AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 1998
REGISTRATION NO. 333-44935
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________
FISERV, INC.
(Exact name of Registrant as specified in its charter)
WISCONSIN 7374 39-1506125
(State of incorporation) (Primary standard industrial (I.R.S. employer
classification code number) identification number)
255 FISERV DRIVE
BROOKFIELD, WISCONSIN 53045
(414) 879-5000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
KENNETH R. JENSEN
SENIOR EXECUTIVE VICE PRESIDENT
FISERV, INC.
255 FISERV DRIVE
BROOKFIELD, WISCONSIN 53045
(414) 879-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
____________________
Copies to:
Richard G. Brown, Esquire
Charles W. Sprague Parr, Waddoups, Brown, Gee & Loveless
Fiserv, Inc. Suite 1300
255 Fiserv Drive 185 South State Street
Brookfield, WI 53045 Salt Lake City, UT 84147
(414) 879-5000 (801) 532-7840
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
==========================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE FEE
- -------------------------------------------------------------------------------------------
Common Stock, $.01 par value (3)... 487,210 $51.31 $25,000,000 $7,375 (4)
==========================================================================================
(1) Represents an estimate of the number of shares of Fiserv common stock, $.01
par value, to be issued pursuant to the Agreement and Plan of Merger dated
as of November 4, 1997 among CUSA Technologies, Inc. ("CTI"), Fiserv, Inc.
("Fiserv") and Fiserv Solutions, Inc. ("Merger Agreement"), in exchange for
all of the issued and outstanding shares of common stock of CTI, the actual
number of such issued shares to be determined in accordance with the
Conversion Ratio, as defined in the Merger Agreement.
(2) Pursuant to Rule 457(f)(1) and 457(c) promulgated under the Securities Act
of 1933, as amended, and estimated solely for purposes of calculating the
registration fee, the proposed maximum offering price per share is $51.31,
which equals the average of the high and low prices of common stock of
Fiserv as reported on the NASDAQ National Market on January 21, 1998.
(3) This Registration Statement also includes associated Rights to purchase
shares of the Registrant's Series A Junior Participating Preferred Stock,
which Rights (i) are not currently separable from the shares of common
stock, and (ii) are not currently exercisable. See "Comparison of Rights of
Stockholders of Fiserv and CTI."
(4) Amount previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
FISERV, INC.
Cross-Reference Sheet Pursuant to Item 501(B) of Regulation S-K
ITEM NUMBER LOCATION IN PROXY STATEMENT/PROSPECTUS
- ----------- --------------------------------------
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration
Statement and Outside
Front Cover Page of
Prospectus....................... Facing Page; Outside Front Cover Page.
2. Inside Front and Outside
Back Cover Pages of
Prospectus....................... Inside Front Cover Page; Incorporation
of Certain Documents by Reference;
Available Information; Table of
Contents.
3. Risk Factors, Ratio of
Earnings to Fixed Charges
and Other Information............ Summary; Risk Factors; Fiserv Selected
Financial Data.
4. Terms of the Transaction......... Summary; The Special Meeting; The
Merger; General; Background and Reasons
For the Merger; Recommendation of the
Board of Directors of CTI; Opinion of
CTI's Financial Advisor; Management and
Operations of CTI following the Merger;
The Merger Agreement; Effective Time
and Consequences of the Merger; Merger
Consideration; Holdback; Conversion of
CTI Common Stock; Procedures for
Exchange of Share Certificates;
Representations, Warranties and
Covenants; Federal Income Tax
Consequences of the Merger; Expenses of
the Merger; Conversion of Options to
Purchase CTI Common Stock; Conditions
to the Merger; Amendments and
Termination; No Solicitation;
Accounting Treatment; Resale of Fiserv
Common Stock by Affiliates; Rights of
Dissenting Stockholders; Interests of
Certain Persons in the Merger; Experts;
Appendix A; Appendix B.
5. Pro Forma Financial
Information...................... Comparative Per Share Data of Fiserv
and CTI
6. Material Contracts with
Company Being Acquired........... *
7. Additional Information
Required for Reoffering
by Persons and Parties
Deemed to be Underwriters........ *
8. Interests of Named Experts
and Counsel...................... Legal Matters; Experts.
9. Disclosure of Commission's
Position on Indemnification
for Securities Act
Liabilities...................... *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect
to S-3 Registrants............... Summary; Available Information;
Business and Properties of Fiserv;
Fiserv Selected Financial Data; Fiserv
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.
11. Incorporation of Certain
Information by Reference......... Incorporation of Certain Documents by
Reference.
12. Information with Respect to S-2
or S-3 Registrants............... *
13. Incorporation of Certain
Information by Reference......... *
14. Information with Respect to
Registrants Other Than S-3 or S-2
Registrants...................... *
C. INFORMATION ABOUT CTI
15. Information with Respect to S-3
Companies........................ *
16. Information with Respect to S-2
or S-3 Companies................. *
17. Information with Respect to
Companies Other Than
S-2 or S-3 Companies............. Summary; Available Information;
Comparative Market Prices and
Dividends; CTI Selected Consolidated
Financial Data; CTI Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
CTI's Business; Properties; Legal
Proceedings; CTI Voting Securities and
the Principal Holders Thereof and
Appendix C.
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies,
Consents or Authorizations
are to be Solicited.............. Summary; Incorporation of Certain
Documents by Reference; The Special
Meeting; The Merger; The Merger
Agreement, Effective Time; Consequences
of the Merger, Expenses of the Merger;
and CTI Voting Securities and the
Principal Holders Thereof.
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited, or in an Exchange
Offer............................ *
_______________
* Omitted from Prospectus because item is inapplicable or answer is in the
negative.
CUSA TECHNOLOGIES, INC.
986 WEST ATHERTON DRIVE
SALT LAKE CITY, UT 84123
March __, 1998
TO OUR STOCKHOLDERS:
You are cordially invited to attend a Special Meeting of the stockholders
("CTI Stockholders") of CUSA Technologies, Inc. ("CTI") to be held on April 30,
1998 at 9:00 a.m. local time at CTI's offices at 986 West Atherton Drive, Salt
Lake City, Utah 84123 (the "Special Meeting").
At the Special Meeting, the CTI Stockholders will be asked to consider and
vote upon a proposal to adopt an Agreement and Plan of Merger ("Merger
Agreement") among CTI, Fiserv, Inc. ("Fiserv") and Fiserv Solutions, Inc.
("Fiserv Solutions"), a wholly owned subsidiary of Fiserv. Pursuant to the
Merger Agreement, each outstanding share of common stock, par value $0.001 per
share, of CTI will be converted into shares of Fiserv common stock, par value
$0.01 per share, and CTI will be merged into Fiserv Solutions ("Merger"). The
CTI Stockholders will receive cash in lieu of any fractional shares. Details of
the foregoing proposal and the Special Meeting are contained in the attached
Notice of the Special Meeting of Stockholders and Proxy Statement/Prospectus.
Your vote on the Merger Agreement is important, so please read this information
carefully.
THE BOARD OF DIRECTORS OF CTI BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF CTI AND THE CTI STOCKHOLDERS AND, ACCORDINGLY, HAS UNANIMOUSLY
APPROVED THE MERGER. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
ADOPTION AND APPROVAL OF THE MERGER AGREEMENT. THE BOARD OF DIRECTORS OF CTI
HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND CONDITIONS OF THE PROPOSED
MERGER AND HAS RECEIVED THE OPINION OF HOULIHAN VALUATION ADVISORS THAT, AS OF
NOVEMBER 4, 1997, THE CONSIDERATION TO BE RECEIVED BY CTI STOCKHOLDERS IS FAIR
FROM A FINANCIAL POINT OF VIEW. A COPY OF THE OPINION IS ATTACHED HERETO AS
APPENDIX B. THE CTI SHAREHOLDERS ARE ENCOURAGED TO READ THE OPINION IN ITS
ENTIRETY.
In connection with the Merger Agreement, you should be aware that I, the
undersigned, in my capacity as the controlling shareholder of CTI, have granted
the Board of Directors of Fiserv my irrevocable proxy to vote in favor of
approval of the Merger Agreement. The Merger Agreement, therefore, will be
approved at the Special Meeting, subject to the exercise of dissenters' rights
by any of the CTI Stockholders electing to do so.
Each of the CTI Stockholders is invited to attend the Special Meeting. To
assure your representation at the Special Meeting, please complete, sign, date
and return the accompanying proxy in the enclosed postage prepaid envelope. If
you are able to attend the Special Meeting, you may, if you wish, vote your
shares in person.
Please do not send in your share certificates with your proxy card. After
the effective time of the Merger you will receive a transmittal form and
instructions for the surrender and exchange of your shares.
Sincerely yours,
/s/ Richard N. Beckstrand
Richard N. Beckstrand
Chief Executive Officer (Chairman of the Board)
CUSA TECHNOLOGIES, INC.
986 WEST ATHERTON DRIVE
SALT LAKE CITY, UT 84123
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 30, 1998
To the Stockholders of CUSA Technologies, Inc.:
A special meeting (the "Special Meeting") of the stockholders ("CTI
Stockholders") of CUSA Technologies, Inc., a Nevada corporation ("CTI"), will be
held on April 30, 1998, at 9:00 a.m., local time, at 986 West Atherton Drive,
Salt Lake City, Utah 84123 for the following purposes:
1. Consider and vote upon a single proposal to adopt and approve an Agreement
and Plan of Merger dated as of November 4, 1997 and amended as of December
31, 1997 ("Merger Agreement"), among CTI, Fiserv, Inc., a Wisconsin
corporation ("Fiserv"), and Fiserv Solutions, Inc., a Wisconsin corporation
("Fiserv Solutions"). Pursuant to the Merger Agreement, (i) CTI will be
merged with and into Fiserv Solutions, with Fiserv Solutions being the
surviving corporation and continuing to exist as a wholly owned subsidiary
of Fiserv ("Merger"), and (ii) the shares of common stock, par value $0.001
per share, of CTI ("CTI Common Stock") outstanding immediately prior to the
consummation of the Merger will be exchanged for shares of common stock,
$0.01 par value, of Fiserv ("Fiserv Common Stock") having a market value of
approximately $24,933,500 (measured by the average closing price of Fiserv
Common Stock on the Nasdaq National Market as reported in The Wall Street
Journal for the 20 trading days ending on the second trading day prior to
the effective time of the Merger; provided, however, that the average
closing price shall not exceed $55.594) less CTI's Merger expenses
(estimated at approximately $100,000) or approximately $1.35 per share.
The average closing price of Fiserv Common Stock for the 20 trading days
ending two days prior to the mailing of this Proxy Statement/Prospectus was
$____ per share. Shares of Fiserv Common Stock issuable at the effective
time of the Merger also will be subject to an aggregate holdback of
$3,000,000 (approximately $.17 per share) which shall be placed into escrow
to cover certain specified and unspecified liabilities ("Holdback Claims").
The Holdback Shares shall be distributed, after reduction for the Holdback
Claims, by October 26, 1998 or upon the resolution of the Holdback Claims.
Accordingly, if all of the Holdback Claims are resolved in favor of Fiserv,
the minimum CTI Stock Value assessed to the CTI Stockholders would be
approximately $1.18. The exact exchange ratio for shares of CTI Common
Stock will not be determined at the time of the Special Meeting and will be
determined by a formula which is set forth in detail in the accompanying
Proxy Statement/Prospectus. The parties intend to treat the Merger as a
pooling of interests for accounting purposes. If, prior to the Effective
Time, it is determined that the Merger does not qualify for pooling of
interests treatment under generally accepted accounting principles, then
each outstanding share of CTI Common Stock will be converted into the right
to receive the CTI Stock Value (as defined in the Proxy
Statement/Prospectus) in cash. A copy of the Merger Agreement is attached
as Appendix A to the accompanying Proxy Statement/Prospectus.
2. Transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
Holders of CTI Common Stock are entitled to dissenters' rights in
connection with the Merger. The CTI Board of Directors knows of no business
that will be presented for consideration at the Special Meeting, other than the
matters described in the accompanying Proxy Statement/Prospectus.
UNLESS THE PROPOSAL IS APPROVED BY THE REQUISITE VOTE OF CTI STOCKHOLDERS,
THE MERGER WILL NOT BE CONSUMMATED. RICHARD N. BECKSTRAND, THE CONTROLLING
STOCKHOLDER, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD OF DIRECTORS OF
CTI, HAS GIVEN HIS IRREVOCABLE PROXY IN FAVOR OF APPROVAL OF THE MERGER
AGREEMENT TO THE BOARD OF DIRECTORS OF FISERV, THEREBY ASSURING THAT THE MERGER
AGREEMENT AND THEREFORE THE MERGER, WILL BE APPROVED BY CTI STOCKHOLDERS.
Only holders of record of shares of CTI Common Stock at the close of
business on March 25, 1998 are entitled to notice of and to vote at the Special
Meeting and any adjournment or postponement thereof. The Board of Directors of
CTI unanimously recommends a vote FOR the proposal to approve the Merger
Agreement.
To assure that your vote will be counted, please complete, date and sign
the enclosed proxy card and return it promptly in the enclosed prepaid envelope
whether or not you plan to attend the Special Meeting. Your proxy may be
revoked in the manner described in the accompanying Proxy Statement/Prospectus
at any time before it has been voted at the Special Meeting.
By Order of the Board of Directors,
/s/ Jonathan S. Beckstrand
Jonathan S. Beckstrand
Secretary
March __, 1998
PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY,
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL
MEETING. INSTRUCTIONS FOR EXCHANGING YOUR
CERTIFICATES WILL BE SENT TO YOU FOLLOWING
APPROVAL OF THE MERGER. PLEASE DO NOT
SEND IN ANY CERTIFICATES FOR
YOUR SHARES AT THIS TIME.
CUSA TECHNOLOGIES, INC. FISERV, INC.
PROXY STATEMENT PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the holders of shares
of common stock, par value $.001 per share ("CTI Common Stock"), of CUSA
Technologies, Inc., a Nevada corporation ("CTI"), in connection with the
solicitation of proxies from CTI stockholders ("CTI Stockholders"), for use at a
special meeting of CTI Stockholders (together with any adjournments or
postponements, the "Special Meeting") to be held at CUSA Technologies Inc., 986
West Atherton Drive, Salt Lake City, Utah 84123 on April 30, 1998, at 9:00 a.m.
local time and at any adjournments or postponements thereof.
Only holders of record of shares of CTI Common Stock at the close of
business on March 25, 1998 ("Record Date") are entitled to notice of and to vote
at the Special Meeting. On the Record Date there were 15,289,437 shares of CTI
Common Stock outstanding. This Proxy Statement/Prospectus, the enclosed Notice
of Special Meeting and accompanying proxy card are first being mailed to CTI
Stockholders on or about March __, 1998. This proxy solicitation is made by the
Board of Directors of CTI.
At the Special Meeting, the CTI Stockholders will consider and vote upon a
proposal to approve an Agreement and Plan of Merger dated as of November 4, 1997
and amended as of December 31, 1997, February 27, 1998 and March 19, 1998 (as
amended, the "Merger Agreement"), among CTI, Fiserv, Inc., a Wisconsin
corporation ("Fiserv"), and Fiserv Solutions, Inc., a Wisconsin corporation
("Fiserv Solutions"), which is wholly owned by Fiserv. Pursuant to the Merger
Agreement, (i) CTI will be merged with and into Fiserv Solutions, with Fiserv
Solutions being the surviving corporation ("Surviving Corporation") and
continuing to exist as a wholly owned subsidiary of Fiserv ("Merger"), and (ii)
each share of CTI Common Stock outstanding immediately prior to the consummation
of the Merger will be converted into the right to receive shares of common
stock, $.01 par value, of Fiserv ("Fiserv Common Stock"). Fiserv has agreed to
pay a purchase price for CTI equal to $24,933,500, less certain adjustments for
existing in-the-money options to acquire CTI Common Stock and CTI's Merger
expenses (estimated at $100,000). Options that are not "in-the-money" are not
being included in the conversion formula because they have no current value, and
including such options would result in an increase in the Merger consideration
for securities which represent no value. Fiserv will bear its own expenses in
connection with the Merger. Shares of CTI Common Stock outstanding immediately
prior to the Merger will be exchanged for shares of Fiserv Common Stock having a
value equal to the purchase price described above, measured by the average
closing prices of Fiserv Common Stock for the 20 days ending two days prior to
the Merger; provided, however that the average closing price shall not exceed
$55.594 (the "Average Fiserv Stock Price"). The average closing price of Fiserv
Common Stock for the 20 trading days ending two days prior to the mailing of
this Proxy Statement/Prospectus was $____ per share. On a per share basis, one
share of CTI Common Stock is expected to be worth approximately $1.35, subject
to a holdback of shares of Fiserv Common Stock worth $3,000,000 (approximately
$.17 for each share of CTI Common Stock) ("Holdback Shares") which shall be
placed into escrow to cover certain specified and unspecified liabilities
("Holdback Claims"). See "The Merger--Holdback" for a description of the
specified and unspecified liabilities. The Holdback Shares shall be
distributed, after reduction for the Holdback Claims, by October 26, 1998 or
upon the resolution of the Holdback Claims. Accordingly, if all of the Holdback
Claims are resolved in favor of Fiserv, the minimum value of one share of CTI
Common Stock would be approximately $1.18. The parties intend to treat the
Merger as a pooling of interests for accounting purposes. If the Merger does
not qualify for pooling of interests treatment under generally accepted
accounting principles, then each outstanding share of the CTI Common Stock will
be converted into the right to receive CTI Stock Value in cash. A copy of the
Merger Agreement is attached as Appendix A to the accompanying Proxy
Statement/Prospectus.
The price of $24,933,500 was determined through a series of arms' length
negotiations between CTI and Fiserv. While recent trading prices were a factor
in the determination of that amount, it was determined independently of the
market price of the CTI Common Stock. The price represents on the high end
(assuming no claims are deducted from the Holdback) a $0.60 or 80 percent
premium, and on the low end (assuming the maximum amount of claims ($3,000,000)
are deducted from the Holdback) $0.42 or 56 percent premium over the $0.75
market price of the CTI Common Stock on November 3, 1997, the day before the
Merger was publicly announced. See "The Merger--Merger Consideration" for a
detailed description of the purchase price and exchange ratio.
No fractional shares of Fiserv Common Stock will be issued in the Merger.
In lieu of any fractional shares, each holder of CTI Common Stock who would
otherwise be entitled to receive a fractional share of Fiserv Common Stock
pursuant to the Merger will be paid an amount in cash, without interest, rounded
to the nearest cent, determined by multiplying (i) the per share closing price
of Fiserv Common Stock as reported on NASDAQ on the date of the Effective Time,
by (ii) the fractional interest to which such holder would otherwise be
entitled. Fiserv will make available to Firstar Trust Company, Milwaukee
("Exchange Agent") the cash necessary for this purpose.
This Proxy Statement/Prospectus also constitutes the Prospectus of Fiserv
with respect to the shares of Fiserv Common Stock to be issued to holders of CTI
Common Stock pursuant to the Merger. Fiserv has filed a Registration Statement
on Form S-4 (together with any amendments thereto, the "Registration
Statement"), of which this Proxy Statement/Prospectus forms a part, with the
Securities and Exchange Commission ("Commission") covering the shares of Fiserv
Common Stock to be issued in connection with the Merger.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED IN CONNECTION WITH THE ACQUISITION OF FISERV COMMON
STOCK.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY CTI OR FISERV. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE THE
SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A
PROXY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED HEREBY SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FISERV OR
CTI SINCE THE DATE HEREOF OR THAT THE INFORMATION SET FORTH OR INCORPORATED BY
REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ALL
INFORMATION HEREIN WITH RESPECT TO FISERV AND FISERV SOLUTIONS HAS BEEN
FURNISHED BY FISERV, AND ALL INFORMATION HEREIN WITH RESPECT TO CTI HAS BEEN
FURNISHED BY CTI.
THE SHARES OF FISERV COMMON STOCK TO BE ISSUED PURSUANT TO THE MERGER
AGREEMENT DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is March __, 1998.
ii
AVAILABLE INFORMATION
CTI and Fiserv are subject to the information requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and in accordance
therewith file reports, proxy statements and other information with the
Commission. The reports, proxy statements and other information filed by CTI
and Fiserv with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates and the Regional
Offices of the Commission: Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Shares of Fiserv Common Stock are traded on NASDAQ and shares
of CTI Common Stock are traded on the OTC Bulletin Board. The reports, proxy
statements and other information filed by Fiserv can also be inspected and
copied at the offices of the Nasdaq National Market, 1735 K Street, N.W.,
Washington, D.C. 20006.
Following the Merger, CTI will no longer be required to file periodic
reports, proxy statements or other information with the Commission pursuant to
the Exchange Act. Fiserv has filed with the Commission a Registration Statement
under the Securities Act of 1933, as amended ("Securities Act"), on Form S-4
with respect to the Fiserv Common Stock to be issued pursuant to or as
contemplated by the Merger Agreement.
This Proxy Statement/Prospectus does not contain all the information set
forth in the Registration Statement and the exhibits thereto, certain parts of
which are omitted in accordance with the rules of the Commission. Statements
made in this Proxy Statement/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
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
qualified in its entirety by such reference.
The Registration Statement and any amendments thereto, including
exhibits filed as part thereof, are available for inspection and copying at the
Commission's offices as described above. The Commission also maintains a web
site on the internet at http://www.sec.gov which contains reports, proxy and
information statements and other information regarding CTI and Fiserv.
iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Fiserv (File No. 0-
14948) pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus:
(1) Fiserv's Annual Report on Form 10-K for the year ended December 31,
1997, filed with the Commission on February 20, 1998.
(2) Fiserv's Current Report on Form 8-K dated February 23, 1998, filed with
the Commission on February 24, 1998.
(3) The description of certain Rights to purchase Series A Junior
Participating Preferred Stock, which description is contained in
Fiserv's Registration Statement on Form 8-A, under Section 12(b) of the
Exchange Act, dated February 23, 1998.
