-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rpiv1cDAl43OSpLf9XRJwh4BGJHPhRCdmH84PyZJTKEWX4J4wAnJkJF4sMMBYdBO qsutW6duZD8wNsYhMuJkqQ== 0000950144-99-011987.txt : 19991021 0000950144-99-011987.hdr.sgml : 19991021 ACCESSION NUMBER: 0000950144-99-011987 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19991020 EFFECTIVENESS DATE: 19991020 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESHARE TECHNOLOGIES INC/GA CENTRAL INDEX KEY: 0001034956 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 581378534 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-8 SEC ACT: SEC FILE NUMBER: 333-89351 FILM NUMBER: 99730951 BUSINESS ADDRESS: STREET 1: 5051 PEACHTREE CORNERS CIRCLE CITY: NORCROSS STATE: GA ZIP: 30092-2500 BUSINESS PHONE: 7702394000 MAIL ADDRESS: STREET 1: 5051 PEACHTREE CORNERS CIRCLE CITY: NORCROSS STATE: GA ZIP: 30092-2500 FORMER COMPANY: FORMER CONFORMED NAME: MELITA INTERNATIONAL CORP DATE OF NAME CHANGE: 19970304 S-8 1 ESHARE TECHNOLOGIES, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 20, 1999 REGISTRATION NO. 333-______ - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- FORM S-8 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- ESHARE TECHNOLOGIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) GEORGIA 58-1378534 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 5051 PEACHTREE CORNERS CIRCLE NORCROSS, GEORGIA 30092-2500 (770) 239-4000 (Address of registrant's principal executive offices, including zip code and telephone number, including area code) --------------------------- STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN (Full title of the Plans) ALEKSANDER SZLAM COPY TO: CHIEF EXECUTIVE OFFICER JOHN FRANKLIN SMITH, ESQ. ESHARE TECHNOLOGIES, INC. LARRY W. SHACKELFORD, ESQ. 5051 PEACHTREE CORNERS CIRCLE MORRIS, MANNING & MARTIN, L.L.P. NORCROSS, GEORGIA 30092-2500 1600 ATLANTA FINANCIAL CENTER (770) 239-4000 3343 PEACHTREE ROAD, N.E. ATLANTA, GEORGIA 30326 (404) 233-7000 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------------- CALCULATION OF REGISTRATION FEE
Proposed Maximum Proposed Maximum Amount to be Offering Price Per Aggregate Offering Amount of Registration Fee Title of Securities to be Registered Registered (1) Share (2)(3) Price (2)(3) (3) - ------------------------------------------ -------------- ------------------ ------------------ -------------------------- Common Stock, no par value per share 760,906 shares $2.313378 $1,760,263.42 $490.00 ========================================== ============== ================== ================== ==========================
- -------------------------- (1) Represents 760,906 shares of Common Stock reserved for issuance by Registrant under the Stock Option and Restricted Stock Purchase Plan dated October 23, 1996 (the "Plan"). (2) Estimated solely for the purpose of calculating the registration fee. (3) Calculated pursuant to Rule 457(c) and (h) of the Securities Act of 1933, as amended. Accordingly, the price per share of the Common Stock offered hereunder pursuant to the Plan is based on 760,906 shares of Common Stock subject to options already granted at a weighted average exercise price of $2.313378 per share. - ------------------------------------------------------------------------------- Exhibit Index appears on Page 7 of 8 sequentially numbered pages. 2 PART I INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS The documents containing the information specified in Part I will be sent or given to employees of eShare Technologies Inc. (the "Registrant") as specified by Rule 428(b)(1) of the Securities Act of 1933, as amended (the "Securities Act"). In accordance with the instructions of Part I of Form S-8, such documents will not be filed with the Securities and Exchange Commission (the "Commission") either as part of this Registration Statement or as prospectuses or prospectus supplements pursuant to Rule 424 of the Securities Act. These documents and the documents incorporated by reference pursuant to Item 3 of Part II of this Registration Statement, taken together, constitute the prospectus as required by Section 10(a) of the Securities Act. PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE. The following documents filed with the Securities and Exchange Commission (the "Commission") are incorporated herein by reference: (a) The Registrant's Annual Report on Form 10-K for the year ended December 31, 1998, filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (b) The Registrant's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999 and June 30, 1999. (c) The Registrant's Current Reports on Form 8-K dated June 21, 1999 and September 16, 1999. (d) The description of the Registrant's Common Stock contained in the Registrant's Registration Statement on Form 8-A dated May 22, 1997. All documents subsequently filed by the Registrant pursuant to Sections 13(a), 13(c), 14, and 15(d) of the Exchange Act, prior to the filing of a post-effective amendment indicating that all securities offered under the Plans have been sold or deregistering all securities then remaining unsold thereunder, shall be deemed to be incorporated herein by reference and shall be deemed to be a part hereof from the date of filing thereof. Any statement contained in any document incorporated or deemed to be incorporated by reference into the Prospectus shall be deemed to be modified or superseded for purposes thereof to the extent that a statement contained therein or in any other subsequently filed document that is also incorporated or deemed to be incorporated therein by reference modifies or supersedes such statement. Any such statement so modified or superseded shall now be deemed, accepted so modified or superseded, to constitute a part of this Registration Statement. ITEM 4. DESCRIPTION OF SECURITIES. A description of the Registrant's Common Stock is incorporated by reference under Item 3. ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL. Legal matters in connection with the shares of Common Stock offered hereby were passed upon by Morris, Manning & Martin, L.L.P., Atlanta, Georgia. Members of Morris, Manning & Martin, L.L.P. hold an aggregate of 1,100 shares of Common Stock. -2- 3 ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Registrant's Amended and Restated Bylaws provide that the liability of the Registrant's officers and directors for monetary damages shall be limited to the fullest extent permissible under Georgia law. This limitation of liability does not affect the availability of injunctive relief or other equitable remedies. The Registrant's Amended and Restated Bylaws provide that the Company shall indemnify each of its directors and officers to the extent that he or she is or was a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative by reason of the fact that such person is or was a director, officer, employee or agent of the Company, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with such action, suit or proceeding; provided, however, that no indemnification shall be made for (i) any appropriation, in violation of his duties, of any business opportunity of the Registrant, (ii) acts or omissions which involve intentional misconduct or a knowing violation of law, (iii) any liability under Section 14-2-832 of the Georgia Business Corporations Code, which relates to unlawful payments of dividends and unlawful stock repurchases and redemptions, or (iv) any transaction from which he or she derived an improper personal benefit. ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED. Not applicable. ITEM 8. EXHIBITS. The following exhibits are filed with or incorporated by reference into this Registration Statement pursuant to Item 601 of Regulation S-K:
