stock
generally is publicly traded or held of record by more than 2,000 stockholders
and an "interested stockholder" are prohibited for a three-year period following
the date that such stockholder became an interested stockholder, unless (i) the
corporation has elected in its original certificate of incorporation not to be
governed by Section 203 (the Company did not make such an election), (ii) the
business combination was approved by the board of directors of the corporation
before the other party to the business combination became an interested
stockholder, (iii) upon consummation of the transaction that made it an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also officers or
held in employee benefit plans in which the employees do not have a confidential
right to tender or vote stock held by the plan) or (iv) the business combination
was approved by the board of directors of the corporation and ratified by two-
thirds of the voting stock which the interested stockholder did not own. The
three-year prohibition also does not apply to certain business combinations
proposed by an interested stockholder following the announcement or notification
of certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the
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approval of the majority of the corporation's directors. The term "business
combination" is defined generally to include mergers or consolidations between a
Delaware corporation and an "interested stockholder," transactions with an
"interested stockholder" involving the assets or stock of the corporation or its
majority-owned subsidiaries and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested stockholder"
is defined generally as a stockholder who, together with affiliates and
associates, owns (or, within three years prior, did own) 15% or more of a
Delaware corporation's voting stock. Section 203 could prohibit or delay a
merger, takeover or other change in control of the Company and therefore could
discourage attempts to acquire the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the Class A Common Stock is Norwest
Bank Minnesota, N.A.
EXPERTS
The consolidated financial statements and schedules of Transaction Systems
Architects, Inc. as of September 30, 1994 and 1995, and for the period from
inception (November 2, 1993) through September 30, 1994, and the year ended
September 30, 1995, incorporated in this Prospectus by reference from
Transaction Systems Architects, Inc.'s Annual Report on Form 10-K, have been
audited by Arthur Andersen LLP, independent public accountants, as stated in
their reports which are incorporated herein by reference, and have been so
incorporated in reliance upon the authority of said firm as experts in giving
said reports.
The combined financial statements and schedules of Applied
Communications, Inc. and Applied Communications Inc. Limited as of December
31, 1993, and for the year ended September 30, 1993, and the three months
ended December 31, 1993, incorporated in this Prospectus by reference from
Transaction Systems Architects, Inc.'s Annual Report on Form 10-K, have been
audited by Arthur Andersen LLP, independent public accountants, as stated in
their reports. In those reports, that firm states that with respect to
Applied Communications Inc. Limited its opinion is based on the reports of
other independent public accountants, namely Ernst & Young LLP. Each firm's
reports are incorporated herein by reference, and have been so incorporated
in reliance upon the authority of such firms as experts in giving said
reports.
Other financial statements and schedules incorporated by reference in this
Prospectus have been audited by independent public accountants as indicated in
their reports with respect
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thereto, and have been so incorporated in reliance upon the authority of such
accountants as experts in giving such reports.
LEGAL MATTERS
The validity of the Class A Common Stock offered pursuant to this
Prospectus will be passed upon for the Company by Baker & McKenzie, Chicago,
Illinois.
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