All documents and reports subsequently filed with the Commission by Fiserv
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Proxy Statement/Prospectus and prior to the date of the Special Meeting
shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be a part hereof from the date of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST,
WITHOUT CHARGE, IN THE CASE OF DOCUMENTS RELATING TO FISERV, DIRECTED TO FISERV,
INC., 255 FISERV DRIVE, BROOKFIELD, WISCONSIN 53045 (TELEPHONE NUMBER 414-879-
5000), ATTENTION: CHARLES W. SPRAGUE, SECRETARY.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
WHEN USED IN THIS PROXY STATEMENT/PROSPECTUS, THE WORDS "ESTIMATE,"
"PROJECT," "INTEND," "EXPECT" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS. FOR A DISCUSSION OF SUCH RISKS,
SEE "RISK FACTORS," "OPINION OF CTI'S FINANCIAL ADVISOR" AND "CTI MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. NEITHER FISERV NOR CTI
UNDERTAKES ANY OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO THESE FORWARD-
LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR
TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
iv
TABLE OF CONTENTS
PAGE
----
SUMMARY............................................................................. 1
General........................................................................ 1
The Parties.................................................................... 1
The Special Meeting............................................................ 2
The Merger..................................................................... 2
Comparative Share and Dividend Information and Market Prices................... 8
Certain Significant Considerations............................................. 8
Selected Historical Financial Data............................................. 9
Comparative Per Share Data of Fiserv and CTI................................... 11
RISK FACTORS........................................................................ 12
Average Market Prices Will Differ From Actual Market Price..................... 12
Non-Solicitation Provisions May Have a Deterrent Effect........................ 12
Possibility that the CTI Stockholders Could Realize
Greater Value if CTI Were to Continue as a Separate Entity................ 12
Potential for Deduction of Claims from the Holdback............................ 12
Fluctuation of Market Price of Fiserv Common Stock............................. 12
THE SPECIAL MEETING................................................................. 13
Matters to be Considered at the Special Meeting; Quorum and Vote Required...... 13
Record Date; Stock Entitled to Vote............................................ 13
Voting and Revocation of Proxies............................................... 13
Solicitation of Proxies........................................................ 13
THE MERGER.......................................................................... 14
General........................................................................ 14
Background and Reasons for the Merger.......................................... 14
Recommendation of the Board of Directors of CTI................................ 15
Opinion of CTI's Financial Advisor............................................. 16
HVA Analysis................................................................... 17
Analysis of Historical Financial Position................................. 17
Results of Operations..................................................... 18
Comparison of CTI's Financial Performance With the Industry............... 19
Analysis of Recent Transactions in CTI's Common Stock..................... 20
Historical Stock Performance.............................................. 20
Private Placement of Common Stock......................................... 20
Public Market for CTI Common Stock........................................ 21
Analysis of Selected Publicly Traded Companies............................ 21
Premiums Paid Analysis.................................................... 22
Discounted Cash Flow Analysis............................................. 22
Relevant Market and Economic Factors...................................... 22
Management and Operations of CTI Following the Merger.......................... 23
The Merger Agreement........................................................... 23
Effective Time and Consequences of the Merger.................................. 23
Merger Consideration........................................................... 24
Holdback....................................................................... 24
Conversion of CTI Common Stock; Procedures for Exchange of Share Certificates.. 26
Representations, Warranties and Covenants...................................... 26
Federal Income Tax Consequences of the Merger.................................. 26
Conversion of Options to Purchase CTI Common Stock............................. 28
Conditions to the Merger....................................................... 28
v
Amendments and Termination..................................................... 29
No Solicitation................................................................ 29
Expenses of the Merger......................................................... 29
Accounting Treatment........................................................... 29
Resale of Fiserv Common Stock by Affiliates.................................... 29
Rights of Dissenting Stockholders.............................................. 30
Interests of Certain Persons in the Merger..................................... 31
COMPARATIVE MARKET PRICES AND DIVIDENDS............................................. 32
FISERV SUPPLEMENTAL FINANCIAL DATA.................................................. 32
FISERV MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................... 34
Years Ended December 31, 1997, 1996 and 1995................................... 34
BUSINESS OF FISERV.................................................................. 36
CTI SELECTED CONSOLIDATED FINANCIAL DATA............................................ 37
CTI MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................... 38
General........................................................................ 38
Three and Six Months Ended December 31, 1997 Compared to Three
and Six Months Ended December 31, 1996........................................ 38
1997 Compared with 1996........................................................ 40
1996 Compared with 1995........................................................ 41
Year 2000...................................................................... 43
Capital Resources and Liquidity................................................ 43
CTI'S BUSINESS...................................................................... 44
General........................................................................ 44
Focus on the Credit Union Software Market...................................... 44
Private Sale of Common Stock................................................... 45
Principal Products and Services................................................ 45
Distribution................................................................... 48
Manufacturing and Suppliers.................................................... 48
Seasonality.................................................................... 49
Significant Customers.......................................................... 49
Backlog 49
Acquisitions................................................................... 49
Dispositions and Discontinued Operations....................................... 50
Government Reporting........................................................... 52
Competition.................................................................... 52
Copyrights, Trademarks, Patents and Licenses................................... 53
Employees...................................................................... 53
Industry Segments.............................................................. 53
PROPERTIES.......................................................................... 53
LEGAL PROCEEDINGS................................................................... 53
CTI VOTING SECURITIES AND THE PRINCIPAL HOLDERS THEREOF............................. 54
vi
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................... 56
DESCRIPTION OF FISERV COMMON STOCK...................... 56
COMPARISON OF RIGHTS OF STOCKHOLDERS OF FISERV AND CTI.. 57
General............................................ 57
Board of Directors................................. 57
Removal of Directors............................... 58
Limitation on Directors' Liability................. 58
Indemnification of Directors and Officers.......... 58
Dividends.......................................... 59
Cumulative Voting.................................. 59
Rights of Dissenting Stockholders.................. 60
Special Meetings of Stockholders................... 60
Action Without a Stockholder Meeting............... 60
Preemptive Rights.................................. 61
Merger, Consolidation and Sales of Assets.......... 61
Shareholder Rights Agreement....................... 61
LEGAL MATTERS........................................... 61
EXPERTS................................................. 62
STOCKHOLDER PROPOSALS FOR CTI 1998 ANNUAL MEETING....... 62
APPENDIX A Agreement and Plan of Merger
APPENDIX B Opinion of Houlihan Valuation Advisers
APPENDIX C Section 92A.300 et.seq. of Nevada Business Corporation Law
APPENDIX D Consolidated Audited and Unaudited Financial Statements of CTI
vii
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/Prospectus. This summary is necessarily incomplete and
selective and is qualified in its entirety by the more detailed information
contained in this Proxy Statement/Prospectus and particularly in the specific
sections of this Proxy Statement/Prospectus referred to below, the Appendices
hereto and the documents incorporated by reference herein.
GENERAL
This Proxy Statement/Prospectus relates to the proposed Merger among CTI,
Fiserv and Fiserv Solutions pursuant to the Merger Agreement, a copy of which is
attached hereto as Appendix A. Pursuant to the Merger Agreement, CTI
Stockholders will receive Fiserv Common Stock in exchange for all of their
shares of CTI Common Stock. See "The Merger."
THE PARTIES
Fiserv, Inc................... Fiserv, with operations in over 75 cities,
including 15 cities in Canada, England and
Singapore, is a leading independent provider of
financial data processing systems and related
information management services and products to
banks, credit unions, mortgage banks, savings
institutions and other financial intermediaries.
These services and products are based primarily
on proprietary software developed by Fiserv and
maintained on computers located at data
processing centers throughout the United States.
Fiserv is ranked as the nation's leading data
processing provider for banks and savings
institutions in terms of total clients served
and is the nation's second leading data
processing provider for credit unions and
mortgage banks. The Fiserv Securities
Processing Group provides a wide range of
traditional processing and related support
services to support all aspects of a retail
brokerage operation. Fiserv's principal
executive offices are located at 255 Fiserv
Drive, Brookfield, Wisconsin 53045. Its
telephone number is (414) 879-5000. See
"Business of Fiserv."
CUSA Technologies, Inc........ CTI, incorporated in 1986, is a developer of
computerized information systems for credit
unions. CTI's software packages are sold as
part of a complete data processing solution
including hardware, software, operating systems,
installation, training, software support and
hardware maintenance. CTI's PC-based work
station products, which are sold as add-ons to
the core information processing systems, are
designed to increase the accessibility and
usability of strategic information by credit
union employees and members. CTI's data
processing services, such as statement
processing, disaster recovery, credit bureau
reporting, microfiche, and optical storage
complement CTI's core credit union data
processing system products. See "CTI's
Business."
1
THE SPECIAL MEETING
Date, Time and Place of
Special Meeting............... April 30, 1998 at 9:00 a.m., local time at CTI's
offices at 986 West Atherton Drive, Salt Lake
City, Utah.
Purpose of Special Meeting.... To consider and vote upon a proposal to approve
the Merger Agreement, pursuant to which CTI will
merge into Fiserv Solutions, a wholly owned
subsidiary of Fiserv, and Fiserv Solutions will
be the Surviving Corporation and will continue
to exist as a wholly owned subsidiary of Fiserv.
See "The Merger."
Record Date................... CTI Stockholders of record on March 25, 1998
will be entitled to vote at the Special Meeting.
On March 25, 1998, there were 15,289,437 shares
of CTI Common Stock outstanding with each share
of CTI Common Stock entitled to cast one vote
with respect to the proposal to approve the
Merger Agreement.
Quorum; Vote Required......... The presence, in person or by proxy, of the
holders of a majority of the outstanding shares
of CTI Common Stock at the Special Meeting is
necessary to constitute a quorum at the Special
Meeting. Approval of the Merger Agreement
requires the affirmative vote of a majority of
the issued and outstanding shares of CTI Common
Stock. See "The Special Meeting--Matters to be
Considered at the Special Meeting; Quorum and
Vote Required."
Irrevocable Proxy............. Richard N. Beckstrand, the controlling
stockholder, chief executive officer and
chairman of the Board of Directors of CTI
("Majority Stockholder"), has granted an
irrevocable proxy in favor of approval of the
Merger Agreement to the Board of Directors of
Fiserv, thereby assuring that the Merger
Agreement, and therefore the Merger, will be
approved by CTI Stockholders, subject to the
exercise of dissenter's rights of appraisal by
any CTI Stockholder electing to do so.
THE MERGER
Effect of the Merger.......... The Merger Agreement (attached as Appendix A to
this Proxy Statement/Prospectus) provides for
the merger of CTI with and into Fiserv
Solutions, a wholly owned subsidiary of Fiserv,
with Fiserv Solutions as the Surviving
Corporation which will continue to exist as a
wholly owned subsidiary of Fiserv. It is
presently contemplated that the Effective Time
of the Merger will be April 30, 1998 or such
other date as the parties may agree. See "The
Merger."
2
Merger Consideration.......... Each outstanding share of CTI Common Stock will
be converted into the right to receive shares of
Fiserv Common Stock. Fiserv has agreed to pay a
purchase price for CTI equal to $24,933,500,
less certain adjustments for existing in-the-
money options to acquire CTI Common Stock and
CTI's Merger expenses (estimated at $100,000).
Options that are not "in-the-money" are not
being included in the conversion formula because
they have no current value, and including such
options would result in an increase in the
Merger consideration for securities which
represent no value. Fiserv will bear its own
expenses in connection with the Merger. Shares
of CTI Common Stock outstanding immediately
prior to the Merger will be exchanged for shares
of Fiserv Common Stock having a value equal to
the purchase price described above, measured by
the average closing prices of Fiserv Common
Stock for the 20 days ending two days prior to
the Merger; provided, however, that the average
closing price shall not exceed $55.594. The
average closing price of Fiserv Common Stock for
the 20 trading days ending two days prior to the
mailing of this Proxy Statement/Prospectus was
$_____ per share. On a per share basis, one
share of CTI Common Stock is expected to be
worth approximately $1.35, subject to a holdback
of shares of Fiserv Common Stock worth
$3,000,000 (approximately $.17 for each share of
CTI Common Stock) ("Holdback Shares") which
shall be placed into escrow to cover certain
specified and unspecified liabilities ("Holdback
Claims"). See "The Merger--Holdback" for a
description of the specified and unspecified
liabilities. The Holdback Shares shall be
distributed, after reduction for the Holdback
Claims, by October 26, 1998 or upon the
resolution of the Holdback Claims. Accordingly,
if all of the Holdback Claims are resolved in
favor of Fiserv, the minimum value of one share
of CTI Common Stock would be approximately
$1.18. The parties intend to treat the Merger as
a pooling of interests for accounting purposes.
If the Merger does not qualify for pooling of
interests treatment under generally accepted
accounting principles, then each outstanding
share of the CTI Common Stock will be converted
into the right to receive the purchase price in
cash. A copy of the Merger Agreement is attached
as Appendix A to the accompanying Proxy
Statement/Prospectus. No fractional shares of
Fiserv Common Stock will be issued in the
Merger. In lieu of any fractional shares, each
holder of CTI Common Stock who would otherwise
be entitled to receive a fractional share of
Fiserv Common Stock pursuant to the Merger will
be paid an amount in cash, without interest,
rounded to the nearest cent, determined by
multiplying (i) the per share closing price of
Fiserv Common Stock as reported on NASDAQ on the
date of the Effective Time, by (ii) the
fractional interest to which such holder would
otherwise be entitled. Fiserv will make
available to the Exchange Agent the cash
necessary for this purpose.
3
Set forth below are examples of the conversion
of CTI Common Stock into Fiserv Common Stock.
Average Closing Shares of Fiserv Common Stock
Price of Fiserv Received for each share of CTI
Common Stock Common Stock with Holdback of:
--------------- ------------------------------
$ 0 $1,500,000 $3,000,000
------ ---------- ----------
$55.594... .024231 .022769 .021306
52.00.... .025906 .024343 .022779
48.00.... .028064 .026371 .024677
44.00.... .030616 .028768 .026920
CTI Stockholders may call CTI's Investor
Relations Department at (800) 367-2872 to
request information with regards to the Merger,
including up to date information regarding the
Exchange Ratio.
Holdback..................... Receipt of the Merger Consideration is subject
to an aggregate holdback of the Holdback Shares
in respect of the Holdback Claims to be
distributed in one or more portions upon the
later of October 26, 1998 or the resolution of
the Holdback Claims. See "The Merger--The
Merger Agreement," "The Merger--Merger
Consideration," "The Merger--Holdback" and
Appendix A -Agreement and Plan of Merger.
Recommendation of CTI's Board
of Directors................. The Board of Directors of CTI believes that the
Merger is desirable and in the best interests of
CTI Stockholders and, accordingly, unanimously
recommends that the CTI Stockholders vote in
favor of the approval of the Merger Agreement.
The Board of Directors' recommendation is based
upon a number of factors discussed in this Proxy
Statement/ Prospectus and upon the opinion of
Houlihan Valuation Advisors ("HVA") referred to
below. See "The Merger--Background and Reasons
for the Merger," "The Merger--Recommendation of
the Board of Directors of CTI," "The Merger--
Opinion of CTI's Financial Advisor" and Appendix
B.
Opinion of CTI's Financial
Advisor...................... As of November 4, 1997, HVA rendered its
opinion to the Board of Directors of CTI to the
effect that, as of such date, the aggregate
consideration to be received by CTI Stockholders
pursuant to the Merger is fair, from a financial
point of view, to such holders. The full text of
the written opinion of HVA, confirmed as of the
date of this Proxy Statement/Prospectus, which
sets forth the assumptions made, matters
considered and limitations on the review
undertaken, is attached as Appendix B to this
Proxy Statement/Prospectus and should be read
carefully in its entirety. HVA's opinion is
directed only to the fairness of the aggregate
consideration from a financial point of view,
does not address any other aspect of the Merger
or related transactions and does not constitute
a recommendation to any Stockholder as to how
such Stockholder should vote at the Special
Meeting. See "The Merger--Opinion of CTI's
Financial Advisor" and Appendix B.
4
Management and Operations of
CTI after the Merger......... Following the Merger, CTI will be merged with
and into Fiserv Solutions, a wholly owned
subsidiary of Fiserv, which will be the
Surviving Corporation. George D. Dalton,
Chairman of the Board of Fiserv, Leslie M. Muma,
Vice Chairman and President of Fiserv, Donald F.
Dillon, Vice Chairman of Fiserv, and Kenneth R.
Jensen, Senior Executive Vice President and
Chief Financial Officer of Fiserv, will remain
the directors of the Surviving Corporation.
All other persons who will become the officers
of the Surviving Corporation are currently
officers and directors of Fiserv. Information
about such persons is incorporated by reference
to Fiserv's Annual Report on Form 10-K for the
year ended December 31, 1997. Fiserv intends to
operate the Surviving Corporation as an
independent subsidiary after the Merger and has
no present intention to move or consolidate any
of the operations of the Surviving Corporation
or its subsidiaries or to change the name of any
of its subsidiaries. See "The Merger--
Management and Operations of CTI Following the
Merger."
Interests of Certain Persons
in the Merger................ In the Merger Agreement, Fiserv has agreed (1)
to assume all outstanding options granted under
CTI's stock option plans, (2) to pay a retention
bonus to certain members of CTI's senior
management team in consideration for the
reduction in the term of each such senior
manager's employment agreement from five to two
years and (3) to modify the Employment Agreement
("Employment Contract") of the Majority
Shareholder to provide for the payment of
$240,000 in consideration of (i) an extension of
the non competition provisions of the Employment
Contract from one to three years and ii) a
modification of the termination provisions of
the Employment Contract to eliminate CTI's
obligation to provide notice and pay a $320,000
severance payment upon termination or a change
in control of CTI. Additionally, the four
current members of the Board of Directors of
CTI, will receive $10,000 each in consideration
of services to be rendered after the Effective
Date as representatives of the CTI Stockholders
in matters related to the Holdback. See "The
Merger--Interests of Certain Persons in the
Merger," "The Merger--Holdback" and "The Merger-
-The Merger Agreement."
Federal Income Tax Consequences The Merger Agreement provides that, for
federal income tax purposes, CTI and Fiserv
intend that the Merger constitute a tax-free
"reorganization" within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(D) of the United
States Internal Revenue Code of 1986, as amended
("Code"). CTI and Fiserv intend to treat the
Merger as a tax-free reorganization in their
federal income tax returns. In the event that
certain guidelines of the Internal Revenue
Service are not satisfied, it is possible the
Internal Revenue Service could challenge the tax
treatment of the Merger as a tax-free
reorganization.
5
If, as of the Effective Time, Fiserv is not
satisfied that the Merger can be accounted for
as a "pooling of interests" for accounting
purposes, then Fiserv will change the Merger
consideration from all stock to all cash and the
Merger will not be treated as a Tax-Free
Reorganization.
THE FOREGOING SUMMARY IS NOT INTENDED, AND
SHOULD NOT BE CONSIDERED, AS TAX ADVICE.
HOLDERS OF CTI COMMON STOCK ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES TO THEM UNDER APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX LAWS. For
additional information, see "The Merger--Federal
Income Tax Consequences of the Merger."
Conditions to the Merger..... The obligations of Fiserv and CTI to consummate
the Merger are subject to the satisfaction or
waiver (to the extent available) of certain
conditions set forth in the Merger Agreement
including, but not limited to, (i) the
affirmative vote of the CTI Stockholders, (ii)
the redemption prior to the Effective Time, by
CTI, of its 1994 Series Preferred Stock, (iii)
the disposition prior to the Effective Time, by
CTI, of its surgery center business unit, (iv)
the exercise, by the Majority Stockholder, of
his option to purchase 1,000,000 shares of CTI
common stock for a price of $1.00 per share, and
(v) the receipt by the CTI Board of Directors of
an opinion from HVA that the consideration to be
received in the Merger is fair from a financial
point of view to the CTI Stockholders. See "The
Merger--The Merger Agreement."
Termination of Merger
Agreement.................... The Merger Agreement may be terminated by
(i) the mutual consent of CTI and Fiserv
Solutions, (ii) either party if the Effective
Time shall not have occurred on or before May 8,
1998, and (iii) in certain other situations.
See "The Merger--Termination."
No Solicitation.............. CTI has agreed that from the execution of the
definitive agreement until May 8, 1998, subject
to its fiduciary obligations, it will not
solicit, directly or indirectly, any proposal or
offer to acquire all or any significant part of
its business and properties or its capital
stock. See "The Merger--The Merger Agreement"
and "The Merger--No Solicitation."
Accounting Treatment......... It is anticipated that the Merger will be
accounted for as a "pooling of interests" under
Accounting Principles Board Opinion No. 16. If
the Merger cannot be accounted for as a "pooling
of interests" for accounting purposes then the
Merger Consideration will be changed from all
stock to all cash and the Merger will not be
treated as a tax-free reorganization. See "The
Merger--Accounting Treatment."
6
Exchange of CTI Stock
Certificates................. Promptly after the Effective Time, Firstar
Trust Company, Milwaukee, as exchange agent
("Exchange Agent"), will mail to each CTI
Stockholder a letter of transmittal and
instructions for exchanging such holder's
certificates to certificates representing the
shares of Fiserv Common Stock to which such
holders are entitled, subject to the Holdback.
Upon the Effective Time, the Holdback Shares
will be issued in the name of the Escrow Agent.
The Holdback Shares will be distributed to the
CTI Stockholders upon the later of October 26,
1998 or the resolution of the Holdback Claims
after the deduction of amounts in respect of the
Holdback Claims. CTI Stockholders should not
send their certificates to the Exchange Agent
until they receive such instructions. See "The
Merger--The Merger Agreement" and "The Merger--
Conversion of CTI Common Stock; Procedures for
Exchange of Share Certificates."
Effect of the Merger on
Rights of Stockholders....... Fiserv is a Wisconsin corporation; CTI is a
Nevada corporation. For a comparison of
Wisconsin and Nevada laws and of the charter and
bylaw provisions of Fiserv and CTI governing the
rights of Fiserv shareholders and CTI
stockholders, respectively, see "Comparison of
Rights of Stockholders of Fiserv and CTI."
Dissenters' Rights........... The CTI Stockholders shall have dissenters' and
appraisal rights to the extent granted by Nevada
law. The obligation of Fiserv to consummate the
merger is subject to the satisfaction or waiver
of a condition requiring that no more than five
percent of the CTI Common Stock shall have
exercised dissenters' rights in connection with
the Merger. See "The Merger--Rights of
Dissenting Stockholders" and "Comparison of
Rights of Stockholders of Fiserv and CTI."
Resale Restrictions.......... All shares of Fiserv Common Stock received by
CTI Stockholders will be freely tradeable,
except the Fiserv Common Stock received by
persons who are deemed to be "affiliates" (as
such term is defined in the Securities Act) of
CTI or Fiserv at the time of the Special Meeting
may be resold by them only in certain permitted
circumstances under the Securities Act, other
applicable securities laws and rules related to
pooling of interests accounting treatment. See
"The Merger--Resale of Fiserv Common Stock by
Affiliates."
7
COMPARATIVE SHARE AND DIVIDEND INFORMATION
AND MARKET PRICES
Fiserv Common Stock Outstanding ___________ shares as of March __, 1998.
Fiserv Dividends............... No dividends on the Fiserv Common Stock have
been paid. See "Comparative Market Prices and
Dividends."
CTI Common Stock Outstanding.. 15,289,437 shares as of March ___, 1998.
CTI Dividends................. No dividends on the CTI Common Stock have
been paid. See "Comparative Market Prices and
Dividends."
Market Price Data............. The Fiserv Common Stock (Nasdaq Symbol:
FISV) is traded on NASDAQ. The CTI Common
Stock (OTCBB Symbol: CSAT) is traded on the
OTC Bulletin Board. The following table sets
forth for the calendar periods indicated, the
closing price per share of Fiserv Common
Stock and CTI Common Stock as reported by
NASDAQ and the OTC Bulletin Board.
FISERV CTI
COMMON STOCK COMMON STOCK
--------------------- ---------------
HIGH LOW HIGH LOW
-------- --------- -------- -----
1996:
Quarter Ended March 31, $32 $25 3/8 $6 $4
Quarter Ended June 30, 33 3/8 28 1/16 4 1/4 3
Quarter Ended September 30, 38 11/16 28 5/8 4 1 1/8
Quarter Ended December 31, 39 5/8 34 2 1/2 7/16
1997:
Quarter Ended March 31, $39 $32 3/4 $1 1/8 $ 1/2
Quarter Ended June 30, 44 5/8 36 3/4 5/8 3/8
Quarter Ended September 30, 49 1/2 43 7/8 1 7/32 7/16
Quarter Ended December 31, 50 1/8 39 3/4 1 3/16 9/16
1998:
Quarter Ended March 31, $_____ $_____ $_____ $____
(through March , 1998)
On November 3, 1997, the last full trading day prior to the joint public
announcement that CTI and Fiserv had executed the Merger Agreement, the closing
prices per share of Fiserv Common Stock and CTI Common Stock as reported by
NASDAQ and the OTC Bulletin Board were $43 15/16 and $ 3/4, respectively. On
March __, 1998, the closing prices per share of Fiserv Common Stock and CTI
Common Stock as reported by NASDAQ and the OTC Bulletin Board were $_____ and
$__, respectively. See "Comparative Market Prices and Dividends." CTI
Stockholders are urged to obtain current market quotations for shares of Fiserv
Common Stock and CTI Common Stock.
CERTAIN SIGNIFICANT CONSIDERATIONS
In considering whether to approve the Merger Agreement, CTI Stockholders
should consider the following: (i) the Conversion Ratio will be determined based
upon the Average Fiserv Stock Price; and (ii) the price of Fiserv Common Stock
at the Effective Time can be expected to vary from the Average Fiserv Stock
Price as well as from the prices as of the date of this Proxy
Statement/Prospectus and the date on which CTI Stockholders vote on the Merger
Agreement due to changes in the business, operations or prospects of Fiserv,
market assessments of the likelihood that the Merger will be consummated and the
time thereof, general market and economic conditions, and other factors. See
"Summary--The Merger," "Comparative Market Prices and Dividends" and "Risk
Factors."