Exhibit No. Description ----------- ----------- 4.1 Amended and Restated Articles of Incorporation of Registrant (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the Registrant's Registration Statement on Form S-1, File No. 333-22855, filed March 28, 1997) 4.2 Amended and Restated Bylaws of Registrant (incorporated by reference to Exhibit 3.4 to Amendment No. 1 to the Registrant's Registration Statement on Form S-1, File No. 333-22855, filed March 28, 1997) 5.1 Opinion of Morris, Manning & Martin, L.L.P. as to the legality of the securities being registered 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Morris, Manning & Martin, L.L.P. (included in Exhibit 5.1) 24.1 Power of Attorney (included on page 6 of this Registration Statement) 99.1 Consolidated Financial Statements of Registrant as of December 31, 1998 and 1997
-3- 4 ITEM 9. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is on Form S-3, Form S-8 or Form S-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from the registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. -4- 5 SIGNATURES Pursuant to the requirements of the Securities Act, the undersigned Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Norcross, State of Georgia, on this the 20th day of October, 1999. ESHARE TECHNOLOGIES, INC. By: /s/ Aleksander Szlam -------------------------------------- Aleksander Szlam Chairman of the Board and Chief Executive Officer -5- 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signatures appears below constitutes and appoints Aleksander Szlam and Dan K. Lowring, jointly and severally, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign a Registration Statement relating to the registration of shares of common stock on Form S-8 and to sign any and all amendments (including post effective amendments) to the Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing required or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute, could lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated. /s/ Aleksander Szlam Chairman of the Board October 20, 1999 - ------------------------------------ and Chief Executive Officer Aleksander Szlam (Principal Executive Officer) s/ Dan K. Lowring Vice-President-Administration October 20, 1999 - ----------------------------------- and Chief Financial Officer Dan K. Lowring (Principal Financial and Accounting Officer) /s/ Andrew J. Filipowski Director October 20, 1999 - ----------------------------------- Andrew J. Filipowski /s/ Donald L. House Director October 20, 1999 - ------------------------------------ Donald L. House /s/ Don W. Hubble Director October 20, 1999 - ------------------------------------ Don W. Hubble
-6- 7 EXHIBIT INDEX The following exhibits are filed with or incorporated by reference into this Registration Statement pursuant to Item 601 of Regulation S-K:
Exhibit No. Description Sequential Page Number ----------- ----------- ---------------------- 4.1 Amended and Restated Articles of Incorporation of Registrant (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the Registrant's Registration Statement on Form S-1, File No. 333-22855, filed March 28, 1997) ............................N/A 4.2 Amended and Restated Bylaws of Registrant (incorporated by reference to Exhibit 3.4 to Amendment No. 1 to the Registrant's Registration Statement on Form S-1, File No. 333-22855, filed March 28, 1997) ............................N/A 5.1 Opinion of Morris, Manning & Martin, L.L.P. as to the legality of the securities being ..............................8 registered 23.1 Consent of Arthur Andersen LLP ............................... 23.2 Consent of Counsel (included in Exhibit 5.1) ............................N/A 24.1 Power of Attorney (included at Page 6 of this Registration Statement) ............................N/A 99.1 Consolidated Financial Statements of Registrant as of December 31, 1998 and 1997 ............................N/A
-7- EX-5.1 2 OPINION OF MORRIS, MANNING & MARTIN, L.L.P. 1 EXHIBIT 5.1 October 19, 1999 eShare Technologies, Inc. 5051 Peachtree Corners Circle Norcross, Georgia 30092-2500 Re: Registration Statement on Form S-8 Gentlemen: We have acted as counsel for eShare Technologies, Inc., a Georgia corporation (the "Company"), in connection with the registration under the Securities Act of 1933, as amended, pursuant to a Registration Statement on Form S-8, of a proposed offering of 760,906 shares of the Company's common stock, no par value per share ("Shares"), issuable pursuant to the Stock Option and Restricted Stock Purchase Plan (the "Plan"). We have examined and are familiar with the originals or copies certified or otherwise identified to our satisfaction of such documents, corporate records, and other instruments relating to the incorporation of the Company and to the authorization and issuance of Shares under the Plan as would be necessary and advisable for purposes of rendering this opinion. Based upon and subject to the foregoing, we are of the opinion that the Shares have been duly authorized and, when issued as contemplated by the Plan, will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this Opinion as Exhibit 5.1 to the Company's registration statement on Form S-8. Very truly yours, MORRIS, MANNING & MARTIN, L.L.P. /s/ Morris, Manning & Martin, L.L.P. -8- EX-23.1 3 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated January 30, 1999 included in Melita International Corporation's Form 10-K for the year ended December 31, 1998 and to the inclusion in this registration statement of our report dated January 30, 1999 (except with respect to the matter discussed in Note 10 to which the date is September 1, 1999) on the financial statements of Melita International Corporation and subsidiaries and to all references to our Firm included in this registration statement. ARTHUR ANDERSEN LLP Atlanta, Georgia October 18, 1999 EX-99.1 4 CONSOLIDATED FINANCIAL STATEMENTS 1 EXHIBIT 99.1 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 TOGETHER WITH AUDITORS' REPORT INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants.................... 1 Consolidated Balance Sheets as of December 31, 1997 and 1998...................................................... 2 Consolidated Statements of Operations for the three years in the period ended December 31, 1998........................ 3 Consolidated Statements of Shareholders' Equity for the three years in the period ended December 31, 1998......... 4 Consolidated Statements of Comprehensive Income for the three years in the period ended December 31, 1998......... 5 Consolidated Statements of Cash Flows for the three years in the period ended December 31, 1998........................ 6 Notes to Consolidated Financial Statements.................. 7