8
SELECTED HISTORICAL FINANCIAL DATA
The following tables present selected historical information for Fiserv and
CTI derived from the historical consolidated financial statements of CTI and of
Fiserv, which in the case of Fiserv, are incorporated by reference herein.
The selected financial data presented below should be read in conjunction
with such financial statements and the notes thereto. The historical financial
data at and for each year in the five-year period ended December 31, 1997 have
been extracted from Fiserv's audited financial statements and reports filed with
the Commission. See "Incorporation of Certain Documents by Reference." The
selected consolidated historical financial data at and for each year in the five
year period ended June 30, 1997 have been extracted from CTI's consolidated
financial statements which have been audited by independent public accountants.
The unaudited selected consolidated historical financial data at and for six
months ended December 31, 1996 and 1997 have been extracted from CTI's unaudited
consolidated financial statements which were filed with the Commission on
February 17, 1998 as part of CTI's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1997.
FISERV SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1993 1994 1995(1) 1996 1997
---------- ---------- ------------- ---------- ----------
INCOME STATEMENT DATA:
Revenues..................... $ 519,996 $ 635,297 $ 769,104 $ 879,449 $ 974,432
Income (loss) before taxes... 70,832 84,098 (76,146) 134,462 153,899
Net income (loss)............ 43,725 51,031 (45,926) 79,708 90,800
Net income (loss) per
common share:
Basic.................... $ 0.98 $ 1.10 $ (0.93) $ 1.56 $ 1.75
Diluted.................. 0.96 1.08 (0.93) 1.53 1.70
Common shares used in
computing net income
(loss ) per:
Basic.................... 44,749 46,583 49,348 50,993 52,009
Diluted.................. 45,575 47,364 49,348 52,046 53,528
Cash dividends declared per
common share............... -- -- -- -- --
BALANCE SHEET DATA:
Total assets................. $1,874,939 $2,204,832 $2,514,597 $2,698,979 $3,636,491
Long-term debt............... 124,624 150,599 383,416 272,864 252,031
Shareholders' equity......... 370,740 425,389 514,866 605,898 769,255
Book value per Common
share.................... $ 7.85 $ 9.01 $ 9.92 $ 11.72 $ 14.26
- ---------------------
(1) 1995 includes certain charges related to the acquisition of Information
Technology, Inc. ("ITI"). The charges are a pre-tax special, one-time,
non-cash charges of $173 million to expense the purchased ITI Premier II
research and development and a pre-tax charge of $9.9 million for the
accelerated amortization of the completed ITI Premier I software. The
combined after tax charge was $109.6 million ($2.18 per share-diluted).
Net income and net income per share-diluted before such charges were $63.7
million and $1.27, respectively.
9
CTI SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
AS OF AND FOR THE
SIX MONTHS ENDED
AS OF AND FOR THE YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------------------------------- ------------------
1993(1) 1994(1)(3) 1995(4) 1996(4) 1997 1996 1997
---------- ------------ ----------- ----------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Net revenue....................... 0 0 $21,608 $26,823 $26,890 $12,664 $13,583
Earnings (loss) from
continuing operations........... 0 0 925 (9,554) 437 (680) 1,302
Earnings (loss) from continuing
operations per common share:
Basic........................... 0 0 $ 0.12 $ (1.10) $ 0.04 $ (0.08) $ 0.08
Diluted......................... 0 0 0.12 (1.10) 0.04 (0.08) 0.08
Weighted average shares
outstanding:
Basic........................... 1,589 2,419 7,655 8,695 11,062 8,918 15,289
Diluted......................... 1,589 2,419 7,655 8,695 11,062 8,918 16,289
Cash dividends per common share... -- -- -- -- -- -- --
BALANCE SHEET DATA(2):
Total assets...................... $ 189 $12,403 $26,090 $14,025 $ 9,739 $13,529 $11,124
Long-term obligations............. 0 1,766 3,224 3,070 118 2,589 58
Stockholders' equity (deficit).... 176 4,180 9,921 (6,236) (1,949) (7,280) (696)
Book value per common share....... $0.11 $0.89 $ 1.17 ($0.70) ($0.13) ($0.82) ($0.05)
Shares of CTI common stock
outstanding................... 1,589 4,739 8,510 8,916 15,289 8,916 15,289
- ---------------------
(1) On June 22, 1994, CTI entered into the credit union software business
through the purchase of the credit union division of VERSYSS Incorporated
and the acquisition of CUSA, Inc. Also, on January 22, 1994, CTI purchased
an office rental complex located in Sparks, Nevada. Prior to its entering
into the credit union software business, CTI's operations consisted of a
free standing surgery center located in Sparks, Nevada. CTI's surgery center
operations were discontinued in fiscal 1997. Since none of the operations
existing prior to CTI's entrance to the credit union software business were
continuing operations as of June 30, 1997, no Statement of Operations Data
is presented for the period from July 1, 1993 to June 22, 1994.
Additionally, the operations of the VERSYSS credit union division, CUSA,
Inc. and the Sparks office rental complex, from June 22, 1994 to June 30,
1994 were insignificant and are not presented.
(2) The total assets and long term liabilities as of the periods presented
include some assets and long term liabilities which were discontinued in
fiscal 1997.
(3) The Balance Sheet Data as of June 30, 1994 reflects the assets and
liabilities of the credit union software businesses acquired on June 22,
1994.
(4) The Statement of Operations Data for the periods ending June 30, 1995 and
1996 include the results from the continuing operations (credit union
software business) of the businesses acquired in fiscal 1995 and 1996,
respectively, from the acquisition dates. See "CTI's Business--
Acquisitions."
10
COMPARATIVE PER SHARE DATA OF FISERV AND CTI
Presented below is historical comparative per share data of Fiserv and CTI
for earnings from continuing operations, cash dividends and net book value.
Also presented below are the equivalent per share amounts for CTI which adjust
the historical Fiserv amounts to reflect the exchange ratio of Fiserv shares for
CTI shares contemplated in the Merger. For the purposes of the comparison
below, the exchange ratio was assumed to be 0.0245 shares of Fiserv Common Stock
for each share of CTI Common Stock. Pro forma amounts for Fiserv have been
omitted because the effects of the Merger on Fiserv's earnings from continuing
operations and net book value per share are not significant.
FISERV, INC.
AS OF AND FOR THE
YEAR ENDED DECEMBER 31,
--------------------------
1995(1) 1996 1997
--------- ------ ------
PER SHARE DATA:
Net income (loss) - diluted.. $(0.93) $ 1.53 $ 1.70
Cash dividends............... 0 0 0
Book value................... $ 9.92 $11.72 $14.26
CUSA TECHNOLOGIES, INC.
AS OF AND FOR THE
AS OF AND FOR THE SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------------- -----------------
1995 1996 1997 1997
------ ------- ------ ------------------
(UNAUDITED)
PER SHARE DATA:
Earnings (loss) from continuing operations.... $0.12 $(1.10) $ 0.04 $ 0.08
Earnings adjusted for the exchange ratio (2).. 0.03 (0.02) 0.04 0.04
Cash dividends................................ 0 0 0 0
Cash dividends adjusted for
exchange ratio (2)........................... 0 0 0 0
Book value per common share................... $1.17 $(0.70) $(0.13) $(0.05)
Book value per common share adjusted for the
exchange ratio (2)........................... - - 0.29 0.35
- ---------------------
(1) The per share values for Fiserv as of and for the year ended December 31,
1995 include certain charges related to the acquisition of Information
Technology, Inc. ("ITI"). The charges are a pre-tax special, one-time,
non-cash charge of $173 million to expense the purchased ITI Premier II
research and development and a pre-tax charge of $9.9 million for the
accelerated amortization of the completed ITI Premier I software. The
combined after tax charge was $109.6 million ($2.18 per share). Net income
and net income per share before such charges were $63.7 million and $1.27,
respectively.
(2) Fiserv amounts (years ended December 31, 1994, 1995, 1996 and 1997,
respectively) multiplied by 0.0245, the assumed exchange ratio using a
Fiserv share value of $55. The actual exchange ratio may be different, as
it will be determined using the Average Fiserv Stock Value.
11
RISK FACTORS
The following factors should be considered carefully by CTI Stockholders in
connection with voting on the Merger and the receipt of Fiserv Common Stock by
CTI Stockholders as a result thereof. These factors should be considered in
conjunction with the other information included or incorporated by reference in
this Proxy Statement/Prospectus.
AVERAGE MARKET PRICES WILL DIFFER FROM ACTUAL MARKET PRICE
In considering whether to approve the Merger Agreement, CTI Stockholders
should consider the following: (i) the Conversion Ratio will be determined based
upon the Average Fiserv Stock Price; (ii) the price of Fiserv Common Stock at
the Effective Time can be expected to vary from the Average Fiserv Stock Price
as well as from the prices as of the date of this Proxy Statement/Prospectus and
the date on which CTI Stockholders vote on the Merger Agreement due to changes
in the business, operations or prospects of Fiserv, market assessments on the
likelihood that the Merger will be consummated and the time thereof, general
market and economic conditions, and other factors, and (iii) the price of Fiserv
Common Stock after the Effective Time can be expected to vary due to changes in
the business, operations or prospects of Fiserv, market assessments of the
Merger, general market and economic conditions, and other factors. See
"Summary--The Merger" and "Comparative Market Prices and Dividends."
NON-SOLICITATION PROVISIONS MAY HAVE A DETERRENT EFFECT
CTI agreed that from the execution of the definitive agreement until May 8,
1998, subject to its fiduciary obligations, it will not solicit, directly or
indirectly, any proposal or offer to acquire all or any significant part of its
business and properties or its capital stock (a "CTI Acquisition Proposal").
These provisions in the Merger Agreement may have the effect of discouraging an
attempt by a third party to engage in certain acquisition transactions with CTI.
See "The Merger--The Merger Agreement" and "The Merger--No Solicitation."
POSSIBILITY THAT THE CTI STOCKHOLDERS COULD REALIZE GREATER VALUE IF CTI WERE TO
CONTINUE AS A SEPARATE ENTITY
In the past year, CTI's management has elected to focus its efforts on the
credit union software business. Since this change in focus, the results from
operations have improved significantly. Management expects a continuing
improvement in CTI's results of operations. The potential increase in
shareholder value which might result from increased revenues and income from
continuing operations may not be fully reflected in the exchange value of the
Fiserv Common Stock received by CTI Stockholders.
POTENTIAL FOR DEDUCTION OF CLAIMS FROM THE HOLDBACK
The Merger Agreement provides for a Holdback of Fiserv Common Stock worth
$3,000,000 in respect of certain specified liabilities to the extent that such
liabilities exceed $825,067 and non customer claims which are raised on or
before October 16, 1998. There is a possibility that some or all of the
$3,000,000 could be used to satisfy the Holdback Claims. Assuming that all of
the Holdback Shares were used to cover the Holdback Claims, the Merger
Consideration per share of CTI Common Stock would be reduced from an estimated
$1.35 to $1.18.
FLUCTUATION OF MARKET PRICE OF FISERV COMMON STOCK
As noted in "Summary--Comparative Share and Dividend Information and Market
Prices," the Market Value of Fiserv Common Stock has varied between $46 1/2 and
$_____ per share since January 1, 1998. To the extent that the Average Fiserv
Stock Price is greater than $55.594 prior to the Effective Time, CTI
Stockholders will receive the same number of shares of Fiserv Common Stock
pursuant to the Conversion Ratio as if the Average Fiserv Stock Price was equal
to $55.594. Conversely, to the extent the Average Fiserv Stock Price is less
than $55.594 prior to the Effective Time, CTI Stockholders will receive a
greater number of shares of Fiserv Common Stock pursuant to the Conversion
Ratio. See "The Merger--Merger Consideration."
12
THE SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to CTI Stockholders in
connection with the solicitation of proxies by the Board of Directors of CTI
from holders of CTI Common Stock for use at the Special Meeting. This Proxy
Statement/Prospectus, Notice of Special Meeting and proxy card are first being
mailed to CTI Stockholders on or about March __, 1998.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING; QUORUM AND VOTE REQUIRED
At the Special Meeting, the CTI Stockholders will be asked to consider and
vote upon a proposal to approve the Merger Agreement, pursuant to which CTI will
be merged with and into Fiserv Solutions. Fiserv Solutions will be the
Surviving Corporation and will continue to exist as a wholly owned subsidiary of
Fiserv, and CTI Stockholders will receive shares of Fiserv Common Stock in
exchange for shares of CTI Common Stock they own. See "The Merger." The
presence, in person or by proxy, of the holders of a majority of the outstanding
shares of CTI Common Stock at the Special Meeting is necessary to constitute a
quorum at the Special Meeting. Abstentions and broker non-votes will be
included in determining the presence of a quorum, but will not count as votes
cast. The affirmative vote of a majority of the outstanding shares of CTI
Common Stock, either in person or by proxy, is required for approval of the
Merger Agreement. For purposes of the vote, the effect of any abstention or
broker non-votes will be tantamount to a vote against the Merger Agreement.
THE MAJORITY STOCKHOLDER HAS GRANTED AN IRREVOCABLE PROXY IN FAVOR OF
APPROVAL OF THE MERGER AGREEMENT TO THE BOARD OF DIRECTORS OF FISERV, THEREBY
ASSURING THAT THE MERGER AGREEMENT, AND THEREFORE THE MERGER, WILL BE APPROVED
BY THE CTI STOCKHOLDERS.
RECORD DATE; STOCK ENTITLED TO VOTE
Each share of CTI Common Stock outstanding on the Record Date is entitled
to be voted at the Special Meeting. Holders of record of CTI Common Stock at
the close of business on March 25, 1998, the Record Date, are entitled to one
vote per share. There were 15,289,437 shares of CTI Common Stock issued and
outstanding on the Record Date.
VOTING AND REVOCATION OF PROXIES
Proxies in the accompanying form, properly executed, duly returned to CTI
and not revoked will be voted in the manner specified thereon. If no
specification is made in a proxy returned for the Special Meeting, such proxy
will be voted FOR the adoption and approval of the Merger Agreement. A CTI
Stockholder who gives a proxy may revoke it at any time before it is voted by
filing with the Secretary of CTI a written instrument stating that the proxy is
revoked or by submitting a duly executed proxy bearing a later date. Any CTI
Stockholder who attends the Special Meeting and desires to vote in person may
revoke the proxy and vote at the Special Meeting. Presence at the Special
Meeting does not of itself revoke a proxy. The management of CTI is not aware
of any matters to be presented at the Special Meeting other than the approval of
the Merger Agreement. If any other matters are properly presented at the
Special Meeting, the persons named in the accompanying proxy card will have
discretionary authority to vote thereon according to their best judgment.
SOLICITATION OF PROXIES
Solicitation of proxies for use at the Special Meeting may be made in
person or by mail, telephone, telecopy or telegram. CTI will bear the cost of
the solicitation of proxies from its Stockholders. In addition to solicitation
by mail, the directors, officers and employees of CTI may solicit proxies from
CTI stockholders by telephone or telegram or in person. Such directors,
officers and employees will not be compensated for such solicitation. CTI has
requested that banking institutions, brokerage firms, custodians, trustees,
nominees and fiduciaries forward solicitation materials to the beneficial owners
of CTI Common Stock held of record by such entities, and CTI will, upon the
request of such record holders, reimburse reasonable forwarding expenses.
CTI STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES REPRESENTING SHARES OF
CTI COMMON STOCK WITH THEIR PROXY CARDS.
13
THE MERGER
GENERAL
The Merger Agreement (attached as Appendix A to this Proxy
Statement/Prospectus) provides for the Merger of CTI with and into Fiserv
Solutions. Fiserv Solutions will be the Surviving Corporation and will carry on
the business of CTI as a wholly owned subsidiary of Fiserv. Each outstanding
share of CTI Common Stock will be converted into Fiserv Common Stock at the
Conversion Ratio. Assuming an Average Fiserv Stock Price of $55.594 (which is
being used because the average closing price of Fiserv Common Stock, as reported
on NASDAQ for the 20 trading days ended March __, 1998 exceeds $55.594), this
will result in the present CTI Stockholders owning approximately one percent of
the outstanding Fiserv Common Stock, subject to the Holdback. It is presently
contemplated that the Effective Time of the Merger will be April 30, 1998 or
such other date as the parties may agree.
BACKGROUND AND REASONS FOR THE MERGER
Fiserv, through its Summit and Galaxy business units, and CUSA, Inc., the
credit union software developer acquired by CTI in June 1994, have been
competitors in the credit union computer data processing industry for over ten
years. In early June 1997, representatives of CTI met with representatives of
Fiserv to discuss recent competition between the parties in the Central American
data processing market. Two weeks later, the parties met again to discuss a
joint venture in the Central American credit union data processing market. At
the second meeting it became apparent to both parties that the consideration of
a CTI/Fiserv merger would be favorable. On June 17, 1997 the parties entered
into a confidentiality agreement and began to exchange due diligence
information. Once formal talks with Fiserv started, representatives of CTI's
Board of Directors identified and initiated contact with other companies that
were likely to be interested in and able to consummate a financially attractive
strategic combination with CTI.
On July 15, 1997, representatives of Fiserv and CTI met at CTI's corporate
offices in Salt Lake City to perform on site due diligence and to discuss the
synergistic benefits of and a framework for a possible combination of the
businesses of CTI and Fiserv. After two days of meetings, the parties began to
exchange information regarding the valuation of CTI in a merger transaction.
Additional due diligence information was exchanged and, on August 4, 1997
representatives of CTI met with representatives of Fiserv at Fiserv's corporate
offices to negotiate the preliminary terms of a potential transaction. Shortly
after the August 4, 1997 meeting the parties agreed upon a preliminary valuation
of CTI and began to negotiate the details of the potential transaction. In
August, representatives of CTI's Board of Directors continued their efforts to
solicit offers from the other companies.
Upon the completion of preliminary negotiations, at a Board of Directors
meeting of CTI held August 29, 1997, the Board of Directors discussed the
possibility of a strategic combination of CTI with Fiserv and evaluated the
status of the continuing negotiations. The Board of Directors noted the effects
of consolidation in the credit union industry on its business and prospects, the
current limitations on CTI Stockholder liquidity, the difficulty in meeting the
Board's long time objective of a NASDAQ listing, the recent initiatives of major
competitors toward consolidation and the intense competition for new business in
the credit union software market. The Board of Directors determined that in
order to maximize shareholder value, CTI should continue to negotiate a
strategic combination with Fiserv with particular focus on optimizing the
transaction for stockholders as to price and as to accounting and tax treatment.
The Board also asked certain representatives of the Board to continue
investigating other potential strategic transactions and to evaluate the
advantages and disadvantages of remaining independent. The Board decided that
if the decision was made to merge with Fiserv, the Board would seek a fairness
opinion.
In early September, a draft definitive agreement for the purchase of CTI by
Fiserv Solutions was circulated for review. The parties had determined that the
transaction should be structured as a pooling of interests and contacted their
respective accountants to request a determination as to whether pooling of
interest treatment would be appropriate. The Board of Directors met on
September 9 and 12, 1997 to discuss the status of the negotiations with Fiserv
and to discuss the other alternatives for maximizing shareholder value.
Representatives of the Board reported that their efforts to solicit interest
from other qualified strategic partners had been unsuccessful. After
considering alternatives, at the September 12, 1997 meeting, the Board decided
to engage HVA to give an opinion to the Board regarding the fairness of the
proposed CTI/Fiserv transaction to the CTI Stockholders from a financial point
of view. Negotiations with Fiserv continued to progress and a draft of the
Merger Agreement was circulated
14
among the members of the Board for comment. Near the end of September,
management reported to the Board that virtually all of the major issues relating
to the definitive agreement had been agreed upon by the parties.
On September 29, 1997, it was determined that all significant issues had
been negotiated. At a special meeting of the Board of Directors on September
30, 1997, the Board of Directors reviewed, among other things, the history of
the transaction, a nearly final draft of the Merger Agreement and the
alternatives to the strategic combination, including remaining an independent
entity. After such deliberations, the Board of Directors determined that the
Merger was fair to and in the best interests of CTI and its stockholders and
unanimously approved the Merger Agreement.
Following the Board's approval of the Merger Agreement, in the first week
of October, Fiserv circulated a final draft of the Agreement which contained
proposed new terms relating to the Holdback which were not part of the draft
reviewed at the September 30, 1997 meeting and which were not acceptable to CTI.
Discussions related to the transaction, including the engagement of HVA to
complete the fairness opinion were suspended while the terms of the Holdback
were negotiated over a three week period. On October 28, 1997, the Board
engaged HVA to complete the fairness opinion relating to the Merger. The final
Merger Agreement dated November 4, 1997 was not materially different than that
reviewed by the Board prior to their September 30, 1997 vote. Accordingly, the
Board Members were updated as to the changes, but a new vote was not deemed
necessary.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF CTI
At a meeting of the Board of Directors on September 30, 1997, the Board of
Directors determined that the Merger was fair to and in the best interests of
CTI and the CTI Stockholders and unanimously approved the Merger Agreement. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE CTI STOCKHOLDERS VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The determination of the Board of Directors to approve the Merger Agreement
was based upon a consideration of a number of factors. The following list
includes all material factors considered by the Board of Directors in its
evaluation of the Merger and the Merger Agreement:
- The Board of Directors' familiarity with, among other things, the
business, operations, financial condition, competitive position and
prospects of CTI, the nature of the financial industry in which CTI
participates, and current industry, economic and market conditions;
- The fact that CTI had solicited interest in a possible acquisition of
CTI from third parties and that CTI had not received offers or
indications of interest from other parties;
- The conclusion of the Board of Directors that a transaction with
Fiserv could achieve synergistic benefits;
- The expected accounting treatment of the transaction as a pooling of
interests as well as the terms of the Merger Agreement in the event
the accounting treatment is not as expected;
- The expected tax-free treatment of the Merger;
- The strategic and financial alternatives available to CTI, including
remaining an independent company;
- The Board of Directors' expected receipt of the opinion of Houlihan
Valuation Advisors, Inc. ("HVA") that, as of the date of the Merger
Agreement the consideration to be received by the CTI Stockholders
pursuant to the Merger Agreement would be fair to the CTI Stockholders
from a financial point of view;
15
- The recognition by the Board of Directors that the Merger would
deprive the CTI Stockholders of the opportunity to continue their
equity interests in CTI as an independent entity. However, the Merger
would permit the holders of CTI Common Stock to continue to hold an
equity interest in Fiserv, a much larger, more liquid company
operating in a broader sector of the financial services industry, and
to participate in the future growth of Fiserv; the Board of Directors
also determined that the Merger was consistent with enhancing
stockholder value;
- The Board of Directors' review of the historical market prices of
shares of CTI Common Stock and Fiserv Common Stock, the historical
market prices of shares of CTI Common Stock compared to the
consideration to be received pursuant to the Merger and the future
rates of growth and price earnings ratios which would be necessary for
the market price of CTI Common Stock to equal or exceed the market
value of the consideration to be received in the Merger;
- Certain publicly available information with respect to the financial
condition and results of operations of Fiserv; and
- Since CTI did not consider specific strategic combinations or mergers
with third parties other than certain entities contacted by
representatives of CTI's Board of Directors which did not result in
any alternative acquisition proposals, CTI and its advisors insisted
upon provisions being included in the Merger Agreement which would
allow CTI to consider unsolicited third-party acquisition proposals
and to negotiate and discuss any such proposals in the exercise of its
fiduciary duties so require. See "--The Merger Agreement" and "-- No
Solicitation."
In view of the wide variety of material factors considered in connection
with its evaluation of the Merger, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to specific factors considered in reaching its determination.
OPINION OF CTI'S FINANCIAL ADVISOR
CTI retained HVA on October 28, 1997 to render its opinion to the Board of
Directors of CTI as to the fairness, from a financial point of view, of the
consideration to be paid to the CTI Stockholders pursuant to the Merger
Agreement.
On December 31, 1997, HVA delivered its written opinion dated as of
November 4, 1997 to the CTI Board, to the effect that, as of such date, and
based upon the assumptions made, matters considered and limits of review as set
forth in the HVA Opinion, the proposed Merger is fair from a financial point of
view to the public shareholders of CTI based on the circumstances existing as of
November 4, 1997. A copy of the HVA Opinion which sets forth the assumptions
made, matters considered and certain limitations on the scope of review
undertaken by HVA, is attached as Appendix B to this Proxy Statement/Prospectus.
CTI Stockholders are urged to and should read the HVA Opinion carefully and in
its entirety. References herein to the "HVA Opinion" refer to the written
opinion of HVA dated as of November 4, 1997. The HVA Opinion was subsequently
confirmed prior to the mailing of this Proxy Statement/Prospectus.
A COPY OF THE HVA OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY
HVA, IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS APPENDIX B. HOLDERS
OF CTI SHARES ARE URGED TO READ THE HVA OPINION IN ITS ENTIRETY. THE HVA
OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE MERGER TO THE PUBLIC
SHAREHOLDERS OF CTI FROM A FINANCIAL POINT OF VIEW. THE HVA OPINION DOES
NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION OF CTI TO ENGAGE IN THE
MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF CTI SHARES
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE MERGER. THE SUMMARY OF THE
HVA OPINION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
16
HVA ANALYSIS
In connection with the HVA Opinion, HVA reviewed certain publicly available
financial information and other information concerning CTI and Fiserv and
certain internal analyses and other information furnished to it by CTI. HVA
also held discussions with the members of the senior managements of CTI and
Fiserv regarding the businesses and prospects of their respective companies and
the joint prospects of a combined company. In addition, HVA (i) reviewed the
reported prices and trading activity for the common stock of both CTI and
Fiserv, (ii) compared certain financial and stock market information for CTI and
Fiserv with similar information for selected companies whose securities are
publicly traded, (iii) reviewed the financial terms of selected recent business
combinations in the software and database management industries, (iv) reviewed
the terms of the Merger Agreement, and (v) performed such other studies and
analyses and considered such other factors as it deemed appropriate.
In conducting its review and arriving at its opinion, HVA assumed and
relied upon, without independent verification, the accuracy, completeness and
fairness of the information furnished to or otherwise reviewed by or discussed
with it for purpose of rendering its opinion. With respect to the financial
projections of CTI and other information relating to the prospects of CTI and
Fiserv provided to HVA by each company, HVA assumed that such projections and
other information were reasonably prepared and reflected the best currently
available judgments and estimates of the respective managements of CTI and
Fiserv as to the likely future financial performances of their respective
companies and the combined entity. The financial projections of CTI that were
provided to HVA were utilized and relied upon by HVA in the "Analysis of
Selected Publicly Traded Companies," "Contribution Analysis," "Discounted Cash
Flow Analysis" and "Pro-Forma Earnings Analysis" summarized below. HVA assumed,
with the consent of CTI, that the Merger will qualify as a tax-free transaction
for federal income tax purposes. HVA did not make and it was not provided with
an independent evaluation or appraisal of the assets of CTI or Fiserv. The HVA
Opinion is based on market, economic and other conditions as they existed and
could be evaluated as of the date of the opinion letter.
The following is a summary of the analyses performed and factors considered
by HVA in connection with rendering the HVA Opinion:
ANALYSIS OF HISTORICAL FINANCIAL POSITION
In rendering its opinion, HVA reviewed and analyzed the historical and
current financial condition of CTI, which included an assessment of CTI's recent
financial statements, an analysis of CTI's revenue, growth and operating
performance trends, an assessment of CTI's revenue mix, margin changes,
leverage, client concentration and product breadth, and a review of industry
market conditions including industry consolidations.
In 1996 and 1997, the CTI operations were substantially restructured. The
purpose of the restructuring was to focus CTI's efforts on its products and
services for the credit union industry and divest itself of other products and
assets, many of which were not profitable lines of business for CTI. As of
November 4, 1997, CTI had divested itself of all but its credit union business
with the exception of its surgery centers. In March 1997, CTI initiated a
search for a buyer of the surgery centers, but failed to elicit an offer from a
qualified buyer that CTI considered to be representative of the fair value of
the surgery centers. In September 1997, CTI identified a buyer for the surgery
centers and approved terms of an agreement to sell the surgery centers for
$460,000 to the Majority Shareholder, a Director and shareholder of CTI and
another shareholder of CTI (the "Surgery Center Purchasers"). CTI transferred
the assets of the surgery centers to the Surgery Center Purchasers as of October
1, 1997 for $450,000 in the form of two-year promissory notes secured by 400,000
shares of the Surgery Center Purchasers' CTI Common Stock.
In the process of divesting itself of its non-core businesses, CTI incurred
substantial losses in 1996 and 1997, in large part due to the write-off of
goodwill carried on CTI's balance sheet that was associated with the businesses
that were sold. In addition, profitability of continuing operations fluctuated
greatly between 1995 and 1997, with CTI posting earnings from continuing
operations of $925,000 in 1995, a loss (after adjustments for non-recurring
expenses) in 1996 of $2.65 million, and a profit in 1997 of $437,000.
17
The losses sustained by CTI from operations in 1996 as well as the large
losses associated with the divestiture of many of its acquisitions had a
substantial adverse impact on CTI's financial structure. Although some of the
losses resulted from the write-off of assets that did not directly impact
working capital, CTI had negative working capital as of June 30, 1996 of over
$7.3 million and as of June 30, 1997 of over $5.5 million despite an infusion of
$6.0 million of equity capital in January 1997.
At the end of fiscal 1997 (June 30), CTI had accrued for all estimated
costs associated with the divestiture of its non-core businesses. From that
point forward, income from continuing operations has been positive and is
projected by management to remain so throughout 1998. Under the terms of the
CTI's employment agreement with the Majority Shareholder, in December 1997 CTI
paid to the Majority Shareholder accrued wages and vacation in the amount of
$380,000 for services provided as CTI's Chief Executive Officer in calendar
1997. In addition, the Majority Shareholder's employment agreement will be
terminated upon consummation of the Transaction. Upon termination of the
employment agreement, the Majority Shareholder will enter into a three year non-
complete agreement, for which he will be receive $240,000, to be paid in 24
equal monthly installments.
For calendar year ending December 31, 1997, total revenue is projected to
be $28.7 million with pre-tax income from continuing operations projected at
approximately $2.7 million. After allowance for the expenses and revenues
associated with discontinued operations and payment of accrued wages, net pre-
tax income for the calendar year is projected to be approximately $448,000.
CTI's unaudited balance sheet for October 31, 1997 indicates that CTI is
highly leveraged. It's current ratio was only 0.5 to 1 and its total
liabilities were equal to 115.2 percent of total assets. Most of CTI's
liabilities were current liabilities ($10.6 million) with only a small amount in
long-term liabilities ($262,000). CTI had total current assets of approximately
$6.1 million, which included approximately $1.4 million of cash and $4.1 million
in receivables. Current liabilities included approximately $6.6 million of
deferred revenue, primarily representing payments received for services to be
provided over the remaining term of software and hardware maintenance contracts
(generally one year). The pro-forma October 31, 1997 balance sheet reflects
negative equity of approximately $1.2 million.
In fiscal 1998, CTI anticipates receiving the balance of the funds
(assuming that a merger were not to take place), amounting to $2.0 million,
which are due under the terms of the January 1997 Stock Purchase and Sale
Agreement. It would be the intention of CTI to redeem the 1994 Series
Convertible Preferred Stock with this funding. The additional financing will
eliminate future dividends payable to the holders of the Preferred Stock, but
will not have an immediate impact on CTI's balance sheet in terms of net asset
value. If CTI were to continue operations without additional financing or
completing the contemplated merger, CTI would continue to have negative equity
and would remain in a significant negative working capital position even upon
the receipt of the $2.0 million balance of the financing. Management projects,
however, that CTI will generate sufficient income to eliminate its negative
equity and working capital positions in 1998.
RESULTS OF OPERATIONS
From 1996 to 1997, CTI's total revenues from continuing operations
increased less than 1 percent from $26.8 million in 1996 to $26.9 million in
1997. Revenues from hardware and software sales decreased 15.5 percent from
$11.2 million in 1996 to $9.4 million in 1997. The decrease is due primarily to
management's decision to decrease emphasis on sales of larger systems which have
had lower profit margins in the past because of complicated conversion,
installation and training processes. Revenues from support, maintenance and
other services increased 11.5 percent from $15.6 million in 1996 to $17.4
million in 1997. The increase was due to increased sales of CTI's statement
processing services and an increase in support and maintenance fees. Revenues
are derived from computer system sales, hardware maintenance and software
support, and the sale of products, which are related to CTI's core computer
systems such as statement printing, disaster recovery and microfiche services.
The gross margin increased 3.6 percent from $11.5 million in 1996 to $11.9
million in 1997. The hardware and software gross profit margin increased from
47 percent in 1996 to 56.6 percent in 1997. In the same period, the gross
profit margins from support, maintenance and other services revenues decreased
from 40.2 percent to 37.9 percent. The increase in the hardware and software
gross margin is attributable mainly to a decrease in amortized
18
software and increased efficiencies in CTI's installation and training
processes. The decrease in the gross profit margin from support, maintenance
and other services revenue is due to increased software support personnel in
1997. Cost of goods sold consists of the cost of hardware and software
purchased for resale, the amortization of capitalized software development costs
and the expense of supporting and installing the systems sold.
Compared to 1996, selling, general and administrative expenses of CTI
decreased 31 percent in 1997, from $12.6 million in 1996 to $8.7 million in
1997. The decrease is the result of management's effort to reduce corporate
overhead by eliminating selling, general and administrative expenses associated
with the disposed entities, and a reduction in the administrative staff,
management personnel and office locations related to the continuing operations.
A loss from the disposal of discontinued operations of $1.6 million was
recorded in 1997 resulting from $1.9 million in additional expenses associated
with the medical division over the $2.5 million accrued at June 30, 1996,
$475,000 in income tax expense related to the tax gain on the sale of the
medical division, a gain of $479,738 on the sale of the office rental complex,
and a $239,690 gain on the sale of the rental software division.
In 1997, CTI reported earnings from continuing operations of $436,641
compared to a loss in 1996 from continuing operations of approximately $9.6
million. The improvement in earnings resulted from CTI's disposal of all of its
businesses except its core credit union business and related businesses.
COMPARISON OF CTI'S FINANCIAL PERFORMANCE WITH THE INDUSTRY
To acquire a better understanding of CTI's projected calendar year 1997
performance, its record was compared with the average experience of other
software processing companies. Financial data on companies in the software
industry is collected by Robert Morris Associates, Philadelphia, Pennsylvania,
and published in that company's Annual Statement Studies. Although the
activities of the companies in the group may not be totally consistent with
those of CTI, the information is nevertheless considered representative of firms
engaged in the same types of activities as CTI. As such, the data provide a
reasonable backdrop for a comparative analysis of CTI's performance.
HVA noted that CTI management's projections for the continuing operations
of CTI indicate that CTI's projected profitability will be greater than the
industry average as measured by income before tax as a percent of sales and
return on total assets. However, the capital structure of CTI is significantly
inferior to that of the industry average. CTI is highly leveraged by all
industry standards and significantly more leveraged than the industry average.
In addition, CTI has significant negative equity as a percent of total assets
compared to an industry average of close to 40 percent equity as a percent of
total assets.
In addition to comparison of CTI's operating results and capital structure
to the sample companies found in Robert Morris Associates data, HVA compared
CTI's results and capital structure to a sample group of nine publicly traded
software and data processing companies. The average size of the sample group
companies was larger than CTI as measured by total annual revenues ($28.6
million projected for CTI for calendar year 1997 vs. the industry average of
$146.4 million) and total assets ($9.7 million vs. $135.6 million). CTI
projected net margin as a percent of revenue for calendar year 1997 is
significantly higher than the industry (5.6 percent compared to the sample group
average of 2.9 percent). However, the projected cash flow as a percent of total
revenue for CTI is significantly below that of the sample group average (7.7
percent vs. 15.7 percent). Additionally, CTI's three year compounded annual
growth in revenues was 9.1 percent compared to the sample group average of 45.8
percent.
CTI's price to earnings ratio was substantially below that of the industry
sample group, as was its price to revenue and price to cash flow ratios. CTI's
price to earnings ratio was 7.1 times compared to the sample group average of
56.1 times; its price to revenue ratio was 0.4 times compared to the sample
group average of 5.8 times, and its price to cash flow ratio was 5.7 times
compared to the sample group average of 43.6 times. CTI's lower multiples are
in part reflective of its much lower growth compared to the sample group average
as well as its smaller size, negative equity and working capital positions and
limited market for its stock (as a result of CTI's stock being listed on the
over-the-counter market rather on a national exchange).
19
CTI's capital structure is substantially more leveraged than the industry.
Although CTI's long-term debt as a percent of total assets is somewhat lower
than the sample group average (1.5 percent to 2.7 percent), its total
liabilities as a percent of total assets is almost four times that of the sample
group average (115.2 percent compared to the sample group average of 28.2
percent). In addition, CTI's ability to service its obligations as measured by
the current ratio is significantly inferior to that of the sample group. The
sample group average current ratio was 2.9 times compared to CTI's October 31,
1997 current ratio of only 0.5 to 1.
In summary, CTI appears to represent a significantly inferior investment
opportunity compared to the sample group average. It is significantly smaller
as measured by total revenues and total assets, its financial structure is
significantly more risky due to its high leverage, and its growth rate has been
substantially lower in recent years compared to the sample group average.
Growth in earnings per share for the industry sample group is projected to
average 37 percent over the next five years. The industry sample group's
current price/earnings multiple is 1.1 times the average projected five year
growth rate of earnings per share for the sample group, or 40.8 times. No such
earnings per share growth rate has been projected for CTI. In addition, in
fiscal years ended June 30, 1996 and 1997, CTI generated significant losses
attributable to discontinued operations. CTI's revenues grew at a much slower
rate over the past three years than the sample group average. CTI's three year
compound annual growth rate in revenues was 9.1 percent compared to the sample
group average of 45.8 percent.
ANALYSIS OF RECENT TRANSACTIONS IN CTI'S COMMON STOCK
HISTORICAL STOCK PERFORMANCE
HVA reviewed and analyzed the daily closing per share market prices and
trading volume for CTI Common Stock and Fiserv Common Stock from October 30,
1996 to November 4, 1997. HVA also reviewed the daily closing per share market
prices of Fiserv Common Stock and compared the movement of such daily closing
prices with the movement of the S&P 500 composite average over the period from
November 1, 1996 to November 1997. HVA noted that, on a relative basis, Fiserv
performed similarly to the S&P 500 composite average.
PRIVATE PLACEMENT OF COMMON STOCK
On January 24, 1997, CTI entered into a Purchase and Sale Agreement whereby
it agreed to sell 8,648,648 shares of CTI Common Stock, representing 49 percent
of the CTI Common Stock to be outstanding after the completion of the sale, to
the Majority Shareholder of CTI for $8.0 million. Upon the completion of the
transaction, the Majority Shareholder increased his ownership interest to over
fifty percent and obtained a controlling interest in CTI. In February 1997, CTI
received $6.0 million of the new equity which was used to retire long-term debt
and certain current liabilities. In exchange for the $6.0 million of new
equity, 6,486,486 shares of CTI Common Stock were issued to the Majority
Shareholder. Prior to the closing of the proposed merger transaction, CTI
anticipates that the remaining $2.0 million will be received for which an
additional 2,162,162 shares of CTI Common Stock will be issued.
Also pursuant to the private placement agreement, the Majority Shareholder
surrendered approximately 1,208,400 five-year options to purchase shares of
CTI's common stock at prices from $1.50 to $5.00 in exchange for the grant of
1,000,000 five-year options to purchase CTI's common stock at $1.00 per share
for the first year, with the option price increasing by $0.25 each year on the
anniversary date of the grant. The private placement transaction was negotiated
between the Majority Shareholder and an independent committee of the Board of
Directors.
HVA reviewed and analyzed the above transactions and noted that the new
shares were purchased for $0.925 each. As a result of the transactions, the
purchaser of the shares gained a controlling interest in CTI; therefore, the
value at which the shares were acquired represents controlling interest
(enterprise) value. The shares issued in the transactions, however, were
restricted shares; thus, a significant discount from freely trading share value
was implicit in the transaction price. The discount applicable to restricted
shares, however, is modified somewhat by the fact that the purchaser of the
shares gained control of CTI, which allowed the shareholder potential
opportunities to liquidate
20
such restricted shares prior to the expiration of the restrictions through such
means as a merger or sale of CTI. HVA's analysis indicated that the
marketability discount applicable to the shares purchased in the above
transaction is in the range of 25%, indicating a value of the shares of CTI on a
controlling interest and marketable interest basis in the range of $1.23.
PUBLIC MARKET FOR CTI COMMON STOCK
Commencing in January 1994, CTI Common Stock has been traded on a limited
basis on the OTC Bulletin Board under the symbol "CSAT". On November 4, 1997,
there were 15,289,437 shares of CTI Common Stock issued and outstanding,
1,000,000 shares of convertible preferred stock issued and outstanding, and
certain options to purchase 1,000,000 shares of CTI Common Stock at a price of
$1.00 per share held by the Majority Shareholder. Prior to closing of the
Merger Transaction, CTI has represented that the Majority Shareholder will
complete the equity funding discussed above, providing an additional $2.0
million of equity to CTI, which will be used to retire the outstanding
convertible preferred stock. In exchange for the equity capital, CTI will issue
an additional 2,162,162 shares of CTI Common Stock. Further, the Majority
Shareholder has indicated his intention to exercise options for 1,000,000 shares
of CTI Common Stock prior to closing. At the conclusion of these transactions,
there will be 18,451,599 shares of CTI Common Stock issued and outstanding.
Of the CTI Common Stock issued and outstanding, management estimates that
only approximately 1,000,000 shares have historically been available for
trading. As a result, there has been a limited amount of trading activity in
the public market for CTI Common Stock. In addition, no dividends have been
paid on CTI Common Stock and it is not anticipated by management that dividends
will be paid in the foreseeable future.
HVA reviewed and analyzed the trading activity in CTI Common Stock for the
20 trading days prior to November 4, 1997 and noted that average trading volume
was approximately 16,000 shares per day and that the weighted average closing
price of the stock was $0.74. The trading price on the public market is
reflective of minority interest value. Applying a premium for control and an
additional premium for enhanced marketability due to valuation on a controlling
interest basis (compared to the limited market historically for CTI Common Stock
due to limited float), recent transactions in the public market indicate a
control (enterprise) value in the range of $1.14 per share.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES
HVA examined CTI's market valuation as compared to the valuation in the
public market of other selected publicly traded companies. HVA compared certain
financial information relating to CTI to certain corresponding information from
a group ("Sample Group") of nine publicly traded software and database
management companies (consisting of Aspen Technology, Cognos, Legato Systems,
Manugistics Group, Medic Computer Systems, Network General, ULTRADATA, VIASOFT
and Visio). Such financial information included, among other things, common
equity valuation, capitalization ratios, operating performance, and ratios of
common equity prices per share to earnings per share. The financial information
used in connection with the multiples with respect to CTI and the Sample Group
was based on the latest reported twelve-month period as derived from publicly
available information.
HVA compared financial information of the Sample Group based on public
market valuation with the corresponding financial multiples for the Merger,
based on the consideration to be received of $1.19 per share initially (net of a
$3.0 million holdback for contingent liabilities) and $1.35 per share total
price if no claims are made against the holdback. The analysis was based on
CTI's actual reported fiscal year 1997 earnings per share for continuing
operations of $0.02. HVA noted that, on a trailing twelve-month basis, the
multiple of equity value to trailing twelve months earnings per share was 57.0
times for the Merger if no Holdback Claims are asserted and 50.1 times for the
Merger if 100 percent of the Holdback Claims are asserted by Fiserv. These
multiples compared to an adjusted multiple of current earnings for the Sample
Group of 51.0 times.
21
HVA also compared financial information of the Sample Group based on public
market valuation to CTI's merger multiple based on 1997 calendar year projected
earnings of $0.024 per share. HVA noted that the multiple of equity value to
projected twelve months earnings per share was 55.4 times for the Merger if no
Holdback Claims are asserted and 48.7 times for the Merger if 100 percent of the
Holdback Claims are asserted by Fiserv, compared to an average adjusted
price/earning multiple for the Sample Group of 42.7 times. As a result of the
foregoing procedures, HVA noted that the transaction multiples for the Merger
were generally in the range of the multiples for the Sample Group companies.
PREMIUMS PAID ANALYSIS
HVA reviewed the premiums paid, to the extent publicly available, in 1,280
proposed, pending or completed mergers and acquisitions between January 1, 1992
and December 31, 1996 in all industries as well as 60 proposed, pending or
completed mergers and acquisitions during the same time period for the computer
software, supplies and services industry ("Premium Transactions"). HVA
calculated the premiums paid over market for each of the Premium Transactions
and compared them to the premiums paid over market for the Merger, based on the
consideration to be received of $1.19 per share if the full holdback of $3.0
million is absorbed by subsequent contingent claims, $1.35 per share if the full
holdback is distributed to CTI Stockholders, and $1.34 if $200,000 of the
holdback is utilized to satisfy contingent claims (as projected by CTI
management) and the balance is distributed to CTI Stockholders. HVA noted that
the Premium Transactions exhibited a mean premium of approximately 40 percent to
the target's per share market price one month prior to public announcement vs.
market premiums of 59.6 percent, 81.5 percent and 80.0 percent, respectively,
for the Merger.
DISCOUNTED CASH FLOW ANALYSIS
HVA performed a discounted cash flow analysis for CTI. The discounted cash
flow approach values a business based on the current value of the future cash
flow that the business will generate plus the estimated value of the business at
some future date. To establish a current value under this approach, future cash
flow must be estimated and an appropriate discount rate determined. HVA used
estimates of projected financial performance for CTI for the years ending
December 31, 1997 and 1998 prepared by CTI management. HVA aggregated the
present value of the leveraged cash flows through 1998 with the present value of
a terminal value. HVA discounted these cash flows using a discount rate of 16
percent. The terminal value was computed based on projected net income in the
calendar year 1999 and a terminal capitalization rate of 13 percent. HVA
arrived at such discount and capitalization rates based on its judgment of the
estimated cost of equity capital of CTI, which included consideration of risks
inherent in the industry and specific risks associated with the continuing
operations of CTI on a stand-alone basis. HVA noted that this analysis, which
was based on projections prepared by CTI management, indicated a value estimate
in the range of $1.19 per share on a controlling interest (enterprise) basis as
of November 4, 1997.
RELEVANT MARKET AND ECONOMIC FACTORS
In rendering its opinion, HVA considered, among other factors, the
condition of the U.S. stock markets, particularly as it relates to the computer
software and data management industries, and the current level of economic
activity. HVA also considered the trends of consolidations in these industries
and the potential impact of such consolidations on CTI's future operations.
No company used in the analysis of selected publicly traded companies or
any transaction used in the analysis of premiums paid in selected transactions
summarized above is identical to CTI, Fiserv or the Merger. Accordingly, such
analyses must take into consideration differences in the financial and operating
characteristics of the industry sample group, selected premium transactions and
other factors that would affect the public trading value and acquisition value
of such companies and industry groups.