2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Melita International Corporation: We have audited the accompanying consolidated balance sheets of Melita International Corporation (a Georgia corporation) and subsidiaries as of December 31, 1997 and 1998 and the related consolidated statements of operations, shareholders' equity, comprehensive income and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We have also made a similar audit of the supplemental information of Melita International Corporation and subsidiaries for each of the two years in the period ended December 31, 1998 contained in Note 10. The supplemental information gives retroactive effect to the merger with eShare Technologies, Inc. on September 1, 1999, which has been accounted for as a pooling of interests as described in Note 10. This supplemental information is the responsibility of the Company's management. Our responsibility is to express an opinion on this supplemental information based on our audits. We did not audit the financial statements of eShare Technologies, Inc. included in the supplemental information of Melita International Corporation and subsidiaries, which statements reflect total revenues constituting 1 percent and 4 percent in 1997 and 1998, respectively, of the related supplemental totals. These statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for eShare Technologies, Inc., is based solely upon the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Melita International Corporation and subsidiaries as of December 31, 1997 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. In our opinion, based upon our audit and the report of the other auditors, the supplemental information referred to above presents fairly, in all material respects, the results of Melita International Corporation and subsidiaries operations for each of the two years in the period ended December 31, 1997 and 1998 after giving retroactive effect to the merger with eShare Technologies, Inc. as described in Note 10, all in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Atlanta, Georgia January 30, 1999 (except with respect to the matter discussed in Note 10 to which the date is September 1, 1999) 2 3 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ------------------ 1997 1998 ------- ------- ASSETS Current assets: Cash and cash equivalents................................. $ 6,845 $ 7,684 Marketable securities..................................... 23,969 22,756 Accounts receivable, net of allowance for doubtful accounts of $876 and $2,450 at December 31, 1997 and 1998, respectively..................................... 15,796 32,287 Inventories............................................... 2,461 1,260 Deferred taxes............................................ 2,035 3,731 Prepaid expenses and other................................ 251 403 ------- ------- Total current assets.............................. 51,357 68,121 ------- ------- Property and equipment, at cost: Furniture and fixtures.................................... 1,648 2,241 Equipment................................................. 8,195 11,618 Leasehold improvements.................................... 831 1,095 ------- ------- Total property and equipment...................... 10,674 14,954 Less accumulated depreciation............................. 5,735 7,946 ------- ------- Net property and equipment........................ 4,939 7,008 Other assets................................................ 99 179 ------- ------- $56,395 $75,308 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 5,326 $ 6,624 Accrued liabilities....................................... 7,763 11,835 Deferred revenue.......................................... 4,029 5,965 Customer deposits......................................... 1,988 815 ------- ------- Total current liabilities......................... 19,106 25,239 ------- ------- Commitments and contingencies (Note 5) Shareholders' equity: Preferred stock, no par value; 20,000,000 shares authorized, no shares issued and outstanding at December 31, 1997 and 1998............................. -- -- Common stock, no par value; 100,000,000 shares authorized; 15,168,395 shares issued and outstanding at December 31, 1997, and 15,270,738 shares issued and outstanding at December 31, 1998................................... 69 69 Additional paid-in capital................................ 36,046 37,075 Accumulated other comprehensive income.................... 30 96 Retained earnings......................................... 1,144 12,829 ------- ------- Total shareholders' equity........................ 37,289 50,069 ------- ------- $56,395 $75,308 ======= =======
The accompanying notes are an integral part of these consolidated balance sheets. 3 4 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, --------------------------------- 1996 1997 1998 --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues: Product................................................... $32,077 $46,065 $67,943 Service................................................... 15,463 19,725 25,467 ------- ------- ------- Total revenues.................................... 47,540 65,790 93,410 ------- ------- ------- Cost of revenues: Product................................................... 11,494 15,531 21,336 Service................................................... 6,863 9,642 13,346 ------- ------- ------- Total cost of revenues............................ 18,357 25,173 34,682 ------- ------- ------- Gross margin................................................ 29,183 40,617 58,728 ------- ------- ------- Operating expenses: Engineering, research and development..................... 5,070 6,880 10,410 Selling, general and administrative....................... 16,765 22,320 31,253 ------- ------- ------- Total operating expenses.......................... 21,835 29,200 41,663 ------- ------- ------- Income from operations...................................... 7,348 11,417 17,065 Other income, net........................................... 261 662 1,193 ------- ------- ------- Income before income taxes.................................. 7,609 12,079 18,258 Income tax provision (benefit): Tax provision as C corporation............................ -- 3,023 6,573 Deferred tax adjustment................................... -- (1,473) -- ------- ------- ------- Net income.................................................. $ 7,609 $10,529 $11,685 ======= ======= ======= Pro forma net income: Income before income taxes................................ $ 7,609 $12,079 Pro forma income taxes.................................... 2,827 4,469 ------- ------- Pro forma net income.............................. $ 4,782 $ 7,610 ======= ======= Earnings per share: Basic earnings per share.................................. $ 0.63 $ 0.76 $ 0.77 Diluted earnings per share................................ $ 0.62 $ 0.73 $ 0.74 Pro forma basic earnings per share........................ $ 0.40 $ 0.55 Pro forma diluted earnings per share...................... $ 0.39 $ 0.53 Weighted average shares outstanding: Basic..................................................... 12,088 13,832 15,193 Diluted................................................... 12,363 14,386 15,815