22
While the foregoing summary describes all analyses and factors that HVA
deemed material for presentation to the CTI Board of Directors, it is not a
comprehensive description of all analyses and factors considered by HVA. The
preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the applications of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. HVA believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, would create an incomplete view of
the evaluation process underlying the HVA Opinion. In performing its analyses,
HVA considered general economic, market and financial conditions and other
matters, many of which are beyond the control of CTI and Fiserv. The analyses
performed by HVA are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than those suggested
by such analyses. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty. Additionally, analyses relating to the
value of a business do not purport to be appraisals or to reflect the prices at
which the business actually may be sold. Furthermore, no opinion is being
expressed as to the prices at which shares of Fiserv common stock may trade at
any future time.
Pursuant to a letter agreement dated October 28, 1996 between CTI and HVA,
the fees to date payable to HVA for rendering the HVA Opinion have been $18,000.
In addition, CTI has agreed to reimburse HVA for its reasonable out-of-pocket
expenses incurred in connection with rendering financial advisory services. CTI
has agreed to indemnify HVA and its directors, officers, agents, employees and
controlling persons, for certain costs, expenses, losses, claims, damages and
liabilities related to or arising out of its rendering of services under its
engagement as financial advisors.
The Board of Directors of CTI retained HVA to act as its advisor based upon
HVA's qualifications, reputation, experience and expertise. HVA, as a customary
part of its business, is engaged in valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for estate, corporate and other purposes.
MANAGEMENT AND OPERATIONS OF CTI FOLLOWING THE MERGER
The Merger Agreement provides that following the Merger, George D. Dalton,
Chairman of the Board of Fiserv, Leslie M. Muma, Vice Chairman and President of
Fiserv, Donald F. Dillon, Vice Chairman of Fiserv, and Kenneth R. Jensen, Senior
Executive Vice President and Chief Financial Officer of Fiserv, who are the
directors of Fiserv Solutions, will continue to be the directors of the
Surviving Corporation. The officers of Fiserv Solutions, who also are officers
or directors of Fiserv, will remain as the officers of the Surviving
Corporation. Information about such persons is incorporated by reference to
Fiserv's Annual Report on Form 10-K for the year ended December 31, 1997. At
the Effective Time, the Certificate of Incorporation and Bylaws of the Surviving
Corporation will remain in effect.
Subsequent to the Merger, Fiserv plans to continue to operate CTI as a
separate division and the Surviving Corporation as an independent subsidiary and
has no present intention to move or consolidate any of the operations of CTI or
the Surviving Corporation or its subsidiaries or to change the name of any of
its subsidiaries.
THE MERGER AGREEMENT
Reference is made to the copy of the Merger Agreement attached as Appendix
A for a complete statement of the terms of the proposed Merger. The statements
contained herein with respect to the Merger Agreement and the Merger are
qualified in their entirety by the foregoing reference.
EFFECTIVE TIME AND CONSEQUENCES OF THE MERGER
If approved by the requisite vote of the CTI Stockholders and if all other
conditions to the consummation of the Merger are satisfied or waived, the Merger
will become effective immediately upon the filing of the Certificate of Merger
with the Department of Financial Institutions of the State of Wisconsin and the
Secretary of State of Nevada or such other time or date thereafter as Fiserv,
Fiserv Solutions and CTI may agree. At the Effective Time, CTI shall be merged
with and into Fiserv Solutions, which shall be the Surviving Corporation in the
Merger, the
23
separate existence and corporate organization of CTI shall cease, and Fiserv
Solutions shall succeed, insofar as permitted by Nevada law, to all rights,
assets, liabilities and obligations of CTI.
It is presently contemplated that the Effective Time will be April 30, 1998
or such other date as the parties may agree.
MERGER CONSIDERATION
In the Merger, each outstanding share of CTI Common Stock will be converted
into the right to receive such number of shares of Fiserv Common Stock as shall
equal the Conversion Ratio, which is defined as the quotient of (x) the CTI
Stock Value (defined below) divided by (y) the Average Fiserv Stock Price. The
term "CTI Stock Value" shall mean the quotient of (i) the sum of (A) $24,933,500
(which represents a negotiated valuation (the "CTI Valuation")), minus (B) CTI
Merger Costs (as hereinafter defined), plus (C) the product of (I) the number of
outstanding "in-the-money" options ("In-the-Money Options") issued pursuant to
CTI stock option plans (collectively, the "CUSA Option Plan") times (II) the
respective exercise prices of such In-the-Money Options, divided by (ii) the sum
of (A) the number of shares of CTI Common Stock outstanding immediately prior to
the Effective Time plus (B) the number of such outstanding In-the-Money Options.
The CTI Stock Value is expected to be approximately $1.35 per share, subject to
the Holdback Shares which shall be placed into escrow to cover the Holdback
Claims. The term "CTI Merger Costs" shall mean the aggregate of all accounting
(which shall not include regular audit fees), legal, printing, filing, financial
advisory and other fees and expenses of CTI and Taxes (as defined in the Merger
Agreement). The Holdback Shares shall be distributed, after reduction for the
Holdback Claims, in one or more portions on the later of October 26, 1998 or the
final resolution of the Holdback Claims. The parties intend to treat the Merger
as a pooling of interests for accounting purposes. If the Merger does not
qualify for pooling of interests treatment under generally accepted accounting
principles, then each outstanding share of CTI Common Stock will be converted
into the right to receive the CTI Stock Value in cash. Assuming an Average
Fiserv Stock Price of $55.594 (which is being used because the average closing
price of Fiserv Common Stock as reported on NASDAQ for the 20 trading days ended
March ___, 1998 exceeds $55.594), the Merger would result in the present CTI
Stockholders owning approximately one percent of the Fiserv Common Stock subject
to the Holdback. Assuming an Average Fiserv Stock Price of $44.00, the Merger
would result in the present CTI Stockholders owning approximately one percent of
the Fiserv Common Stock.
No fractional shares of Fiserv Common Stock will be issued in the Merger.
In lieu of any fractional shares, each holder of CTI Common Stock who would
otherwise be entitled to receive a fractional share of Fiserv Common Stock
pursuant to the Merger will be paid an amount in cash, without interest, rounded
to the nearest cent, determined by multiplying (i) the per share closing price
of Fiserv Common Stock as reported on the NASDAQ on the date of the Effective
Time, by (ii) the fractional interest to which such holder would otherwise be
entitled. Fiserv will make available to the Exchange Agent the cash necessary
for this purpose.
In the event it is determined that the transaction cannot be treated as a
"pooling-of-interests" under generally accepted accounting principles, the
consideration to be paid to the CTI Stockholders shall be payable in cash,
without interest and the Merger will not be treated as a tax-free
reorganization.
HOLDBACK
Receipt of the Merger Consideration is subject to the Holdback of the
Holdback Shares in respect of all damages to and liabilities of Fiserv or Fiserv
Solutions, as the case may be, (including without limitation those re sulting
from or relating to demands, claims, actions or causes of action, assessments or
other losses, costs and expenses directly relating thereto, interest and
penalties thereon and reasonable attorneys' fees and expenses in respect
thereof) by reason of or resulting from: (i) Specified Liabilities (as
hereinafter defined) to the extent that they exceed $825,067; and (ii) any other
actions, suits or proceedings which were not disclosed and would have been
required to be disclosed in the Disclosure Schedule to the Merger Agreement if
known at the Effective Time related to events occurring or actions taken on or
prior to the Effective Time but not related to client contractual obligations
with respect to continuing operations; which amounts, or such lesser amounts as
shall be payable following reduction of such amount by claims made against
Fiserv Solutions, less any and all counterclaims or insurance proceeds which are
available to Fiserv Solutions or CTI with respect to clauses (i) and (ii), shall
be payable to the CTI Stockholders on December 31, 1998, provided, however, that
any claims still outstanding at December 31, 1998, will be resolved as soon as
practicable. The Representatives (as hereinafter defined), acting in
consultation with the senior
24
management of Fiserv Solutions, shall resolve all claims presented with respect
to clauses (i) and (ii) and shall have the authority to utilize $1,500,000 of
the Holdback Shares in the resolution of such claims, provided, however, that to
the extent such claims exceed $1,500,000 they shall be resolved by the senior
management of Fiserv Solutions, acting in consultation with the Representatives.
In no event shall the actual damages chargeable by Fiserv or Fiserv Solutions
for claims arising pursuant to clauses (i) and (ii) exceed $3,000,000 in
aggregate and (I) of items considered "specific contingencies" under a "pooling
of interests" exceed ten percent of CTI Stock Value, or (II) of items considered
"general contingencies" under a "pooling of interests" (x) exceed ten percent of
the CTI Stock Value or (y) be resolved after December 31, 1998. The term
"Specified Liabilities" shall mean all amounts to be paid or received (but not
including interest) with respect thereto after June 30, 1997 for the following:
(w) all liabilities net of all assets of discontinued operations, which as of
June 30, 1997 were estimated to equal $304,464; (x) all Taxes associated with
the sale of discontinued operations and all other Taxes payable for the periods
ended June 30, 1997, which as of June 30, 1997 were estimated to equal $597,000;
(y) any actions, suits or proceedings listed in the Disclosure Schedule for
subsection 5.01(l) of the Merger Agreement which as of June 30, 1997 were
estimated to equal $5,000; and (z) other possible liabilities associated with
clauses (w) and (x), which as of June 30, 1997 were estimated to equal $18,603.
Notwithstanding the foregoing, in no event shall CTI be liable for any claim
which is not raised on or before October 16, 1998.
As described above, if all of the Holdback Claims are resolved in favor of
Fiserv, the value received by CTI Stockholders will be approximately $1.18 per
share of CTI Common Stock. If there are no Holdback Claims or if all Holdback
Claims are resolved in favor of CTI, the value received by CTI Stockholders will
be approximately $1.35 per share of CTI Common Stock.
No later than October 26, 1998, Fiserv Solutions shall deliver to a group
of persons consisting of the Majority Stockholder, Jonathan S. Beckstrand, David
J. Rank and Mark Scott (collectively, "Representatives") a list of all items
subject to the Holdback, including the Specified Liabilities, and the total
claims relating to each item ("Holdback Schedule"). If the Representatives
dispute the correctness of the Holdback Schedule, the Merger Agreement provides
a mechanism for resolution of any dispute, by an independent accounting firm if
necessary. Within three business days following final agreement on the contents
of the Holdback Schedule, the Escrow Agent shall return to Fiserv a number of
shares, valued at the Effective Time, of Fiserv Common Stock equal to the total
claims listed on the Holdback Schedule and/or deliver the remaining shares of
Fiserv Common Stock to the CTI Stockholders hereunder in accordance with
previously received instructions of the CTI Stockholders. Notwithstanding the
foregoing, the Representatives may elect, with respect to any item listed on the
Holdback Schedule considered a "specific contingency" under a "pooling of
interests" that has not been finally determined (a "Deferred Delivery Item"), to
defer the return of shares from the escrow to Fiserv relating to that portion of
the "specific contingency" not so determined until final determination thereof.
The parties anticipate that such specific contingencies will be resolved within
a period of one year from final agreement on the contents of the Holdback
Schedule, but there can be no assurance that such contingencies will be resolved
within that time frame. A number of shares of Fiserv Common Stock having a
value equal to all "specific contingencies" up to a maximum of 10 percent of the
Merger consideration shall be retained by the Escrow Agent until such "specific
contingencies" shall have been resolved. At the Effective Time, the Holdback
Shares shall be issued to the Escrow Agent. Upon final determination of the
total claims relating to each item of the Holdback Schedule, the Representatives
and Fiserv shall (1) instruct the Escrow Agent and the Exchange Agent to
distribute to the CTI Stockholders shares of Fiserv Common Stock or cash
representing fractional shares in an amount equal to the Holdback Shares valued
at the Effective Time less the total claims for all items listed on the Holdback
Schedule and (2) return Fiserv Common Stock to Fiserv valued at the Effective
Time, in the amount of the sum of the total claims relating to items listed on
the Holdback Schedule which are in respect of "general contingencies" or are in
respect of "specific contingencies" which are not Deferred Delivery Item. The
Escrow Agent shall continue to hold in Escrow an amount of Fiserv Common Stock
equal to the sum of the claims listed on the Holdback Schedule for each Deferred
Delivery Item. Upon resolution of the claims relating to all Deferred Delivery
Items, the Representatives shall instruct the Escrow Agent and the Exchange
Agent to distribute to the CTI Stockholders shares of Fiserv Common Stock or
cash representing fractional shares in an amount equal to the Holdback Shares
which remained in Escrow in respect of the Deferred Delivery Items less an
amount of Fiserv Common Stock ("Deferred Delivery Item Returned Stock"), valued
at the Effective Time, equal to the total damages which relate to the Deferred
Delivery Items and return the Deferred Delivery Item Returned Stock to Fiserv.
Within 15 days of the Effective Time, the Representatives shall receive a one-
time payment of $10,000 each in consideration for their services hereunder.
Fiserv Solutions shall be
25
responsible for all costs associated with the escrow, including the fee of the
Escrow Agent which is estimated to be $3,000. See Appendix A - Agreement and
Plan of Merger.
CONVERSION OF CTI COMMON STOCK; PROCEDURES FOR EXCHANGE OF SHARE CERTIFICATES
As soon as practicable after the Effective Time, each holder of shares of
CTI Common Stock that have been converted into the right to receive Fiserv
Common Stock, upon surrender to the Exchange Agent for cancellation of one or
more certificates for such shares of CTI Common Stock, will be entitled to
receive, subject to the Holdback, certificates representing the number of whole
shares of Fiserv Common Stock to be issued in respect of the aggregate number of
such shares of Fiserv Common Stock previously represented by the stock
certificates surrendered and cash, if any, payable in lieu of the issuance of a
fractional share.
Promptly after the Effective Time, the Exchange Agent will furnish the
former CTI Stockholders a letter of transmittal for use in converting their CTI
Common Stock certificates. The letter will contain instructions with respect to
the surrender of certificates representing shares of CTI Common Stock and the
distribution of certificates representing Fiserv Common Stock and/or cash, as
the case may be.
Subject to the provisions pertaining to cash in lieu of fractional shares
in the following sentence, until surrendered for exchange each certificate
nominally representing CTI Common Stock shall be deemed for all corporate
purposes to evidence the ownership of the number of full shares of Fiserv Common
Stock which the holder is entitled to receive upon surrender of said
certificates to the Exchange Agent. Until they have surrendered their
certificates representing shares of CTI Common Stock for exchange, CTI
Stockholders will not be entitled to receive any payment for a fractional share
interest. Any such payment will be remitted to the CTI Stockholder entitled
thereto, without interest, at the time that such certificates representing
shares of CTI Common Stock are surrendered for conversion, subject to any
applicable abandoned property, escheat or similar law.
At the Effective Time, the Holdback Shares shall be issued to the Escrow
Agent. Upon final determination of the total claims relating to each item of
the Holdback Schedule, the Representatives shall instruct the Escrow Agent and
the Exchange Agent to distribute to the CTI Stockholders shares of Fiserv Common
Stock or cash representing fractional shares in an amount equal to the Holdback
Shares valued at the Effective Time less the total claims for all items listed
on the Holdback Schedule and return to Fiserv the Fiserv Common Stock, valued at
the Effective Time, in the amount of the sum of the total claims relating to
items listed on the Holdback Schedule which are in respect of "general
contingencies" or are in respect of "specific contingencies" which are not a
Deferred Delivery Item. The Escrow Agent shall continue to hold in Escrow an
amount of Fiserv Common Stock equal to the sum of the claims listed on the
Holdback Schedule for each Deferred Delivery Item. Upon resolution of the
claims relating to all Deferred Delivery Items, the Escrow Agent shall (x)
instruct the Exchange Agent to distribute to the CTI Stockholders shares of
Fiserv Common Stock or cash representing fractional shares in an amount equal to
the Holdback Shares which remained in Escrow in respect of the Deferred Delivery
Items less an amount of Fiserv Common Stock ("Deferred Delivery Item Returned
Stock"), valued at the Effective Time, equal to the total damages which relate
to the Deferred Delivery Items and (y) return the Deferred Delivery Item
Returned Stock to Fiserv.
REPRESENTATIONS, WARRANTIES AND COVENANTS
The Merger Agreement contains representations and warranties as to the
organization, operation, business and financial condition of CTI and its
subsidiaries and Fiserv and Fiserv Solutions. Generally, representations and
warranties will terminate at the Effective Time. The Merger Agreement also
contains certain covenants of CTI, Fiserv and Fiserv Solutions, including
covenants relating to the conduct of CTI and Fiserv prior to the Effective Time.
26
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is intended to provide a summary of certain
federal income tax consequences of the Merger.
The Merger Agreement provides that, for federal income tax purposes, CTI
and Fiserv intend that the Merger constitute a tax-free "reorganization" within
the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code (a "Tax-Free
Reorganization"). CTI and Fiserv intend to treat the Merger as a Tax-Free
Reorganization in their federal income tax returns. The principal federal
income tax consequences of a Tax-Free Reorganization, under currently applicable
law, are as follows: (i) no gain or loss would be recognized by CTI or Fiserv as
a result of the Merger; (ii) no gain or loss would be recognized by the CTI
Stockholders on the exchange of their shares of CTI Common Stock solely for
shares of Fiserv Common Stock pursuant to the Merger (except in respect of cash
received in lieu of fractional shares as described below); (iii) the basis of
the shares of Fiserv Common Stock received by a former CTI Stockholder pursuant
to the Merger would be the same as the tax basis for the shares of CTI Common
Stock exchanged therefor (reduced by any basis allocated to fractional shares to
which a CTI Stockholder would otherwise be entitled and for which cash is
received); and (iv) the holding period of shares of Fiserv Common Stock received
by a former CTI Stockholder pursuant to the Merger would include the period
during which the CTI Stockholder held such shares of CTI Common Stock.
A holder of CTI Common Stock who receives cash in lieu of a fractional
share of Fiserv Common Stock issued in a Tax-Free Reorganization would be
treated as first having received such fractional share and then as having
received cash in redemption thereof. If such redemption were treated as not
essentially equivalent to a dividend within the meaning of Section 302(b) of the
Code, such Stockholder would recognize capital gain or capital loss equal to the
difference between the cash received and the tax basis allocated to his
fractional share. Such capital gain or loss would be long-term capital gain or
loss if such CTI Common Stock has been held for more than eighteen months as of
the Effective Time and mid-term capital gain or loss if held more than twelve
months but less than eighteen months.
Tax-Free Reorganization treatment is based on certain assumptions,
including without limitation assumptions that: (i) the representations and
warranties set forth in the Merger Agreement will be true, correct and complete
as if made at the Effective Time; (ii) the requisite continuity of interest is
met; (iii) no consideration other than shares of Fiserv Common Stock and cash
paid for fractional shares will be received by holders of the shares of CTI
Common Stock for their shares of CTI Common Stock; and (iv) following the
Merger, Fiserv Solutions will hold (a) at least 90% of the fair market value of
CTI's net assets and at least 70% of the fair market value of CTI's gross assets
held immediately prior to the Merger, and (b) at least 90% of the fair market
value of Fiserv Solutions' net assets and at least 70% of the fair market value
of Fiserv Solutions' gross assets held immediately prior to the Merger (for
purposes of this assumption, amounts paid by CTI or Fiserv Solutions to
Stockholders who receive cash or other property (including cash for fractional
shares), amounts used by CTI or Fiserv Solutions to pay reorganization expenses,
and all redemptions and distributions (except for regular, normal dividends)
made by CTI will be included in the assets of CTI or Fiserv Solutions,
respectively, immediately prior to the Merger). Although Fiserv and CTI believe
the foregoing assumptions are and will be correct, no assurances to that effect
can be given.
Under guidelines published in Revenue Procedure 77-37, 1977-2 C.B. 568
("IRS Guidelines"), the Internal Revenue Service will issue a ruling that a
transaction constitutes a Tax-Free Reorganization if certain factual
representations can be made with respect thereto. In particular, the IRS
Guidelines require a representation that there will be a 50 percent level of
continuity of shareholder interest. CTI Stockholders should note, however, that
the IRS Guidelines are intended to serve only as a description of the
circumstances in which the Internal Revenue Service will issue a favorable
ruling and not as a statement of the substantive law regarding the qualification
of a transaction as a Tax-Free Reorganization. While continuity of shareholder
interest is a requirement for Tax-Free Reorganization treatment, Supreme Court
precedent supports a lesser degree of continuity than that required by the IRS
Guidelines.
27
If, as of the Effective Time, Fiserv is not satisfied that the Merger can
be accounted for as a "pooling of interests" for accounting purposes, then
Fiserv will change the Merger consideration from all stock to all cash and the
Merger will not be treated as a Tax-Free Reorganization. If the Merger is not a
Tax-Free Reorganization, the principal Federal income tax consequences, under
currently applicable law, would be as follows: (i) no gain or loss would be
recognized by Fiserv or CTI as a result of the Merger; and (ii) gain or loss
would be recognized by the holders of CTI Common Stock upon the exchange of
their CTI Common Stock for cash.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
IT DOES NOT ADDRESS EVERY ASPECT OF THE FEDERAL INCOME TAX LAWS THAT MAY BE
RELEVANT TO THE HOLDERS OF CTI COMMON STOCK IN LIGHT OF THEIR PERSONAL
CIRCUMSTANCES OR TO CERTAIN TYPES OF HOLDERS SUBJECT TO SPECIAL TAX TREATMENT
AND IS GENERALLY LIMITED TO PERSONS WHO HOLD CTI COMMON STOCK AS A CAPITAL
ASSET. IN ADDITION, IT DOES NOT DISCUSS ANY STATE, LOCAL OR FOREIGN OR OTHER
FEDERAL TAX ASPECTS OF THE MERGER. THE DISCUSSION IS BASED ON CURRENTLY
EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS
THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE
FOREGOING ARE SUBJECT TO CHANGE RETROACTIVELY AS WELL AS PROSPECTIVELY AND ANY
SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. EACH CTI
STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT
OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND ANY CHANGES THERETO.
CONVERSION OF OPTIONS TO PURCHASE CTI COMMON STOCK
At the Effective Time, each holder of an option to purchase shares of CTI
Common Stock (each, an "Option") granted under CTI's Directors' Stock Option
Plan or 1993 Stock Option Plan, 1995 Stock Option Plan or Non Statutory Stock
Option Plan (collectively, the "Option Plans") then outstanding will be assumed
by Fiserv and will be deemed to constitute an option to purchase, on the same
terms and conditions as were applicable under such Option at the Effective Time,
that number of shares of Fiserv Common Stock (with any fractional share of
Fiserv Common Stock being disregarded) equal to the product of the Conversion
Ratio and the number of shares of CTI Common Stock subject to such Option, at a
price per share (rounded up to the nearest full cent) equal to the exercise
price for the shares of CTI Common Stock subject to such Option divided by the
Conversion Ratio. All Options outstanding at the date of the approval of the
Merger Agreement by the CTI Stockholders will either be exercisable, or will
accelerate and become fully vested and exercisable upon such approval of the
Merger by the CTI Stockholders. As of December 31, 1997, Options to purchase
1,894,490 shares of CTI Common Stock were outstanding under the Option Plans at
exercise prices ranging from $1.00 to $6.00.
CONDITIONS TO THE MERGER
The obligations of Fiserv and CTI to consummate the Merger are subject to
the fulfillment or waiver (where permissible) of certain conditions, including:
(i) obtaining the approval of the CTI Stockholders; (ii) approval for quotation
on NASDAQ, subject to official notice of issuance, of the Fiserv Common Stock to
be issued in connection with the Merger; (iii) the effectiveness of the
Registration Statement of which this Proxy Statement/Prospectus is a part; (iv)
no order being entered in any action or proceeding or other legal restraint or
prohibition preventing the consummation of the Merger; (v) the receipt by each
party of various legal opinions and other certificates, consents, reports and
approvals from the other parties to the Merger and from third parties; (vi) the
accuracy in all material respects of the representations and warranties of each
party and compliance with or the waiver of all covenants and conditions by each
party; (vii) the redemption by CTI of the CTI's 1994 Series Preferred Stock in
accordance with its terms; (viii) the exercise, by the Majority Stockholder of
options to purchase 1,000,000 shares of CTI Common Stock at a price of $1.00 per
share; (ix) the completion of the previously planned disposition of CTI's
surgery center business units; (x) the owners of no more than 5 percent of the
CTI Common Stock shall have exercised Dissenters Rights in connection with the
transaction contemplated by the Merger Agreement; and (xi) the receipt by the
CTI Board of Directors of an opinion from HVA that the consideration to be
received in the Merger is fair from a financial point of view to CTI
Stockholders.