The accompanying notes are an integral part of these consolidated statements. 4 5 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK ---------------------------------------------------------- MELITA INTERNATIONAL MELITA EUROPE CORPORATION LIMITED INVENTIONS, INC. ADDITIONAL ------------------- ---------------- ----------------- PAID-IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL ---------- ------ ------- ------ ------- ------- ---------- (IN THOUSANDS, EXCEPT SHARE DATA) Balance, December 31, 1995................... 8,000,000 $ 2 31,328 $46 100 $1 $ 20 Net income before pro forma income taxes..... -- -- -- -- -- -- -- Distributions to shareholders........... -- -- -- -- -- -- -- Foreign currency translation adjustment............. -- -- -- -- -- -- -- ---------- --- ------- --- ---- -- ------- Balance, December 31, 1996................... 8,000,000 2 31,328 46 100 1 20 Net income before pro forma income taxes..... -- -- -- -- -- -- -- Proceeds from the issuance of common stock.................. 4,025,000 -- -- -- -- -- 36,046 Combination transaction (Note 1)............... 3,143,395 67 (31,328) (46) (100) (1) (20) Note and cash distributions to shareholders........... -- -- -- -- -- -- -- Unrealized gain on marketable securities............. -- -- -- -- -- -- -- Foreign currency translation adjustment............. -- -- -- -- -- -- -- ---------- --- ------- --- ---- -- ------- Balance, December 31, 1997................... 15,168,395 69 -- -- -- -- 36,046 Net income............... -- -- -- -- -- -- -- Proceeds from the issuance of common stock.................. 102,343 -- -- -- -- -- 1,029 Unrealized gain on marketable securities............. -- -- -- -- -- -- -- Foreign currency translation adjustment............. -- -- -- -- -- -- -- ---------- --- ------- --- ---- -- ------- Balance, December 31, 1998................... 15,270,738 $69 -- $-- -- $-- $37,075 ========== === ======= === ==== == ======= OTHER COMPREHENSIVE RETAINED INCOME EARNINGS TOTAL ------------- -------- -------- (IN THOUSANDS, EXCEPT SHARE DATA) Balance, December 31, 1995................... $ 5 $ 6,583 $ 6,657 Net income before pro forma income taxes..... -- 7,609 7,609 Distributions to shareholders........... -- (3,424) (3,424) Foreign currency translation adjustment............. 30 -- 30 --- -------- -------- Balance, December 31, 1996................... 35 10,768 10,872 Net income before pro forma income taxes..... -- 10,529 10,529 Proceeds from the issuance of common stock.................. -- -- 36,046 Combination transaction (Note 1)............... -- -- -- Note and cash distributions to shareholders........... -- (20,153) (20,153) Unrealized gain on marketable securities............. 15 -- 15 Foreign currency translation adjustment............. (20) -- (20) --- -------- -------- Balance, December 31, 1997................... 30 1,144 37,289 Net income............... -- 11,685 11,685 Proceeds from the issuance of common stock.................. -- -- 1,029 Unrealized gain on marketable securities............. 89 -- 89 Foreign currency translation adjustment............. (23) -- (23) --- -------- -------- Balance, December 31, 1998................... $96 $ 12,829 $ 50,069 === ======== ========
The accompanying notes are an integral part of these consolidated statements. 5 6 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31, -------------------------- 1996 1997 1998 ------ ------- ------- (IN THOUSANDS) Net income.................................................. $7,609 $10,529 $11,685 Other comprehensive income, net of tax: Foreign currency translation adjustment................... 30 (20) (23) Unrealized gain on marketable securities.................. -- 15 89 ------ ------- ------- Other comprehensive income............................. 30 (5) 66 ------ ------- ------- Comprehensive income........................................ $7,639 $10,524 $11,751 ====== ======= =======
The accompanying notes are an integral part of these consolidated statements. 6 7 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, --------------------------- 1996 1997 1998 ------ -------- ------- (IN THOUSANDS) Cash flows from operating activities: Net income or pro forma net income........................ $4,782 $ 7,610 $11,685 Adjustments to reconcile net income or pro forma net income to net cash provided by operating activities: Pro forma income taxes................................. 2,827 1,446 -- Deferred taxes......................................... -- (562) (1,695) Depreciation and amortization.......................... 1,141 1,279 2,212 Loss on sale of property and equipment................. 6 -- -- Changes in assets and liabilities: Accounts receivable.................................. (2,657) (3,935) (16,492) Inventories.......................................... 585 (19) 1,201 Prepaid expenses and other assets.................... 172 (81) (152) Accounts payable..................................... (334) 2,897 1,298 Accrued liabilities.................................. 794 3,552 4,071 Deferred revenue..................................... 472 964 1,936 Customer deposits.................................... 1,417 (1,861) (1,173) Other, net........................................... 63 (95) (103) ------ -------- ------- Total adjustments................................. 4,486 3,585 (8,897) ------ -------- ------- Net cash provided by operating activities......... 9,268 11,195 2,788 ------ -------- ------- Cash flows from investing activities: Purchases of property and equipment....................... (1,531) (3,494) (4,280) Purchases of marketable securities........................ -- (23,954) 1,302 ------ -------- ------- Net cash used in investing activities............. (1,531) (27,448) (2,978) ------ -------- ------- Cash flows from financing activities: Repayment of capital lease obligations.................... (48) (19) -- Net proceeds from issuance of common stock................ -- 36,046 1,029 Repayment of notes payable to stockholder................. -- (2,625) -- Repayment of notes payable to stockholder representing distributions.......................................... (375) (12,900) -- Distributions to stockholder.............................. (3,424) (7,253) -- ------ -------- ------- Net cash provided by (used in) financing activities...................................... (3,847) 13,249 1,029 ------ -------- ------- Net change in cash and cash equivalents..................... 3,890 (3,004) 839 Cash and cash equivalents, beginning of year................ 5,959 9,849 6,845 ------ -------- ------- Cash and cash equivalents, end of year...................... $9,849 $ 6,845 $ 7,684 ====== ======== ======= Marketable securities....................................... $ -- $ 23,969 $22,756 ====== ======== ======= Cash, cash equivalents and marketable securities............ $9,849 $ 30,814 $30,440 ====== ======== ======= Supplemental cash flow information: Cash paid for interest during the year...................... $ 279 $ 335 -- ====== ======== ======= Income taxes paid........................................... $ -- $ 3,198 $ 6,392 ====== ======== =======
The accompanying notes are an integral part of these consolidated statements. 7 8 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Melita International Corporation ("Melita" or the "Company") provides customer contact and customer relationship management systems that enable its customers to operate efficient call centers. The Company's principal product is an integrated system comprised of both hardware and software. Melita offers ongoing maintenance support for its products, as well as fee-based installation, education and consulting services. The Company markets its products worldwide through direct sales forces and through distributors in Europe, Latin America and Asia (Note 7). COMPLETION OF INITIAL PUBLIC OFFERING On June 4, 1997, the Company completed an initial public offering (the "Offering") of 4,025,000 shares of common stock at $10 per share resulting in net proceeds of $36,046,000. BASIS OF COMBINATION Prior to June 4, 1997, the financial statements are presented on a combined basis and include the accounts of Melita, Melita Europe Limited ("Melita Europe") and Inventions, Inc. ("Inventions"), since all were under common control. All significant intercompany accounts and transactions have been eliminated in combination. Concurrent with the Offering, the shareholders of Melita Europe and Inventions contributed their respective shares in exchange for 3,143,395 shares of Melita. The combination was treated similar to a pooling of interests and no step-up basis was recorded as the entities involved were under common control. PRINCIPLES OF CONSOLIDATION The accompanying financial statements since June 4, 1997 include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances have been eliminated in consolidation. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash or cash equivalents. MARKETABLE SECURITIES The Company's marketable securities are categorized as available-for-sale securities, as defined by the Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Unrealized holding gains and losses are reflected as a net amount in a separate component of shareholders' equity until realized. For the purpose of computing realized gains and losses, cost is identified on a specific identification basis. 8 9 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. Cost includes raw materials, labor, and overhead. Market is defined as replacement cost for work in progress and raw materials and net realizable value for finished goods. Inventories consist of the following at December 31, 1997 and 1998 (in thousands):
1997 1998 ------ ------ Raw materials............................................... $1,251 $ 143 Work in process............................................. 457 37 Finished goods.............................................. 753 1,080 ------ ------ Total inventories................................. $2,461 $1,260 ====== ======
PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. The straight-line method of depreciation was adopted for property placed in service after September 30, 1997. Prior to September 30, 1997, an accelerated method was used. The difference between the accelerated method and the straight-line method was immaterial. The estimated useful lives are as follows: Furniture and fixtures............. Five to seven years Equipment.......................... Three to seven years Leasehold improvements............. Remaining life of lease
INCOME TAXES Prior to June 4, 1997, Melita and Inventions were organized as S corporations under the Internal Revenue Code and, therefore, were not subject to federal income taxes. The income or loss of Melita and Inventions was included in the shareholders' individual federal and state tax returns, and as such, no provision for income taxes was recorded in the accompanying combined statements of operations. The Company historically made distributions to cover the shareholders' anticipated tax liability. In connection with the Offering, the Company converted its U.S. taxable status from an S corporation to a C corporation and, accordingly, became subject to federal and state income taxes. Upon the conversion, the Company recognized a one-time benefit by recording deferred tax assets of $1,473,000. The accompanying financial statements prior to June 4, 1997 reflect a provision for income taxes on a pro forma basis as if the Company were liable for federal and state income taxes as a taxable corporate entity throughout the years presented. The pro forma income tax provision has been computed by applying the Company's anticipated statutory tax rate to pretax income, adjusted for permanent tax differences (Note 3). FOREIGN CURRENCY TRANSLATION The financial statements of Melita Europe are translated into U.S. dollars in accordance with SFAS No. 52, "Foreign Currency Translation." Net assets of Melita Europe are translated at the current rates of exchange at December 31. Income and expense items are translated at the average exchange rate for the year. The resulting translation adjustments are recorded in shareholders' equity. The Company has recognized foreign exchange gains (losses) of approximately $162,000, ($20,000) and ($23,000) in 1996, 1997 and 1998, respectively. 9 10 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) REVENUE RECOGNITION The Company generates product revenues primarily from its principal product, an integrated system comprised of both hardware and software. The Company's service revenues are generated from maintenance contracts which include support, parts and labor, and software update rights. Service revenues also include fee-based installation, training, and consulting services. The Company recognizes product revenues when a contract has been executed, the product has been shipped and the Company has no significant obligations yet to be satisfied. The Company's sales contracts provide for certain payment terms normally based upon signing the contract, customer receipt of the product, and commencement of operation of the customer's system. Revenues from maintenance contracts are recognized ratably over the term of the contractual support period which ranges up to 5 years. If maintenance is included in the original integrated product contract, such amounts are unbundled from the license fee based on the value established by independent sale of such maintenance to customers. Consulting revenues are primarily related to implementation services performed under separate service arrangements related to the installation of the Company's hardware and software products. Revenues from consulting, installation, and training services are recognized as the services are performed. Deferred revenues primarily relate to products that have not yet been delivered and maintenance services which have been paid by the customers prior to the performance of those services. Deferred revenue amounted to $4,029,000 and $5,965,000 at December 31, 1997 and 1998, respectively. CAPITALIZED SOFTWARE DEVELOPMENT COSTS Research and development expenditures are charged to expense as incurred. Software development costs are charged to research and development expense until technological feasibility is established, after which remaining software production costs are capitalized in accordance with SFAS No. 86, "Accounting for Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed." The Company has defined technological feasibility of its products as the point in time