28
AMENDMENTS AND TERMINATION
The Merger Agreement may be amended by a written agreement executed by CTI,
Fiserv and Fiserv Solutions either before or after the CTI Stockholders approve
the Merger. The Merger Agreement may be terminated and the Merger abandoned at
any time prior to the Effective Time by mutual agreement of the Boards of
Directors of Fiserv and CTI, or by the Board of Directors of any party if any of
the conditions applicable to such party to effect the Merger is not satisfied or
waived on or before the Effective Time or if the Merger is not effective on or
before May 8, 1998, provided that the party seeking to terminate the Merger
Agreement is not responsible for the failure of the Merger to occur prior to
such date.
NO SOLICITATION
CTI has agreed, that subject to its fiduciary duties, so long as the
parties are negotiating in good faith with respect to the Merger, it will not
solicit, directly or indirectly, any CTI Acquisition Proposal presented from the
date on which the Merger Agreement was executed until May 8, 1998.
EXPENSES OF THE MERGER
Whether or not the Merger is consummated, each party to the Merger
Agreement will pay its expenses incurred in connection with the Merger.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a "pooling-of-
interests." The "pooling- of-interests" method of accounting assumes that the
combining companies have been merged from inception, and in most cases the
historical financial statements for periods prior to consummation of the Merger
are restated as though the companies had been combined from inception. However,
because CTI's financial statements are not material to Fiserv's financial
statements, Fiserv's financial statements have not been restated. If the Merger
cannot be accounted for as a "pooling-of-interests" for accounting purposes then
the Merger Consideration will be changed from all stock to all cash and the
Merger will be accounted for as a purchase. See "--The Merger Agreement,"
"--Federal Income Tax Consequences of the Merger," and "--Merger Consideration."
RESALE OF FISERV COMMON STOCK BY AFFILIATES
Fiserv Common Stock to be issued to CTI Stockholders in connection with the
Merger has been registered under the Securities Act. Fiserv Common Stock
received by the CTI Stockholders upon consummation of the Merger will be freely
transferable under the Securities Act, except for shares issued to any person
who may be deemed an "Affiliate" (as defined below) of CTI within the meaning of
Rule 145 under the Securities Act ("Rule 145"). "Affiliates" are generally
defined as persons who control, are controlled by, or are under common control
with CTI at the time of the Special Meeting (generally, directors, certain
executive officers and major stockholders). Affiliates of CTI may not sell
their shares of Fiserv Common Stock acquired in connection with the Merger,
except pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act. In general,
under Rule 145, for one year following the Effective Time, an Affiliate
(together with certain related persons) would be entitled to sell shares of
Fiserv Common Stock acquired in connection with the Merger only through
unsolicited "broker transactions" or in transactions directly with a "market
maker," as such terms are defined in Rule 144 under the Securities Act.
Additionally, the number of shares to be sold by an Affiliate (together with
certain related persons and certain persons acting in concert) during such one-
year period within any three-month period for purposes of Rule 145 may not
exceed the greater of 1% of the outstanding shares of Fiserv Common Stock or the
average weekly trading volume of such stock during the four calendar weeks
preceding such sale. Rule 145 would remain available to Affiliates only if
Fiserv remained current with its information filings with the Commission under
the Exchange Act. One year after the Effective Time, an Affiliate would be able
to sell such Fiserv Common Stock without such manner of sale or volume
limitations, provided that Fiserv was current with its Exchange Act information
filings and such Affiliate was not then an Affiliate of Fiserv. Two years after
the Effective Time, an Affiliate would be able to sell such shares of Fiserv
Common Stock without any restrictions provided such Affiliate has not been an
Affiliate of Fiserv for at least three months prior thereto.
29
RIGHTS OF DISSENTING STOCKHOLDERS
CTI Stockholders who oppose the proposed Merger will have the right to
receive payment for the value of their shares as set forth in Sections 92A.300
through 92A.500 of the Nevada Law attached as Appendix C. Such dissenters'
rights will be available only to CTI Stockholders who (i) before the vote to
authorize the Merger, notify CTI in writing of their intention to demand payment
for their shares of CTI Common Stock and (ii) refrain from voting in favor of
the Merger. Voting against the Merger will not constitute notifying CTI of the
intention to demand payment if the Merger is effectuated.
A CTI Stockholder must exercise dissenters' rights for all of the shares
that he or she owns of record. A CTI Stockholder who holds shares beneficially,
and not of record, may assert dissenter's rights for the beneficially owned
shares only by submitting a written consent of the stockholder of record along
with the written notice of dissent. A CTI Stockholder exercising dissenter's
rights with respect to shares that he or she owns beneficially may not exercise
dissenter's rights for fewer than all the shares held by the owner of record.
Since the vote to authorize the Merger will take place at the Special
Meeting, CTI will be required to notify by mail those CTI Stockholders who, by
virtue of a timely notice of their intention to demand payment and having
refrained from voting in favor of the Merger, are entitled to payment for their
shares ("Dissenters Notices"). Dissenters Notices must be sent no later than
ten days after consummation of the Merger. The notice must (i) state where
demand for payment must be sent, (ii) state when certificates must be deposited,
(iii) state the restrictions on transfer of shares that are not evidenced by a
certificate once demand has been made, (iv) supply a form on which to demand
payment, (v) set a date by which demand must be received, and (vi) include a
copy of the relevant portions of the Nevada Law.
Unless a CTI Stockholder acquired his or her shares after CTI sends the
Dissenters Notices, CTI must calculate the fair market value of the shares plus
interest, and within 30 days of the date CTI receives the demand, pay this
amount to any CTI Stockholder that properly exercised dissenters' rights and
deposited certificates with CTI. If CTI does not pay within 30 days, a CTI
Stockholder may enforce in court CTI's obligation to pay. The payment must be
accompanied by (i) CTI's interim balance sheet, (ii) a statement of the fair
market value of the shares, (iii) an explanation of how the interest was
calculated, (iv) a statement of dissenters' right to demand payment, and (v) a
copy of the relevant portions of the Nevada Law.
Within 30 days of when CTI pays a dissenting stockholder for his or her
shares, the CTI Stockholder has the right to challenge CTI's calculation of the
fair market value of the shares and interest due, and must state the amount that
he or she believes to represent the true fair market value and interest on the
shares. If CTI and the CTI Stockholder are not able to settle on an amount, CTI
may petition a court within 60 days of making payment to the dissenting
stockholder. If CTI does not either settle with the stockholder or petition a
court for a determination within 60 days, CTI is obligated to pay the
stockholder the amount demanded that exceeds CTI's calculation of fair market
value plus interest. All dissenters are entitled to judgment for the amount by
which the fair market value of their shares is found to exceed the amount
previously remitted, with interest.
It is a condition to the Fiserv's obligation to complete the Merger that
beneficial owners of no more than five percent of the issued and outstanding
shares of CTI Common Stock exercise their dissenters' rights. See "--The Merger
Agreement" and "--Conditions to the Merger."
30
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In March 1995, CTI entered into a five-year Employment Contract with the
Majority Stockholder to serve as CTI's Chief Executive Officer. The Employment
Contract includes a non competition agreement which prohibits the Majority
Stockholder from indirectly or directly competing against CTI in the markets in
which CTI is doing business at the time of termination for one year following
the termination of the Employment Contract. Additionally, the termination
provisions of the Employment Contract require 180 days notice, a severance
payment of $320,000 and the repurchase by CTI of 500,000 shares of the Majority
Stockholder's CTI Common Stock. On the Effective Time, CTI and the Majority
Stockholder will amend the Employment Contract to provide that in consideration
of $240,000 paid by CTI to the Majority Stockholder, (1) the non-competition
period will be extended to three years, and (2) the termination and severance
provisions will be eliminated.
The Merger Agreement provides that the first $1,500,000 of claims presented
against the Holdback will be administered by the Representatives, each of whom
was a member of CTI's Board of Directors prior to the Merger. The time and
effort which the Representatives will expend in fulfilling their duties is
uncertain; the Representatives may expend more or less time than might be
chargeable by the Representatives if an hourly rate were used. The Merger
Agreement calls for a one-time payment of $10,000 to each of the Representatives
in consideration of the services to be provided after the Effective Time.
As of June 1997, CTI had entered into five-year employment agreements with
certain members of CTI's senior management, each with substantially similar
terms (each a "Management Employment Contract"). Each contract provided for a
severance benefit of three to twelve months salary. Pursuant to the terms of an
amendment to the Management Employment Contracts which is effective upon the
Merger, the term of the each Management Employment Contract will be reduced to
two years, effectively depriving the senior managers of the right to receive a
guaranteed severance benefit if the Management Employment Contract were to be
terminated after the shortened two-year term. In consideration of the reduction
in the term of the Management Employment Contracts, Fiserv and CTI have agreed
to pay between $7,000 to $50,000 to certain senior management employees,
respectively within ten days of the Effective Time.
At the Effective Time, each holder of an Option granted under the Option
Plans then outstanding will be assumed by Fiserv and will be deemed to
constitute an option to purchase, on the same terms and conditions as were
applicable under such Option at the Effective Time, that number of shares of
Fiserv Common Stock (with any fractional share of Fiserv Common Stock being
disregarded) equal to the product of the Conversion Ratio and the number of
shares of CTI Common Stock subject to such Option, at a price per share (rounded
up to the nearest full cent) equal to the exercise price for the shares of CTI
Common Stock subject to such Option divided by the Conversion Ratio. All
Options outstanding at the date of the approval of the Merger Agreement by
stockholders will either be exercisable, or will accelerate and become fully
vested and exercisable upon such approval by Stockholders. As of December 31,
1997, Options to purchase 1,894,490 shares of CTI Common Stock were outstanding
under the Option Plans at exercise prices ranging from $1.00 to $6.00.
31
COMPARATIVE MARKET PRICES AND DIVIDENDS
FISERV CTI
COMMON STOCK COMMON STOCK
----------------------- ---------------------
1996: HIGH LOW HIGH LOW
--------- ------------ ------- ------------
Quarter Ended March 31, $32 $25 3/8 $ 6 $ 4
Quarter Ended June 30, 33 3/8 28 1/16 4 1/4 3
Quarter Ended September 30, 38 11/16 28 5/8 4 1 1/8
Quarter Ended December 31, 39 5/8 34 2 1/2 7/16
1997:
Quarter Ended March 31, $39 $ 32 3/4 $ 1 1/8 $ 1/2
Quarter Ended June 30, 44 5/8 36 3/4 5/8 3/8
Quarter Ended September 30, 49 1/2 43 7/8 1 7/32 7/16
Quarter Ended December 31, 50 1/8 39 3/4 9/16
1998:
Quarter Ended March 31,
(through March __, 1998) $ _____ $ _____ $ _____ $ ____
On November 3, 1997, the last full trading day prior to the joint public
announcement that CTI and Fiserv had executed the Merger Agreement, the closing
prices per share of Fiserv Common Stock and CTI Common Stock as reported by
NASDAQ and the NASD were $43 15/16 and $3/4, respectively.
On March __, 1998, the closing prices per share of Fiserv Common Stock and
CTI Common Stock as reported by NASDAQ and NASD were $_____ and $___,
respectively. CTI Stockholders are urged to obtain current market quotations
for shares of Fiserv Common Stock and CTI Common Stock.
As of March ___, 1998 CTI had approximately 650 Stockholders of record. As
of March __, 1998, Fiserv had approximately ______ Stockholders of record.
Fiserv has never declared or paid any cash dividends or made any other
distribution on the Fiserv Common Stock, and it is anticipated that in the
foreseeable future Fiserv will follow its policy of retaining any earnings for
use in its business. Any future determination as to declaration and payment of
dividends will be made at the discretion of the Board of Directors of Fiserv.
CTI has never declared or paid any cash dividends or made any other
distribution on the CTI Common Stock, and it is anticipated until the closing,
CTI will follow its policy of retaining any earnings for use in its business.
Any future determination as to declaration and payment of dividends will be made
at the discretion of the Board of Directors of CTI.
FISERV SUPPLEMENTAL FINANCIAL DATA
The following table sets forth supplemental consolidated financial data of
Fiserv. The income statement data in the table for the four years ended
December 31, 1997, and the balance sheet data as of December 31, 1995, 1996 and
1997, have been derived from Fiserv's consolidated financial statements
incorporated by reference herein, which have been audited by Deloitte & Touche
LLP, independent auditors. The income statement data for the year ended
December 31, 1993 and the balance sheet data as of December 31, 1993 and 1994,
have been derived from Fiserv's consolidated financial statements which are not
incorporated by reference herein.
32
FISERV, INC.
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1993 1994 1995(1) 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
REVENUES....................................... $ 519,996 $ 635,297 $ 769,104 $ 879,449 $ 974,432
---------- ---------- ---------- ---------- ----------
Cost of revenues:
Salaries, commissions and
payroll related costs........................ 239,166 298,997 351,180 394,932 454,850
Data processing rentals and
telecommunication costs...................... 75,689 86,953 100,908 97,721 100,601
Other operating expenses....................... 103,185 123,086 141,100 164,003 189,982
Depreciation and amortization of
property and equipment....................... 24,593 33,751 40,486 44,120 49,119
Purchased incomplete
software technology.......................... -- -- 172,970 -- --
Amortization of intangible assets.............. 9,350 11,060 26,166 21,391 14,067
Amortization (capitalization) of
internally generated computer
software - net............................... (7,185) (9,599) (6,382) 3,732 36
---------- ---------- ---------- ---------- ----------
Total.......................................... 444,798 544,248 826,428 725,899 808,655
---------- ---------- ---------- ---------- ----------
Operating income (loss)........................ 75,198 91,049 (57,324) 153,550 165,777
Interest expense - net......................... 4,366 6,951 18,822 19,088 11,878
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES........................................ 70,832 84,098 (76,146) 134,462 153,899
Income tax provision (credit).................. 27,107 33,067 (30,220) 54,754 63,099
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).............................. $ 43,725 $ 51,031 $ (45,926) $ 79,708 $ 90,800
========== ========== ========== ========== ==========
Net income (loss) per common
and common equivalent share:
Basic....................................... $0.98 $1.10 $(0.93) $1.56 $1.75
========== ========== ========== ========== ==========
Diluted..................................... $0.96 $1.08 $(0.93) $1.53 $1.70
========== ========== ========== ========== ==========
Shares used in computing net
income per share:
Basic....................................... 44,749 46,583 49,348 50,993 52,009
========== ========== ========== ========== ==========
Diluted..................................... 45,575 47,364 49,348 52,046 53,528
========== ========== ========== ========== ==========
BALANCE SHEET DATA:
Total assets................................... $1,874,939 $2,204,832 $2,514,597 $2,698,979 $3,636,491
Long-term debt................................. 124,624 150,599 383,416 272,864 252,031
Shareholders' equity........................... 370,740 425,389 514,866 605,898 769,255
Book value per common..........................
share......................................... $7.85 $9.01 $9.92 $11.72 $14.26
- ---------------
(1) 1995 includes certain charges related to the acquisition of Information
Technology, Inc. ("ITI"). The charges are a pre-tax special, one-time, non-
cash charge of $173 million to expense the purchased ITI Premier II research
and development and a pre-tax charge of $9.9 million for the accelerated
amortization of the completed ITI Premier I software. The combined after-
tax charge was $109.6 million ($2.18 per share - diluted). Net income and
net income per share-diluted before such charges was $63.7 million and
$1.27, respectively.
33
FISERV MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the relative
percentage which certain items in Fiserv's consolidated statements of income
bear to revenues and the percentage change in those items from period to period.
The table and the following discussion exclude certain charges to 1995
operations associated with the acquisition of Information Technology, Inc.
aggregating $182.9 million, relating to the write-off of incomplete software
technology and accelerated amortization of computer software acquired.
PERIOD TO PERIOD PERCENTAGE
PERCENTAGE OF REVENUES INCREASE (DECREASE)
YEAR ENDED DECEMBER 31, ----------------------------
------------------------------------ 1996 VS 1997 VS
1995 1996 1997 1995 1996
-------- -------- ------- ------------ --------------
Revenues.................................... 100.0% 100.0% 100.0% 14.3 % 10.8%
----- ----- ----- ------ -----
Cost of revenues:
Salaries, commissions
and payroll related costs.................. 45.7 44.9 46.7 12.5 15.2
Data processing expenses,
rentals and telecommunication
costs...................................... 13.1 11.1 10.3 (3.2) 2.9
Other operating costs....................... 18.3 18.6 19.5 16.2 15.8
Depreciation and amortization
of equipment and
improvements............................... 5.3 5.0 5.0 9.0 11.3
Amortization of intangible
assets..................................... 2.1 2.4 1.5 31.7 (34.2)
Amortization (capitalization)
of internally generated
software-net............................... (0.8) 0.4 -- (158.5) (99.0)
----- ----- ----- ------ -----
Total costs of revenues..................... 83.7% 82.4% 83.0% 12.8% 11.4%
----- ----- ----- ------ -----
Operating income............................ 16.3% 17.6% 17.0% 22.3% 8.0%
----- ----- ----- ------ -----
Income before income
taxes...................................... 13.9% 15.3% 15.8% 26.0% 14.5%
----- ----- ----- ------ -----
Net income.................................. 8.3% 9.1% 9.3% 25.1% 13.9%
===== ===== ===== ====== =====
Revenues increased $95.0 million in 1997 and $110.3 million in 1996. In
both years, approximately half of the growth resulted from the inclusion of
revenues from the date of purchase of acquired businesses and the balance in
each year from the net addition of new clients, growth in the transaction volume
experienced by existing clients and price increases. Fiserv provides item
processing services in the Canadian market through a joint venture with Canadian
Imperial Bank of Commerce, the revenues from which are recorded on a free basis.
If the gross revenues from this activity were recognized, revenues for the
current year would have been increased by approximately $205 million or 23
percent.
34
Cost of revenues increased $82.8 million in 1997 and $82.4 million in 1996.
As a percentage of revenues, cost of revenues increased 0.6 percent from 1996 to
1997 and decreased 1.3 percent from 1995 to 1996. 1996 revenues included a
significant amount of termination fees with no related costs incurred. The make
up of cost of revenues also has been significantly affected in both years by
business acquisitions and by changes in the mix of Fiserv's business as sales of
software and related support activities, securities processing, item processing
and electronic funds transfer operations have enjoyed an increasing percentage
of total revenues.
A significant portion of the purchase price of Fiserv's acquisitions has
been allocated to intangible assets, such as client contracts, computer
software, non-competition agreements and goodwill, which are being amortized
over time, generally three to 40 years. Amortization of these costs decreased
$7.3 million from 1996 to 1997 and increased $5.1 million from 1995 to 1996.
The change from an increase in 1996 to a decrease in 1997 resulted primarily
from accelerated amortization applied to completed software acquired in the
acquisition of ITI.
Capitalization of internally generated computer software is stated net of
amortization and decreased $3.7 million in 1997 and $10.1 million in 1996. Net
software capitalized approximated related amortization in 1997 and was more than
offset by amortization in 1996 due to the accelerated amortization of software
in both years resulting from the planned consolidation of certain product lines.
Operating income increased $12.2 million in 1997 and $28.0 million in 1996.
As a percentage of revenues, operating income decreased 0.6 percent in 1997 and
increased 1.3 percent in 1996.
The effective income tax rate was 41 percent in 1997 and 1996 and 40
percent in 1995. The effective income tax rate for 1998 is expected to remain
at 41 percent.
Fiserv believes that it has an effective plan to address the Year 2000
issue and expects to incur charges approximating $15 million a year in each of
the next two years related to this issue. It is not anticipated that operating
income as a percentage of revenues will be materially impacted by these charges.
Fiserv's growth has been accomplished largely through the acquisition of
entities engaged in businesses that are complementary to its operations.
Management believes that a number of acquisition candidates are available that
would further enhance Fiserv's competitive position and plans to pursue them
vigorously. Management is engaged in an ongoing program to reduce expenses
related to acquisitions by eliminating operating redundancies. Fiserv's
approach has been to move slowly in achieving this goal in order to minimize the
amount of disruption experienced by its clients and the potential loss of
clients due to this program.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes Fiserv's primary sources of funds:
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
---------- ---------- ---------
(IN THOUSANDS)
Cash provided by operating activities
before changes in securities processing
receivables and payables-net............. $107,037 $ 173,774 $175,506
Securities processing receivables
and payables-net......................... 29,935 (3,660) (5,948)
-------- --------- --------
Cash provided by operating activities........ 136,972 170,114 169,558
Issuance of common stock-net................. 638 4,896 10,040
Decrease (increase) in investments........... 10,254 16,831 (55,625)
Increase (decrease) in net borrowings........ 180,644 (119,640) (31,096)
-------- --------- --------
TOTAL...................................... $328,508 $ 72,201 $ 92,877
======== ========= ========
Fiserv has applied a significant portion of its cash flow from operations
to acquisitions and the reduction of long-term debt and invests the remainder in
short-term obligations until it is needed for further acquisitions or operating
purposes.
Fiserv believes that its cash flow from operations together with other
available sources of funds will be adequate to meet its funding requirements.
In the event that Fiserv makes significant future acquisitions, however, it may
raise funds through additional borrowings or issuance of securities.
35
BUSINESS OF FISERV
Fiserv, with operations in over 75 cities, including 15 cities in Canada,
England and Singapore, is a leading independent provider of financial data
processing systems and related information management services and products to
banks, credit unions, mortgage banks, savings institutions and other financial
intermediaries. These services and products are based primarily on proprietary
software developed by Fiserv and maintained on computers located at data
processing centers throughout the United States. Fiserv is ranked as the
nation's leading data processing provider for banks and savings institutions in
terms of total clients served and is the nation's second leading data processing
provider for credit unions and mortgage banks.
Fiserv directly supports account and transaction processing software systems
for approximately 3,383 financial institutions, maintaining approximately 50
million service bureau accounts. Fiserv delivers this account and transaction
processing in all four of the traditional delivery modes: service bureau;
facilities management; resource management; and in-house solutions. Fiserv also
provides electronic banking services, which include Automated Teller Machine
("ATM")/Electronic Funds Transfer ("EFT") services to financial institutions,
and processing approximately 200 million ATM transactions annually. Fiserv also
provides check and share draft remittance and back-office processing to
financial institutions, handling approximately over 4.1 billion prime pass items
per year through its regional item processing centers located in over 45 cities
in North America. In addition, Fiserv provides trust administration services
for IRAs and other retirement plans, and furnishes microcomputer software to
financial institutions for executive information and decision support systems.
The total client base served by Fiserv includes more than 5,000 financial
institutions. Fiserv believes that its focus on customer service and the
contractual nature of its business, combined with its historical renewal
experience, provide a high level of recurring revenues.
The Fiserv Securities Processing Group provides a wide range of traditional
processing and related services to support all aspects of a retail brokerage
operation. In addition, the Securities Processing Group provides an array of
complementary products and services, such as specialized processing for bank and
capital markets departments, mutual fund processing for both load and no load
funds, self-directed retirement plans, equity dividend reinvestment plans,
investment management accounts, mutual fund wrap accounts, annuity processing,
and customized Internet, telephony and programming.
Fiserv was formed on July 31, 1984, through the combination of two major
regional data processing firms located in Milwaukee, Wisconsin, and Tampa,
Florida. These firms--First Data Processing of Milwaukee and Sunshine State
Systems of Tampa--began their operations in 1964 and 1971, respectively, as the
data processing operations of their parent financial institutions.
Historically, operations were expanded by developing a range of services for
these parent organizations as well as other financial institutions.