at which the Company has a working model of the related product, which is when the product has achieved "beta" status. Historically, the development costs incurred during the period between the achievement of beta status by a product and the point at which the product is available for general release to customers have not been material. Accordingly, the Company has concluded that the amount of development costs capitalizable under the provisions of SFAS No. 86 was not material to the financial statements for the years ended December 31, 1996, 1997 and 1998. Therefore, the Company has charged all software development costs to expense as incurred for the years ended December 31, 1996, 1997 and 1998. WARRANTY COSTS The Company generally warranties its products for 90 days and provides for estimated warranty costs upon shipment of such products. Warranty costs have not been and are not anticipated to be significant. CONCENTRATIONS OF CREDIT RISK Concentrations of credit risk with respect to accounts receivable are limited due to the wide variety of customers and markets for which the Company's services are provided as well as their dispersion across many different geographic areas. As a result, as of December 31, 1997 and 1998, the Company did not consider itself to have any significant concentrations of credit risk. During 1997, only BankOne Services Corporation (now First USA Bank), at 11.8%, accounted for greater than 10% of total revenues. During 1998, only CitiGroup, at 13.1%, accounted for greater than 10% of total revenues. In 1996, 1997 and 1998, the Company's five largest customers accounted for approximately 24.5%, 27.9% and 23.2%, respectively, of total revenues. These sales 10 11 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) were predominantly to customers in the financial services industry. Although the particular customers may change from period to period, the Company expects that large sales to a limited number of customers will continue to account for a significant percentage of its revenues in any particular period for the foreseeable future. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. BASIC AND DILUTED NET EARNINGS PER SHARE Basic earnings per share and pro forma basic earnings per share are computed using net income or pro forma net income divided by the sum of (i) the weighted average number of shares of common stock outstanding ("Weighted Shares") for the period presented including the number of shares issued in the combination of Melita, Melita Europe and Inventions discussed in Note 1 and (ii) for periods prior to the Offering, the number of shares pursuant to Staff Accounting Bulletin 1B.3 that at the assumed public offering price would yield proceeds in the amount necessary to pay the distribution to the majority stockholder as a result of the Offering that are not covered by the earnings for the year ("Distribution Shares"). The only difference between basic and diluted net earnings per share is the result of the treasury stock method effect of common equivalent shares ("CESs"). Diluted earnings per share and pro forma diluted earnings per share is computed using net income or pro forma net income divided by the sum of (i) Weighted Shares, (ii) the Distribution Shares and (iii) the treasury stock method effect of CESs outstanding of 275,000, 554,000 and 622,000 for the years ended December 31, 1996, 1997 and 1998, respectively. FAIR VALUE OF FINANCIAL INSTRUMENTS The book values of accounts receivable, accounts payable, and other financial instruments approximate their fair values at December 31, 1997 and 1998 principally because of the short-term maturities of these instruments. ACCRUED LIABILITIES Accrued liabilities at December 31, 1997 and 1998 include the following (in thousands):
1997 1998 ------ ------- Accrued salaries and wages.................................. $3,279 $ 4,935 Other current liabilities................................... 4,169 6,608 Accrued rent................................................ 315 292 ------ ------- Total accrued liabilities......................... $7,763 $11,835 ====== =======
NEW ACCOUNTING PRONOUNCEMENTS In 1998, the Financial Accounting Standards Board issued Statement No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for the year ending December 31, 2000. The adoption of this statement is not expected to have a significant impact on the Company's financial statements. 11 12 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) RECLASSIFICATIONS Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. 2. NOTES PAYABLE TO SHAREHOLDER In 1997, the Company issued to the shareholder of the Company notes payable in the amount of $12,900,000 representing undistributed earnings through December 31, 1996. Additionally, the Company accumulated earnings of $7,253,000 through the closing date of the Offering. With the proceeds from the Offering, the Company paid an original note of $2,625,000 and the $12,900,000 notes payable and the $7,253,000 of additional accumulated earnings through the closing date of the Offering. Interest paid to shareholder was $271,000, $335,000, and $0 for the years ended December 31, 1996, 1997 and 1998, respectively. 3. INCOME TAXES In connection with the Offering, the Company converted from an S corporation to a C corporation and, accordingly, became subject to federal and state income taxes. The components of the total deferred tax assets as of December 31, 1997 and 1998 are as follows (in thousands):
1997 1998 ------ ------ Deferred tax assets and liabilities: Deferred revenue.......................................... $1,207 $1,866 Accrued liabilities....................................... 230 623 Allowance for doubtful accounts........................... 263 784 Depreciation.............................................. (70) 64 Inventory................................................. 405 394 ------ ------ Total net deferred tax assets..................... $2,035 $3,731 ====== ======
The following summarizes the components of the income tax provision for the years ended December 31, 1996, 1997 and 1998 (in thousands):
PRO FORMA ACTUAL --------------- ------- 1996 1997 1998 ------ ------ ------- Current domestic taxes: Federal................................................... $2,775 $4,405 $ 6,546 State..................................................... 326 517 580 Foreign taxes............................................... (75) 109 1,143 Deferred taxes.............................................. (199) (562) (1,696) ------ ------ ------- Tax provision..................................... $2,827 $4,469 $ 6,573 ====== ====== =======
12 13 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation from the federal statutory rate to the tax provision for the years ended December 31, 1996, 1997 and 1998 is as follows:
PRO FORMA ACTUAL ----------- ------ 1996 1997 1998 ---- ---- ------ Statutory federal tax rate.................................. 34.0% 34.0% 35.0% State income taxes, net of federal tax benefit.............. 4.0 4.0 2.4 Foreign operations.......................................... (1.3) (1.2) (0.8) Other....................................................... 0.5 0.2 (0.6) ---- ---- ---- Effective tax rate.......................................... 37.2% 37.0% 36.0% ==== ==== ====