Since Fiserv's formation in 1984, it has expanded its operations through over
60 acquisitions and internally through the growth of existing clients. From
1988 to 1997, Fiserv's revenues increased from $125.0 million to $974.4 million,
its operating income increased from $15.5 million to $165.8 million, and its net
income grew from $9.2 million to $90.8 million. During this period, net income
per common and common equivalent share-diluted increased from $.33 to $1.70.
Additional information concerning Fiserv is included in Fiserv's
Annual Report on Form 10-K for the year ended December 31, 1997, and other
Fiserv documents filed with the Commission that are incorporated by reference
herein. See "Incorporation of Certain Documents by Reference."
36
CTI SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of CTI.
The selected consolidated historical financial data at and for each year in the
five year period ended June 30, 1997 have been extracted from CTI's consolidated
financial statement which have been audited by independent certified public
accountants. The unaudited selected consolidated historical financial data at
and for the six months ended December 31, 1996 and 1997 have been extracted from
CTI's unaudited consolidated financial statements which were filed with the
Commission on February 17, 1998 as part of CTI's report on Form 10-Q for the
quarter ended December 31, 1997.
CTI SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(In thousands, except per share amounts)
AS OF AND FOR THE
SIX MONTHS ENDED
AS OF AND FOR THE YEAR ENDED JUNE 30, DECEMBER 31,
--------------------------------------------------------------- -----------------------
1993(1) 1994(1)(3) 1995(4) 1996(4) 1997 1996 1997
--------- ----------- ----------- ----------- --------- -------- -------------
(unaudited)
STATEMENT OF OPERATIONS DATA(1):
Net Revenue......................... -- -- $21,608 $26,823 $26,890 $12,664 $13,583
Earnings (loss) from continuing
operations.................... -- -- 925 (9,554) 437 (680) 1,302
Earnings (loss) from continuing
operations per common share:
Basic.......................... -- -- $ 0.12 $ (1.10) $ 0.04 $ (0.08) $ 0.08
Diluted........................ -- -- 0.12 (1.10) 0.04 (0.08) 0.08
Cash dividends per common share..... -- -- -- -- -- -- --
Weighted average shares
outstanding:...................
Basic.......................... 1,589 2,419 7,655 8,695 11,062 8,918 15,289
Diluted........................ 1,589 2,419 7,655 8,695 11,062 8,918 16,289
BALANCE SHEET DATA(2):
Total assets........................ $ 189 $12,238 $26,090 $14,025 $ 9,739 $13,529 $11,124
Long term obligations............... 0 1,766 3,224 3,070 118 2,589 58
Stockholders' equity (deficit)...... 176 4,235 9,921 (6,236) (1,949) (7,280) (696)
Book value per common share......... $0.11 $0.89 $ 1.17 $ (0.70) $ (0.13) $ (0.82) $ (0.05)
Shares of CTI Common Stock
outstanding.................... 1,589 4,739 8,510 8,916 15,289 8,916 15,289
- ---------------
(1) On June 22, 1994, CTI entered into the credit union software business
through the purchase of the credit union division of VERSYSS Incorporated
and the acquisition of CUSA, Inc. Also on June 22, 1994, CTI purchased an
office rental complex located in Sparks, Nevada. Prior to its entering into
the credit union software business, CTI's operations consisted of a free-
standing surgery center located in Sparks, Nevada. CTI's surgery center
operations were discontinued during fiscal 1997. Since none of the
operations existing prior to CTI's entrance to the credit union software
business were continuing operations as of June 30, 1997, no Statement of
Operations Data is presented for the period from July 1, 1993 to June 22,
1994. Additionally, the operations of the VERSYSS credit division, CUSA,
Inc. and the Sparks office rental complex, from June 22, 1994 to June 30,
1994 were insignificant and are not presented.
(2) Total assets and long term liabilities as of the periods presented include
some assets and long term liabilities which were discontinued during fiscal
1997.
(3) The Balance Sheet Data as of June 30, 1994 reflect the assets and
liabilities of the credit union software businesses acquired on June 22,
1994.
(4) The Statement of Operations Data for the periods ending June 30, 1995 and
1996 include the results from the continuing operations (credit union
software business) of the businesses acquired during fiscal 1995 and 1996,
respectively, from the acquisition dates. See "CTI's Business--
Acquisitions."
37
CTI MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In June 1994, CTI entered into the credit union software business through
the acquisition of CUSA, Inc. ("CUSA") and the credit union software division of
VERSYSS Incorporated ("VERSYSS"), CUSA's largest distributor. From June 1994 to
July 1995, CTI acquired most of the distributors of the CUSA software, some of
which were distributors of software products in the medical, commercial, and
rental equipment markets. In June 1997, CTI disposed of the business and assets
of CTI's medical and commercial divisions, through a sale of assets to Physician
Computer Network, Inc. ("PCN"). As of March 1997, CTI also sold its rental
equipment software division and an office rental complex which was acquired by
CTI in June 1994. As of October 1, 1997, CTI transferred the assets of the
surgery center to the Surgery Center Purchasers for $450,000 in the form of two-
year promissory notes secured by 400,000 shares of the Surgery Center
Purchasers' CTI Common Stock. With the divestiture of the medical, commercial
and rental divisions, the office rental complex and the surgery center business,
CTI plans to devote its resources to the development and expansion of its credit
union software business. (Unless otherwise specified, all references to years
in this "Discussion and Analysis of Financial Condition and Results of
Operations" refer to the corresponding fiscal year and all references to the
"first quarter" refer to the first quarter of CTI's fiscal year (quarter ended
September 30)).
Results from continuing operations (the credit union software business)
improved substantially from 1996 to 1997 and continued to improve in the first
quarter of 1998. The improvement was due mainly to the implementation by
management of an aggressive plan to reduce corporate overhead expenses and to
focus on credit union operations. Management will continue to monitor corporate
overhead expenses in 1998 and intends to increase its focus on expanding the
revenues and profitability of the credit union software business. Any
statements herein which refer to plans or intentions for future fiscal years
assume that the Merger is not consummated and that CTI continues under current
management.
THREE AND SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE THREE AND SIX
MONTHS ENDED DECEMBER 31, 1996
Net revenues
------------
CTI's net revenues remained level at $7.0 million in the second quarter of
1997 and in the second quarter of 1998, and increased seven percent from $12.7
million in the first six months of 1997 to $13.6 million in the first six months
of 1998. Revenues from hardware and software sales increased eight percent from
$2.6 million in the second quarter of 1997 to $2.8 million in the second quarter
of 1998, and increased 24 percent from $4.3 in the first six months of 1997 to
$5.3 million in the first six months of 1998. The increase is the result of
additional software sales as credit unions begin to upgrade their systems to
prepare for the year 2000 issues. Revenues from support, maintenance and other
services decreased five percent from $4.4 million in the second quarter of 1997
to $4.2 million in the second quarter of 1998, and decreased one percent from
$8.4 million in the first six months of 1997 to $8.3 million in the first six
months of 1998. The decrease was due mainly to a decrease in installation and
training revenues and sales of CTI's statement processing services. Revenues
are derived from computer system sales, hardware maintenance and software
support, and the sale of products, which are related to CTI's core computer
systems such as statement printing, disaster recovery, and microfiche services.
Gross margin
------------
Hardware and software gross margin increased from 60 percent in the second
quarter of 1997 to 64 percent in 1998, and increased from 59 percent in the
first six months of 1997 to 63 percent in the first six months of 1998. In the
same periods, gross margin from support, maintenance and other services revenue
remained fairly level. The increases in the hardware and software gross margin
is primarily attributable to a shift in the sales mix toward the more profitable
software sales. Costs of goods sold consist of the cost of hardware and
software purchased for resale, the amortization of capitalized software
development costs, and the expense of supporting and installing the systems
sold.
38
Product development costs
-------------------------
Product development costs include research and development, system
operational error fixes and maintenance software upgrades. As expected, product
development costs increased five percent from $592 thousand in the second
quarter of 1997 to $622 thousand in the second quarter of 1998, and increased 21
percent from $1.1 million in the first six months of 1997 to $1.3 million in the
first six months of 1998. The increase reflects CTI's commitment to continue to
improve current products and to invest in the research and development of new
products, with an increased emphasis on research and development over
capitalized expenditures.
Selling, general and administrative costs
-----------------------------------------
The selling, general and administrative expenses for CTI decreased 19
percent from $2.4 million in the second quarter of 1997 to $2.0 million in the
second quarter of 1998, and decreased 24 percent from $5.0 million in the first
six months of 1997 to $3.8 million in the first six months of 1998. The
decreases were due to the reduction, in the first and second quarters of 1997,
of general corporate overhead expenses as part of an overall plan by management.
Management does not anticipate further reductions in selling, general and
administrative costs in the future.
Interest and income tax expense
-------------------------------
Interest income (expense), net, decreased 219 percent in the second quarter
of 1998 when compared to the second quarter of 1997, and decreased 131 percent
in the first six months of 1998 when compared to the first six months of 1997.
The decrease was due primarily to a decrease in the average debt outstanding and
an increase in cash earning interest income.
Income tax expense was zero in the second quarter of 1998 and 1997 and in
the first six months of 1998 and 1997. No tax was recorded due to the use of
certain net operating loss tax carry forwards which are available to CTI.
Alternative minimum tax expense was considered insignificant and not recorded in
any of the periods presented.
Discontinued Operations
-----------------------
The income from the disposal of discontinued operations, net of income
taxes reported in the second quarter of 1998 and for the six months ended
December 31, 1997, include income from the sale and operations of the
discontinued surgery center division. The loss from discontinued operations,
net of income taxes, reported in the second quarter of 1997 and for the six
months ended December 31, 1996, include the medical, commercial, and equipment
rental software divisions, the office rental complex division, and the surgery
center division. There were no operations or losses recorded in loss from
discontinued operations, net of income taxes in the second quarter of 1998 or in
the first six months of 1998 related to these divisions. Additional income
and/or losses related to the disposed divisions are not anticipated however no
assurance can be given that unexpected costs related to the discontinued
divisions will not occur.
The medical, commercial, and equipment rental software divisions and the
office rental complex were sold prior to June 30, 1997. Although the decision
to sell the surgery center division was made prior to June 30, 1997, the sale
was not completed until October 1, 1997. Since June 30, 1997, the activities of
each of the discontinued divisions have been recorded in loss from disposal of
discontinued operations, net of income taxes in the accompanying consolidated
statements of operations.
39
1997 COMPARED TO 1996
Net revenues
------------
CTI's total revenues from continuing operations increased less than 1
percent from $26.8 million in 1996 to $26.9 million in 1997. Revenues from
hardware and software sales decreased 15.5 percent from $11.2 million in 1996 to
$9.4 million in 1997. The decrease was due primarily to management's decision
to decrease emphasis on sales of larger systems with lower profit margins
because of complicated conversion, installation and training processes.
Revenues from support, maintenance and other services increased 11.5 percent
from $15.6 million in 1996 to $17.4 million in 1997. The increase was due to
increased sales of CTI's statement processing services and an increase in
support and maintenance fees. Revenues were derived from computer system sales,
hardware maintenance and software support and the sale of products which are
related to CTI's core computer systems such as statement printing, disaster
recovery and microfiche services.
Gross margin
------------
Gross margin increased 3.6 percent from $11.5 million in 1996 to $11.9
million in 1997. The hardware and software gross profit margin increased from
47 percent in 1996 to 56.6 percent in 1997. In the same period, gross profit
margins from support, maintenance and other services revenues decreased from
40.2 percent to 37.9 percent. The increase in the hardware and software gross
margin was attributable mainly to a decrease in amortized software and increased
efficiencies in CTI's installation and training processes. The decrease in the
gross profit margin from support, maintenance and other services revenue was due
to increased software support personnel in 1997. Cost of goods sold consists of
the cost of hardware and software purchased for resale, the amortization of
capitalized software development costs and the expense of supporting and
installing the systems sold.
Product development costs
--------------------------
Product development costs represent the uncapitalized costs of software
development. Uncapitalized costs include research and development, minor
enhancements to operational systems and maintenance software upgrades. The
increase in product development costs from $1.1 million in 1996 to $2.5 million
in 1997 resulted from management's focus on product development. During 1997,
CTI devoted substantial resources to improving systems that are in general
release and enhancing features of various products. CTI expects that
development expenditures will continue in fiscal 1998 at approximately the same
amount as 1997, as CTI continues to improve current products and to invest in
the development of new products.
Selling, general and administrative expenses
--------------------------------------------
As a percentage of net revenues, the selling, general and administrative
expenses decreased 31% from $12.6 million in 1996 to $8.7 million in 1997. The
decrease was the result of management's effort to reduce corporate overhead by
eliminating expenses associated with the disposed entities, and a reduction in
the administrative staff, management personnel and office locations related to
the continuing operations. Although management plans to continue to look for
ways to decrease overhead and to improve efficiencies, it is anticipated that
the selling, general and administrative costs will not decrease significantly
from the 1997 level.
In 1996, CTI recorded $360,209 in expense for the amortization of the
excess of purchase price over the fair value of the net tangible and
identifiable intangible assets acquired ("Acquired Goodwill") which is included
in selling, general and administrative expenses. In 1997, CTI recorded no
expense for the amortization of the Acquired Goodwill due to the write down of
the Acquired Goodwill through a nonrecurring charge incurred in 1996.
Nonrecurring charges
---------------------
In 1996, CTI reported nonrecurring charges of $6.9 million which were
primarily related to certain restructuring charges and the reduction of the
carrying value of the Acquired Goodwill and software development and acquisition
costs. In 1997, no nonrecurring charges were incurred.
40
Interest and income tax expense
-------------------------------
Interest expense decreased 37 percent in 1997 from 1996 due to the
elimination of debt during the year. It is anticipated that interest expense
will continue to decrease in 1998.
Income tax expense in both 1997 and 1996 for continuing operations was zero
due to the significant loss in 1996 and the utilization of loss carry forwards
in 1997.
Discontinued Operations
-----------------------
The loss from discontinued operations, net of income taxes decreased from
$5.4 million in 1996 to $0.2 million in 1997. The decrease in 1997 is the
result of the elimination of the operations of the unprofitable medical and
commercial software business units in 1996. The medical and commercial software
business units reported significant operating losses in 1996.
The loss from the disposal of discontinued operations, net of income taxes,
of $1.6 million in 1997 includes (1) an accrual of $1.9 million representing (2)
$475,000 in income tax expense related to the tax gain on the sale of the
medical division, (3) a gain of $479,738 on the sale of the office rental
complex, and (4) a gain of $293,690 on the sale of the rental software division.
Management does not anticipate additional losses from the disposal of the
discontinued operations in fiscal 1998; however, no assurance can be given that
unexpected costs related to the discontinued segments will not occur. The
change in the estimated costs of the disposed medical software business unit,
including the medical records division, from $2.5 million, as estimated at June
30, 1996, to $4.4 million at June 30, 1997.
1996 COMPARED TO 1995
Net revenues
------------
CTI's revenues from continuing operations increased 24 percent from $21.6
million in 1995 to $26.8 million in 1996. Revenues from hardware and software
sales increased 4.9 percent from $10.7 million in 1995 to $11.2 million in 1996.
The increase was less than expected primarily because of slower than anticipated
new sales related to the continuing operations of entities acquired in 1995 and
delays in product delivery at the end of 1996. Revenues from support,
maintenance and other services increased 42.9 percent from $10.9 million in 1995
to $15.6 million in 1996. The increase was due to increased sales of CTI's
statement processing services and the addition in 1996 of support, maintenance
and other service revenue of entities acquired during 1995. On a pro forma
consolidated basis, which reports the revenue of CTI as if each of the
consolidated entities were acquired, or disposed of, as the case may be, at the
beginning of the periods reported, the total revenue was $23.9 million for
fiscal 1995 and $26.8 million for fiscal 1996, representing a 12 percent
increase. Revenues were derived from computer system sales, hardware
maintenance and software support and the sale of products which are related to
CTI's core computer systems, such as statement printing, disaster recovery, and
microfiche services.
Gross margin
------------
Gross margin increased 6 percent from $10.9 million in 1995 to $11.5
million in 1996. The hardware and software gross profit margin decreased from
56 percent in 1995 to 47 percent in 1996. In the same period, the gross profit
margins from support, maintenance and other services revenues decreased from 45
percent to 40 percent. The decrease in the hardware and software gross margin
was attributable to decreased hardware margins due to customers increased demand
for less profitable personal computers. The decrease in the gross profit margin
from support, maintenance and other services revenue was due to increased
software support personnel, and an increase of lower margin statement processing
services as a percentage of support, maintenance and other services revenue in
1996 when compared to 1995. Costs of goods sold consist of the cost of hardware
and software purchased for resale, the amortization of capitalized software
development costs and the expense of supporting and installing the systems sold.
41
Product development costs
--------------------------
Product development costs represent the uncapitalized cost of software
development. Uncapitalized costs include research and development, system minor
enhancements to operational systems and maintenance software upgrades. Product
development costs were $1 million in 1995 and $1.1 million in 1996.
Selling, general and administrative costs
-----------------------------------------
Selling, general, and administrative expenses for CTI increased 58 percent
from $8 million in 1995 to $12.6 in 1996. This increase was partly the result
of the incremental selling, general and administrative expenses of the entities
acquired in 1995 and 1996, which were not reduced to the extent anticipated
through cost reduction plans implemented in 1995 and 1996. Additionally, CTI's
entire general corporate overhead was included in continuing operations, with no
allocation of corporate overhead to the discontinued operations. Since a
majority of the assets of the disposed divisions were acquired in the fourth
quarter of 1995 and in 1996, the dollar volume of incremental general corporate
overhead attributable to the disposed divisions was greater in 1996 than 1995.
The incremental general corporate overhead attributable to the disposed
divisions was eliminated in the first and second quarters of fiscal 1997.
The amortization of the excess of purchase price over the fair value of the
net tangible and identifiable intangible assets acquired ("Acquired Goodwill")
was included in selling, general and administrative expenses. The Acquired
Goodwill was amortized using the straight-line method over an estimated life of
15 years. During 1996, total amortization of the Acquired Goodwill was $360,209
compared to $364,146 in 1995.
Portions of the purchase price of certain acquisitions completed in 1995
and 1996 were allocated to software acquisition costs. The amortization of the
acquired software acquisition costs is included in the cost of goods sold.
Software acquisition costs are amortized over the estimated life of the software
(principally three to five years). During 1996, amortization of software
development and acquisition costs was $834,509 compared to $414,124 in 1995.
Nonrecurring charges
---------------------
In 1996, CTI reported nonrecurring charges of $6.9 million which were
primarily related to certain restructuring charges and the reduction of the
carrying value of the Acquired Goodwill and software development costs.
Pursuant to a limited restructuring plan adopted in June 1996, the
employment contract of a shareholder and member of the board of directors was
terminated in the second fiscal quarter of 1997. As a result, compensation and
severance fees of approximately $611,000 were accrued in 1996 as a nonrecurring
charge.
As discussed in CTI's Quarterly Reports for the quarter ended December 31,
1995 and March 31, 1996, over the six month period ending June 30, 1996,
management studied the relationship between the carrying value of the Acquired
Goodwill and the expected future cash flows related thereto. The Acquired
Goodwill relates primarily to certain customer contracts and customer lists. As
evidenced by the loss from continuing operations incurred in 1996, the costs of
servicing the contracts acquired were higher than anticipated. Additionally,
the profitability of sales to the customer base acquired was lower than
anticipated. Therefore, in the opinion of management, the expected future
discounted cash flows net of related expenses from the Acquired Goodwill of
credit union assets were insufficient to support the recorded value.
Consequently a nonrecurring charge of $5.4 million was recorded in 1996.
In order to evaluate the expected cash flow of the capitalized software,
CTI compared the amount of capitalized software for each product to the expected
future undiscounted cash flow from the sale of such products. The study showed
that, at expected sales volumes, the costs associated with the sale and
installation of certain software products capitalized were higher than the
expected discounted cash flows from such sales. Consequently, management
determined that the expected cash flows for certain products were insufficient
to support the amounts capitalized for the related software. Accordingly, a
one-time charge of approximately $846,000 was recorded in 1996 to adjust
capitalized software to be consistent with the estimated future cash flows from
the sales of the related products.
42
Interest and Income tax expense
-------------------------------
Interest expense increased 82 percent in 1996 due primarily to an increase
in the average debt outstanding used to finance discontinued operations.
Income tax expense was $727,432 in 1995 (resulting in an effective tax rate
of 43.7 percent) compared to a tax expense of zero in 1996. The difference in
the tax expense was due to the losses incurred in 1996.
Discontinued Operations
-----------------------
The loss from discontinued operations, net of income taxes, increased from
$149,000 in 1995 to $5.4 million in 1996. The increased loss in 1996 was
primarily the result of the inclusion of a full year of operations of the
medical and commercial divisions of businesses acquired in 1995 and the loss
from operations of the medical and commercial portions of businesses acquired in
1996 from the respective dates of acquisition. The 1996 loss from discontinued
operations reflects the unprofitability of the acquired medical and commercial
operations and CTI's inability to recognize expected cost synergy and revenue
targets in its medical and commercial business units.
The estimated loss from the disposal of discontinued operations, net of
income taxes includes the estimated costs for the disposal of the medical
records software product through the anticipated date of disposition. The
estimated loss from the disposal also includes the costs incurred for
contractually specified severance payments to employees not hired by PCN
subsequent to PCN's purchase of the medical division, the cost of closing
facilities (including estimated future lease obligations, which were not assumed
by PCN in connection with the sale), and the estimated loss from the operations
of the discontinued medical records software business unit through the
anticipated disposition date.
YEAR 2000
In fiscal 1998, management initiated a company-wide project to prepare the
Company's internal system and applications for the year 2000. Project
completion is expected by the middle of 1999 with an estimated cost of $200,000.
A significant portion of these costs are not likely to be incremental costs to
the Company, but rather will represent the redeployment of existing information
technology resources. If the preparation of the Company's systems is not
completed timely, the year 2000 problem may have a material impact on the
operations of the Company.
CAPITAL RESOURCES AND LIQUIDITY
At December 31, 1997, CTI had current assets of $7.4 million and current
liabilities of $11.8 million. The current liabilities include $6.0 million of
deferred revenue, which primarily represents payments received for services to
be provided over the remaining term of software and hardware maintenance
contracts (generally one year).
Losses from operations in 1996 and the first quarter of 1997 caused CTI to
be in violation of certain loan covenants with its primary lender and raised
concerns among employees, stockholders, and some customers. In order to address
these circumstances, the board of directors decided to seek equity financing.
On January 24, 1997, CTI entered into a Stock Purchase and Sale Agreement (the
"Agreement") whereby it agreed to sell 8,648,698 shares of its common stock,
representing 49 percent of the common stock to be outstanding after the
completion of the sale to the Majority Stockholder, for $8.0 million in cash.
In February 1997, CTI received $6.0 million of the purchase price which was
used to retire certain current liabilities and long-term debt. CTI anticipates
that the remaining $2.0 million will be received in fiscal 1998 which CTI plans
to use to redeem the 1994 Series Convertible Preferred Stock. Upon completion
of the transaction, the Majority Stockholder's beneficial ownership interest
will increase approximately 66 percent. The transaction was negotiated between
the Majority Stockholder and an independent committee of the board of directors.
During the past eighteen months, CTI reduced its total liabilities from $20.3
million at June 30, 1996 to $11.8 million at December 31, 1997.
43
As part of the business plan implemented during 1997, management reduced
the overall corporate overhead included in selling, general and administrative
expenses from $5.0 million for the first six months of 1997 to $3.8 million for
the first six months of 1998. Income from continuing operations increased from
a loss of $680,456 for the first six months of 1997 to income of $1,290,572 in
the first six months of 1998. In the fiscal year ending June 1998, CTI expects
operating results and cash flows to improve as the disposal of the non-
profitable business units are completed and management focuses on the credit
union business. CTI believes that cash flow will be sufficient to permit CTI to
meet its cash requirements through the up coming year.