4. BENEFIT PLAN Melita has a defined contribution profit-sharing plan (the "Plan") for substantially all Melita employees meeting the eligibility requirements as defined in the plan agreement. The Plan provides for annual contributions by Melita at the discretion of the board of directors. The Plan also contains a 401(k) feature which allows participants to contribute up to 15% of their eligible compensation, as defined, and provides for discretionary employer matching contributions. Total contributions by Melita to the Plan were $119,000, $429,000 and $391,000 for the years ended December 31, 1996, 1997 and 1998, respectively. 5. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS At December 31, 1998, the future minimum operating lease payments (including leases with related parties) under noncancelable operating leases were as follows (in thousands): 1999........................................................ $ 810 2000........................................................ 723 2001........................................................ 668 2002........................................................ 607 Thereafter.................................................. 1,768 ------ Total future minimum lease payments............... $4,576 ======
The Company's leases are primarily for equipment and facilities. Total rental expense for operating leases was $751,000, $714,000 and $866,000 in 1996, 1997 and 1998, respectively. In August 1994, the Company entered into a lease agreement with an unrelated party to lease land and buildings commencing April 1995. The agreement provides for annual rentals of approximately $542,000 to $636,000 per year over a ten-year term. In November 1995, the Company's majority shareholder purchased the land and buildings and now rents them to the Company under the terms of the original lease. Rent expense paid to the shareholder was $543,000, $544,000 and $555,000 in 1996, 1997 and 1998, respectively. LEGAL MATTERS Many of the Company's installations involve products that are critical to the operations of its clients' businesses. Any failure in a Company product could result in a claim for substantial damages against the Company, regardless of the Company's responsibility for such failure. Although the Company attempts to limit contractually its liability for damages arising from product failures or negligent acts or omissions, there can be no assurance the limitations of liability set forth in its contracts will be enforceable in all instances. 13 14 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company is subject to legal proceedings and claims which have arisen in the ordinary course of business. In the opinion of management, the amount of potential liability with respect to these actions will not materially affect the financial position or results of operations of the Company. 6. STOCK OPTION PLANS During 1992, the Company approved a stock option plan (the "1992 Plan") for key employees for which 640,000 shares of common stock were authorized for use in the plan. During 1995, the number of authorized shares was increased to 1,000,000 shares of common stock. Options are granted at the fair market value and are exercisable based on the specific terms of the grant up to ten years from the grant date. Options granted primarily vest ratably over a four- or five-year employment period. The Company reserved the right to purchase vested options at the then-estimated fair market value prior to the date of an IPO. During 1996, the Company purchased 30,250 vested but unexercisable options held by terminated employees for $39,774. No options were purchased during 1997 or 1998. Cash paid to repurchase options is expensed as incurred. On February 6, 1997, the Company approved the 1997 Stock Option Plan (the "1997 Plan") for which 1,350,000 shares of common stock were authorized for issuance, less any options issued under the 1992 Plan. In October of 1997, the Company increased the number of shares available under the 1997 Plan to 1,850,000. On May 11, 1998, the shareholders approved an amendment to the 1997 Plan whereby the number of shares of common stock available for issuance under the 1997 Plan will automatically be adjusted on the first day of each fiscal year, beginning with 1998, by a number of shares such that the total number of shares reserved for issuance under the 1997 Plan equals the sum of (i) the aggregate number of shares previously issued under the 1997 Plan and the 1992 Plan; (ii) the aggregate number of shares subject to then outstanding options granted under the 1997 Plan and the 1992 Plan; and (iii) 5% of the number of shares of common stock outstanding on the last day of the preceding fiscal year. Options are granted at the fair market value and are exercisable based on the specific terms of the grant up to ten years from the grant date. The options vest primarily over a four-year period subject to acceleration upon the achievement of certain performance measures. 14 15 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Activity for the 1992 Plan and 1997 Plan is as follows:
OPTION OPTIONS PRICE --------- ----------- Outstanding at December 31, 1995............................ 861,450 $2.75-$3.00 Granted................................................... 133,785 4.07 Exercised................................................. -- Forfeited/repurchased..................................... (57,463) 2.75- 4.07 --------- Outstanding at December 31, 1996............................ 937,772 2.75- 4.07 Granted................................................... 457,325 5.50-10.00 Exercised................................................. -- Forfeited/repurchased..................................... (120,309) 2.91-10.00 --------- Outstanding at December 31, 1997............................ 1,274,788 2.75-10.00 Granted................................................... 1,072,125 5.50-10.00 Exercised................................................. (80,245) Forfeited/repurchased..................................... (498,487) 2.75-14.50 --------- Outstanding at December 31, 1998............................ 1,768,181 2.75-14.50 =========
At December 31, 1998, options to purchase 747,559 shares were available for future grant and options were exercisable to purchase 698,999 shares, as discussed in the following table:
NUMBER OF SHARES NUMBER WEIGHTED OUTSTANDING AT WEIGHTED EXERCISABLE AT AVERAGE EXERCISE DECEMBER 31, AVERAGE DECEMBER 31, EXERCISE PRICES 1998 EXERCISE PRICE 1998 PRICE -------- -------------- -------------- -------------- -------- $ 2.75-$ 3.00 621,054 $ 2.89 529,273 $ 2.88 4.07- 7.94 215,242 5.30 98,926 4.71 8.38- 10.00 552,400 9.11 64,000 9.30 10.25- 14.50 379,485 11.31 6,800 10.25 --------- ------- $ 2.75-$14.50 1,768,181 $ 6.93 698,999 $ 3.80 ========= =======
During 1995, the Financial Accounting Standards Board issued SFAS No. 123, which defines a fair value-based method of accounting for an employee stock option plan or similar equity instrument. However, it also allows an entity to continue to measure compensation cost for those plans using the method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities electing to remain with the accounting in APB No. 25 must make pro forma disclosures of net income and, if presented, earnings per share, as if the fair value-based method of accounting defined in the statement had been applied. The Company has elected to account for its stock-based compensation plan under APB No. 25; however, the Company has computed for pro forma disclosure purposes the value of all options granted during 1996 and 1997 using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following weighted average assumptions used for grants in 1996, 1997 and 1998:
1996 1997 1998 --------- --------- --------- Risk-free interest rate...................... 5.4%-6.5% 5.7%-6.5% 4.0%-5.5% Expected dividend yield...................... -- -- -- Expected lives............................... 5 years 5 years 5 years Expected volatility.......................... 65% 65% 65%
15 16 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The total value of the options granted during the years ended December 31, 1996, 1997 and 1998 were computed as approximately $264,000, $1,716,000 and $6,613,000, respectively, which would be amortized over the vesting period of the options. If the Company had accounted for these plans in accordance with SFAS No. 123, the Company's reported earnings and pro forma earnings and net income per share and pro forma net income per share for the years ended December 31, 1996, 1997 and 1998 would have decreased to the following amounts (in thousands, except per share amounts):
PRO FORMA ACTUAL --------------- ------- 1996 1997 1998 ------ ------ ------- Net income or pro forma net income: As reported in the financial statements................... $4,782 $7,610 $11,685 Pro forma in accordance with SFAS No. 123................. 4,581 7,288 10,861 Basic earnings per share: As reported in the financial statements................... $ 0.40 $ 0.55 $ 0.77 Pro forma in accordance with SFAS No. 123................. 0.38 0.53 0.71 Diluted earnings per share: As reported in the financial statements................... $ 0.39 $ 0.53 $ 0.74 Pro forma in accordance with SFAS No. 123................. 0.37 0.51 0.69
7. GEOGRAPHIC INFORMATION Melita is a multinational corporation operating in a single segment as defined by statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information." The following represents total revenues, net income and total assets of the following geographic segments representing over 10% of the combined totals for the years ended December 31, 1996, 1997 and 1998 (in thousands):
1996 1997 1998 ------- ------- ------- United States: Total revenues.......................................... $37,568 $53,694 $70,289 Net income.............................................. 6,217 8,682 9,569 Total assets............................................ 23,799 51,612 66,812 Europe: Total revenues.......................................... $ 4,292 $ 7,347 $ 9,939 Net income.............................................. 452 1,680 1,733 Total assets............................................ 3,270 4,594 6,830 Other: Total revenues.......................................... $ 5,680 $ 4,749 $13,182 Net income.............................................. 940 167 383 Total assets............................................ -- 189 1,666
8. STOCK RECAPITALIZATION On February 7, 1997, the Company and Inventions recapitalized their authorized, issued, and outstanding common stock by declaring a stock dividend of 99 shares of nonvoting common stock with respect to each outstanding share of voting common stock. In connection with the stock dividend, the Company amended its articles of incorporation to increase its authorized capital stock to 2,000,000,000 shares, consisting of 20,000,000 shares of voting common stock and 1,980,000,000 shares of nonvoting common stock and Inventions amended its articles of incorporation to increase its authorized capital stock to 10,000 shares, consisting of 100 shares of voting common stock and 9,900 shares of nonvoting common stock. Concurrently on the effective date of the Offering, the Company effected a 100 to 1 reverse stock split to return the number 16 17 MELITA INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of authorized shares to 20,000,000 shares and issued and outstanding shares to 8,000,000 shares. Accordingly, the financial statements reflect the capitalization of the Company as if the stock dividend and the reverse stock split occurred at the beginning of each period presented. Additionally, following completion of the Offering, the Company's authorized capital stock consists of 100,000,000 shares of common stock, no par value per share, and 20,000,000 shares of preferred stock, no par value per share. 9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Following is a summary of the quarterly results of operations for the years ended December 31, 1996, 1997 and 1998 (in thousands except per share amounts):
FIRST SECOND THIRD FOURTH TOTAL ------- ------- ------- ------- ------- 1996 Total revenues........................... $11,021 $11,886 $11,589 $13,044 $47,540 Gross margin............................. 7,133 7,163 7,027 7,860 29,183 Pro forma net income..................... 1,278 1,299 909 1,296 4,782 Pro forma diluted earnings per share..... 0.10 0.11 0.07 0.10 0.39 1997 Total revenues........................... $14,669 $15,530 $16,928 $18,663 $65,790 Gross margin............................. 8,902 9,532 10,488 11,695 40,617 Pro forma net income..................... 1,425 1,665 2,083 2,437 7,610 Pro forma diluted earnings per share..... 0.11 0.13 0.13 0.15 0.53 1998 Total revenues........................... $20,372 $22,204 $24,252 $26,582 $93,410 Gross margin............................. 12,825 13,915 15,235 16,753 58,728 Net income............................... 2,548 2,733 3,071 3,333 11,685 Diluted earnings per share............... 0.16 0.17 0.19 0.21 0.74
10. SUBSEQUENT EVENT On September 1, 1999, the Company completed a business combination transaction with eShare Technologies, Inc. The merger was accounted for as a pooling of interests. Melita issued 6,050,000 shares of common stock to the shareholders and option holders of eShare Technologies, Inc. to complete the merger. The following information reflects the operations of Melita International Corporation and subsidiaries restated to reflect the pooling of interests transaction with eShare Technologies, Inc., in thousands:
1996 1997 1998 ----------- ------- ------- (UNAUDITED) Net revenue............................................. $48,021 $66,520 $97,081 Net income.............................................. 4,333 7,559 9,671 Earnings per share -- basic............................. 0.24 0.39 0.47 Earnings per share -- diluted........................... 0.24 0.37 0.44
The merger transaction resulted in the incurrence of approximately $4,500,000 in transaction fees that will be recorded as an expense in the third quarter of 1999. Also, the Company will realize a non-recurring, non-cash charge of approximately $2,200,000 of deferred compensation expense associated with the conversion of eShare Technologies Inc.'s Employee Stock Option Plan in the third quarter of 1999. These expenses are not included in the above mentioned information. 17 -----END PRIVACY-ENHANCED MESSAGE-----