CTI'S BUSINESS
GENERAL
CTI, formerly known as Mountain Surgical Centers, Inc., incorporated in
1986, is a developer of computerized information systems for credit unions.
CTI's software packages are sold as part of a complete data processing solution
including hardware, software, operating systems, installation, training,
software support and hardware maintenance. CTI's PC based workstation products,
which are sold as add-ons to the core information processing systems, increase
the accessibility and usability of strategic information by credit union
employees and members. CTI's data processing services, such as statement
processing, disaster recovery, credit bureau reporting, microfiche, and optical
storage complement CTI's core credit union data processing system products.
CTI entered the credit union software market through the acquisition of
CUSA and the VERSYSS Credit Union division in June 1994 and changed its name to
CUSA Technologies, Inc. From September 1994 to July 1995, CTI consolidated its
distribution network through the acquisition of six independent resellers of the
CUSA credit union software package ("Acquired Resellers"). As a result of these
acquisitions, CTI provides support and maintenance services to nearly all of the
approximately 1,100 users of its credit union systems and is well positioned to
provide these users with future enhancements, software and hardware upgrades and
related products.
In addition to the acquisition of the Acquired Resellers, in November 1994,
through the acquisition of Outside Force, Inc., a Texas corporation, CTI
acquired the Reliance Software, a fourth-generation language based open systems
software solution for credit unions.
CTI has operated five non-credit union software business units for all or a
portion of fiscal 1997: the medical practice management software business unit,
the medical records software business unit, the commercial data processing
systems business unit, the equipment rental software business unit, and the
surgery center business unit. The medical practice management software business
unit was engaged in the development, support and maintenance of software for
physician offices and clinics. The commercial data processing systems business
unit developed, installed and maintained open accounting systems for a variety
of businesses. The medical records software business unit was involved in the
development of software for tracking medical patient records. The equipment
rental software business unit is a turnkey provider of computer solutions,
including proprietary software, to businesses that rent equipment and supplies.
The surgery center business unit consists of two out-patient podiatry centers
located in Sparks and Carson City, Nevada. In addition to these business units,
CTI owned an office complex located in Sparks, Nevada during fiscal 1997.
FOCUS ON THE CREDIT UNION SOFTWARE MARKET
Recently, CTI has either sold or adopted a plan to sell each of its non-
credit union business units in order to focus its attention and capital
resources on its core credit union business. This focus on credit union
software was accomplished through the completion in fiscal 1997 of (1) the sale
of the assets of CTI's medical practice management and commercial data
processing systems software business units to PCN for $8,950,000 plus the
assumption of certain liabilities pursuant to an Asset Purchase Agreement dated
July 2, 1997, (2) the discontinuance in fiscal 1997 of the operations of CTI's
medical records software business unit, (3) the sale of the assets of CTI's
rental equipment software business unit for $400,000 pursuant to an agreement
dated March 31, 1997, (4) the sale of CTI's office rental complex to a family
partnership, of which the Majority Stockholder is the general partner, for
$1,258,425 plus the assumption of $1,658,565 in mortgage debt related to the
real property, and (5) the sale of the assets of the Surgery Center business
units as of October 1, 1997 to the Surgery Center Purchasers for $450,000 in the
form of two-year promissory notes secured by 400,000 shares of the Surgery
Center Purchasers' CTI Common
44
Stock. As a result, over the past two years, the percentages of CTI's revenue
from continuing operations related to the credit union software business has
grown from 62 percent for the year ended June 30, 1996 to nearly 100 percent for
the year ended June 30 1997.
PRIVATE SALE OF COMMON STOCK
On January 24, 1997, CTI entered into the Agreement whereby it agreed to
sell 8,648,648 shares of CTI Common Stock, representing 49 percent of CTI Common
Stock to be outstanding after the completion of the sale, to the Majority
Stockholder for $8.0 million in cash. Upon the completion of the transaction,
the Majority Stockholder increased his ownership interest to over 50 percent and
now holds a controlling interest in CTI. In February 1997, CTI received $6.0
million of the purchase price which was used to retire long-term debt and
certain current liabilities. CTI anticipates that the remaining $2.0 million
will be received prior to the Effective Time. Also pursuant to the Agreement,
the Majority Stockholder surrendered approximately 1,208,400 five year options
to purchase shares of CTI Common Stock at prices from $1.50 to $5.00 in exchange
for the grant of 1,000,000 five year options to purchase CTI Common Stock at
$1.00 per share for the first year, with the option price increasing by $0.25
each year on the anniversary date of the grant. The transaction was negotiated
between the Majority Stockholder and an independent committee of the Board of
Directors of CTI.
PRINCIPAL PRODUCTS AND SERVICES
CTI's credit union management solutions consist of the fourth-generation-
language Reliance Software and the CUSA Software. CTI's credit union management
systems are installed in nearly 10% of America's credit unions, representing a
customer base of approximately 1,100 credit unions. The CUSA Software,
developed in 1977, was one of the first software products to be designed
specifically for the computerization of credit union data processing functions.
CTI's management believes that the CUSA Software, through over 20 years of
refining, has become one of the most popular software systems for small to
medium sized credit unions (credit unions with total assets between $5 and $100
million).
The CUSA Software is a very mature and functional product. It was
developed in a language which was designed for use with proprietary hardware.
Proprietary systems such as the CUSA Software are often referred to in the
software industry as "legacy systems." As the industry moved away from
proprietary hardware and software and new standards were developed, CUSA
developed operating system bridges which allowed the CUSA Software to operate
under a UNIX environment on standard hardware platforms. In order to allow CTI
to extend its product offerings to larger credit unions and to provide its
current customers with the advantages of current and emerging software and
hardware technologies, CTI purchased the Reliance Software package in November
1994 through the acquisition of Outside Force, Inc. (See "--Acquisitions").
Since that time, as part of a steady product migration strategy, CTI has focused
its new sales efforts on sales of Reliance Software while encouraging its
current base of CUSA Software users to take advantage of the superior technology
of the Reliance Software.
The CUSA Software and the Reliance Software are sold as part of fully
integrated systems, including hardware, applications software, operating
systems, installation, training, post-installation hardware maintenance, and
software training and support. Post installation hardware maintenance and
software support contracts provide annual recurring revenues of approximately
16-25 percent of the sales price of the system, depending on the size and
complexity of the system.
In addition to its core credit union management systems, CTI has developed
a number of workstation products which integrate with both the CUSA Software and
the Reliance Software and are sold as add-on products to enhance functionality.
Since these workstation products are designed to integrate with either the CUSA
Software or the Reliance Software, these workstation products allow CUSA
Software users to increase the functionality of their current system. The
workstation products are an important part of CTI's strategy to offer a cost
effective migration path to modern computing technology. Also, through the CTI
Resource Group ("Resource Group"), CTI provides services to credit unions to
assist them in their governmental reporting, credit bureau inquiries, microfiche
storage, statement processing, disaster recovery and custom form printing.
45
The CUSA Software
The CUSA Software has been refined through 20 years of tailoring its
functions to meet the needs and suggestions of its users which now number
approximately 1,000. The CUSA Software consists of a series of fully integrated
modules, constructed so that the proper combination of products can be supplied
to meet the specific requirements of each credit union in a cost-efficient
configuration. The product is designed so that the user can move quickly
throughout the system using a combination of menus, windows and user-defined
access keys. On-screen prompts, "help" functions, and pop up windows make the
system user friendly. The features of the system include online teller
transactions, loan processing, online loan application, charged-off loans,
mortgage lending, 360/365 day interest calculation options, share draft
processing, certificate management, IRA processing, club accounts, safe deposit
box control, travelers check management, electronic payroll processing, ATM
processing, credit card processing, audio response, optical disk records
management, customized report writer, job queuing system, bank reconciliation,
full branch accounting, shared branching/service center, asset/liability
management, bill payer system, credit bureau inquiry, credit bureau reporting,
laser statement processing, government reporting, call reporting and automated
clearinghouse transmission processing.
As complementary products to its CUSA Software, CTI offers peripheral
products, such as: credit/debit cards; CUSAPLAN Plus, a PC based financial
analysis and reporting package for credit unions; CUSA Talk II, a PC based audio
response account inquiry system; an Automated Clearinghouse Debit/Credit
Processing Module for automated funds transfer; CUSANet Batch & CUSANet Online,
modules which allow credit union members to participate in established ATM
networks; CUSACard, an in-house credit card system which interfaces with the
credit unions' Visa processor; CUSAPay, an online payroll module; and Credit
Bureau Inquiry, a software package which allows credit unions to pull credit
reports on their members from any of the major credit reporting institutions.
Reliance Software
The Reliance Software is currently installed in approximately 65 credit
unions. It was developed in Progress (registered trademark of Progress
Software), a fourth generation programming language, and utilizes the latest
open systems technology of the software industry. The fourth-generation
development environment allows for rapid product fixes and shortened development
cycles for new features and functionality. In addition, it allows for
flexibility in modification, implementation and hardware platform choices.
The Reliance Software is designed for use in any size of credit union,
though many of its functions have been developed specifically to meet the
requirements of large-to-medium-sized credit unions with assets over $50
million. Its functions include: online teller transactions, online teller
services, travelers checks, safe deposit boxes, vault teller, loan processing,
online loan application, complete online or hard copy "what if" calculations for
payment, interest and amortization, 360/365 day interest calculation options,
online credit bureau interface, detailed loan tracking, share draft processing,
application integration into general ledger, member CDs, member IRAs, credit
union customized member statements, easy sort functions for bulk mailings of
statements, unlimited electronic payroll distribution and processing, inventory
tracking of all fixed assets, comprehensive report system, credit union-defined
security features, back office automation, electronic mail system for staff,
complete "to do" list for any user, infinite calendar with Easy-Date feature,
voice information processing, distributed branch processing, ATM interface
software, mortgage loans, collections, staff tracking, accounts payable
disbursements, complete tracking of credit union investments, touchscreen
teller, fax interface, word processing capabilities, optical disk, signature
verification, report warehousing, document storage and retrieval, automated
clearinghouse transmission processing and report creation for custom reports.
CTI believes that the fourth-generation development environment provides a
significant competitive advantage in foreign markets where, in some cases, the
movement from legacy systems to open systems is proceeding quickly and the speed
with which a product may be localized is critical to market penetration. In
particular, CTI has started initiatives in Australia and Central America.
46
In connection with the Australia initiative, CTI is working through a local
distributor, CUSA Pty, Ltd., an Australian corporation. According to the
distributorship agreement, CTI is to assist in the localization of the Reliance
Software, scheduled for completion in March 1998. Once localization is
completed, CTI will receive a royalty on each software sale and an ongoing fee
to provide level three support. The distributor is responsible for
configuration, installation, training and level one and two support and
maintenance of the system.
In cooperation with the World Council of Credit Unions, CTI has installed a
Spanish version of the Reliance product in a credit union located in Guatemala.
Though this international initiative is still in the testing stage, CTI believes
that the Spanish version of the Reliance product will be successful in the
Central and South American markets.
Both credit union systems are marketed as a complete package including
hardware, software, installation, and post-installation training and support.
CTI's credit union software offerings run on a variety of computers, ranging
from personal computers to the IBM RS 6000. System prices typically range from
$30,000 to $300,000 for the CUSA Software and related hardware and $100,000 to
over $1,500,000 for the Reliance Software and related hardware, in each case
depending on the size and sophistication of the system.
Workstation Products
In addition to its core credit union management systems, CTI has developed
a number of workstation products which are sold as add-on products to enhance
functionality and are designed to integrate with both the CUSA and Reliance
Software. The cross platform integration allows a CUSA user to enhance the
functionality of its CUSA Software, at the same time investing in a technology
that can be used with the Reliance Software. The workstation products are an
important part of CTI's strategy to offer its customers a cost effective
migration path to modern computing technology.
In 1996, CTI released its Archive Management System ("AMS 5.0"), a product
designed to archive customer account information. AMS 5.0 works with both the
CUSA and Reliance Software.
In August 1996, CTI released the Reports Workstation product for the CUSA
Software. This workstation product is based upon a product called Crystal
Reports/TM/, which is owned by Seagate Software. The Reports Workstation allows
users of the CUSA Software to produce ad hoc reports from the information
contained in the database files of the CUSA Software.
CTI released its Loan Origination workstation product in June of 1997.
This workstation product is designed to automate the loan origination process
and features a graphical user interface and point and click capabilities which
simplify the process of entering and processing information.
Home Banking Product
CTI's home banking product is currently in the testing stage. The home
banking product will allow credit unions to offer home banking services to
members through secured connections. As confidence in electronic banking
increases, CTI believes that an increasing number of credit union members will
utilize home banking services. CTI is well positioned to partner with its
customers to offer such services to the credit union members.
In addition to those workstation products specifically discussed above, a
number of other workstation and other software products are currently scheduled
for development and deployment in fiscal 1998.
Year 2000
CTI recently conducted an internal audit of the features of its software,
hardware and operating system products for year 2000 readiness. CTI concluded
that most of its products can be cost-effectively year 2000 ready. However, a
small number of customers using early releases of the CUSA Software or older
hardware configurations will need to update their hardware and/or software
configurations or switch vendors. CTI has been actively marketing upgrade
programs to those CTI customers whose CTI-developed systems will not qualify for
year 2000 readiness.
47
Support
Once a system is installed, CTI provides ongoing software support pursuant
to annual support contracts for a fee equal to approximately 16-25 percent of
the total cost of the software. CTI's support department maintains offices in
three cities in the United States. Through a sophisticated frame relay call
tracking system, support calls are logged at a central location and dispatched
to the appropriate service representatives in CTI's offices across the country.
Support call tracking reports, which detail the number of calls per customer,
per system function and per support representative, provide useful data to
management, sales and programming. CTI currently has software support contracts
with 99 percent of its customers. Revenues from software and hardware support
contracts represented approximately 29 percent of CTI's revenues in fiscal 1997.
CTI Resource Group
CTI, through the Resource Group, provides services to credit unions to
assist them in their monthly, quarterly and annual customer laser statement
processing, governmental reporting, credit bureau reporting, microfiche printing
and storage and disaster recovery. CTI processed over 13.2 million monthly,
quarterly and annual customer statements in fiscal 1997, including government-
required 1099 printing and processing during CTI's third fiscal quarter. CTI's
laser statement processing services consist of the electronic receipt and
reformatting, printing and mail handling of account data from the CUSA or
Reliance Software. The Resource Group's disaster recovery system is tested and
certified annually and includes a complete hot site backup facility, disaster
planning assistance, data retention services and microfiche document storage and
retrieval. In fiscal 1997, revenues from laser statement printing, microfiche
services, credit bureau reporting and disaster recovery accounted for
approximately 26 percent of CTI's total revenues.
Product Mix
Sales of hardware and software, consisting mainly of the CUSA Software-
based system, the Reliance Software-based system and the workstation products,
were approximately 35 percent, 42 percent and 49 percent of total revenues in
the fiscal years ended 1997, 1996 and 1995, respectively. Support, maintenance
and other services, which consist of software support, hardware maintenance,
training and revenues from the Resource Group, were 65 percent, 58 percent and
51 percent of total revenue in the fiscal years ended 1997, 1996 and 1995,
respectively.
DISTRIBUTION
CTI's products are marketed primarily through a direct sales organization.
Once a sale is made, the hardware is shipped to the customer site with certain
software and operating components pre-loaded. The product is then installed on-
site by a member of CTI's installation staff or a third party installer, and the
customer's employees are trained to operate the system. Custom modifications,
bug fixes, and minor enhancements are completed at CTI's corporate offices and
distributed via modem or some other form of electronic media.
MANUFACTURING AND SUPPLIERS
CTI's computer systems are assembled using various standard components such
as PC Monitors, minicomputers, communications equipment, and other electronic
and computer components that are purchased from third party suppliers. As part
of the Asset Purchase Agreement ("Medical Divestiture Agreement") dated July 2,
1996, as amended in October 1997, CTI agreed to purchase $10,000,000 of computer
hardware from PCN at a discounted rate over a five year period. The Medical
Divestiture Agreement calls for yearly minimum purchases of $2,000,000. CTI
exceeded the $2,000,000 minimum purchase requirement in fiscal 1997. CTI's
projected hardware purchases for the next four years exceed the required yearly
minimum purchase obligation. CTI believes that the hardware prices set by the
Medical Divestiture Agreement are at least as favorable as would be available to
CTI from other computer hardware suppliers.
If the supply of certain components of hardware were interrupted without
sufficient notice, an interruption or delay in product deliveries could result.
CTI does not foresee any difficulty in obtaining the necessary components or
subassemblies.
48
SEASONALITY
Credit unions generally plan expenditures based on a calendar year
budgeting cycle. Consequently, in the past a greater portion of the credit
unions' computer software and hardware purchasing decisions have been made
toward the end of the calendar year. In addition, the volume of laser
statements and government reports (including year end governmental processing
for Form 1099's) processed by CTI is greater in the first quarter of the
calendar year. CTI's historical operating results reflect these trends, and it
is anticipated that the results from operations for the 1998 fiscal year will
continue to reflect these seasonal factors.
SIGNIFICANT CUSTOMERS
No single customer or contract accounted for more than ten percent of CTI's
annual revenues for the 1997, 1996 or 1995 fiscal years.
BACKLOG
CTI's backlog of orders for its products was approximately $930,000 as of
September 30, 1996 compared to approximately $2,960,000 as of September 30,
1997. CTI's backlog includes international and domestic sales and excludes
contracts for recurring hardware and software maintenance and support contracts.
CTI's backlog is subject to fluctuation due to various factors, including the
size and timing of orders for CTI's products, and is not necessarily indicative
of future revenue.
ACQUISITIONS
In June 1994, CTI entered into the credit union software business through
the acquisition of the credit union sales, marketing, installation and support
business of the Boston, Massachusetts-based VERSYSS, which distributed the CUSA
Software in most of the northeastern United States. In July 1994, CTI completed
the acquisition of 100 percent of the stock of CUSA, Inc., the developer of the
CUSA Software and related peripherals and services. Since entering the credit
union software business, CTI successfully consolidated the management and sales
capabilities and support operations of all major distributors of its credit
union systems and expanded its product offerings to include the Reliance
Software through a number of acquisitions as summarized in the table below:
- -----------------------------------------------------------------------------------------------------
DATE OF
TRANSACTION ENTITY PRIMARY BUSINESS
- -----------------------------------------------------------------------------------------------------
September 1994 RK & DR Concepts, Inc. dba Credit union, medical, commercial data
Versyss Data Systems processing systems and equipment rental
software and hardware sales, installation and
services
November 1994 Outside Force, Inc. Reliance open systems based credit union
software sales and service
November 1994 Sierra Center for Foot Surgery, Medical clinic for outpatient foot surgery
Inc.*
February 1995 Benchmark Computer Systems, Credit union, medical, commercial data
Inc. (Nebraska) processing systems software and hardware sales,
installation and services
February 1995 Computer Ease, Inc. Equipment rental software development and
support
May 1995 Medical Computer Management, Medical software development, sales,
Inc. installation and support
- -----------------------------------------------------------------------------------------------------
49
- -----------------------------------------------------------------------------------------------------
DATE OF
TRANSACTION ENTITY PRIMARY BUSINESS
- -----------------------------------------------------------------------------------------------------
June 1995 Benchmark Computer Systems of Medical, commercial data processing systems
Va., Inc. software and hardware sales, installation and
services
July 1995 Benchmark Computer Systems, Credit union, medical, commercial data
Inc. processing systems software and hardware sales,
(Wisconsin) installation and services
September 1995 Preferred Health Systems, Inc. Software for managed health care
December 1995 Workgroup Design, Inc. Sale and installation of Lotus Notes-based
custom software
January 1996 Medfo Systems of America, Inc. Medical records software sales and installation
February 1996 Automated Solutions, Inc. Medical, commercial data processing systems
software and hardware sales, installation and
services
February 1996 Source Computing, Inc. Medical software sales, installation and support
February 1996 Medical Clearing Corporation Preparation and Submission of electronic medical
claims
- -----------------------------------------------------------------------------------------------------
* Acquired pursuant to an agreement in principal entered into previous to CTI's
entrance into the software business.
DISPOSITIONS AND DISCONTINUED OPERATIONS
In fiscal 1997, CTI either discontinued or adopted a plan to discontinue
each of its non-credit union business units in order to focus its attention and
capital resources on its credit union business unit.
Medical Software Business Unit
Pursuant to the Medical Divestiture Agreement, CTI and certain of its
subsidiaries sold the business and assets of CTI's medical and commercial
divisions to PCN for a total purchase price of $8,950,000 plus the assumption of
certain liabilities. The assets sold included the accounts receivable,
goodwill, customer lists, hardware and software maintenance agreements,
workforce-in-place, and intellectual property related to the medical and
commercial divisions. The Medical Divestiture Agreement contains certain non-
compete and non-solicitation provisions whereby CTI and its affiliates are
restricted from selling any product to any of the end-users of the medical and
commercial divisions or participating in the medical practice management
software business for a period of five years and from selling its eCLINIC
medical records product to any end user who was a PCN practice management
software customer as of the closing, for a period of two years following the
closing. As part of the Medical Divestiture Agreement, PCN became CTI's
exclusive provider of IBM hardware for the next five years. Under such
arrangement, CTI committed to purchase a minimum of $2,000,000 of hardware each
year at a discount from PCN's reseller prices upon favorable credit terms. The
Medical Divestiture Agreement also required CTI to complete certain software
development obligations related to operating software known as XRTS, which was
initially developed through a cooperative effort of CTI and VERSYSS, a wholly
owned subsidiary of PCN.
On October 15, 1996, the parties amended the Medical Divestiture Agreement.
Of the remaining purchase price of $900,000, $750,000 was retained by PCN in
consideration of their assumption of certain additional liabilities related to
the medical and commercial customer accounts.
In September 1997, CTI settled a dispute with PCN related to CTI's
performance of its development obligations under the Medical Divestiture
Agreement with respect to XRTS. In connection with the settlement, CTI paid
$250,000 to PCN and agreed to forgive the $150,000 remaining payment on the
purchase price.
50
Rental Equipment Software Business Unit
With the February 1995 acquisition of Computer Ease, CTI obtained ownership
of a rental equipment software product known as the Computer Ease Rental Center
System which CTI had been selling under a distributorship arrangement with
Computer Ease through RK & DR Concepts, Inc. dba Versyss Data Systems (a wholly
owned subsidiary of CTI) (see "--Acquisitions"). On March 31, 1997, pursuant to
an Asset Purchase Agreement ("Rental Divestiture Agreement") between CTI and JFJ
Corporation, a company which is wholly owned by a shareholder and former
employee of CTI ("Buyer"), CTI sold all of the assets related to its rental
equipment software business for promissory notes aggregating $400,000 and the
assumption of certain liabilities of the rental software business unit. The
promissory notes are secured by a pledge of 500,000 shares of CTI Common Stock.
Medical Records Software Business Unit
In July 1995, CTI entered into a Software Ownership and Development
Agreement ("SODA") with Pacific Intesys Corporation ("PI") regarding the
development and marketing of an electronic patient records system known as
Carepoint for Clinics. Carepoint is a trademark of PI. The product runs on a
Windows NT operating system and utilizes pen-based PCs. Pursuant to SODA, CTI
had the exclusive right to market the product to the ambulatory care market,
including clinics and emergency rooms. For a period of time, CTI engaged in
further development and enhancement of the product and changed the name of the
product to eCLINIC. As of January 31, 1997 CTI had installed eCLINIC in five
sites. These installations were considered beta sites because of the unique
modifications that were being made to the product at each site. Pursuant to a
plan of disposition, CTI ceased installation and support of eCLINIC, reached
settlement with each of the former users of the eCLINIC software and concluded
its obligations under SODA.
Office Rental Complex
In June 1997, pursuant to an agreement, CTI sold its office rental complex
located in Sparks, Nevada to a family partnership of which the Majority
Stockholder is the general partner. The sales price was equal to the appraised
value of $3,125,000 less commissions and fees of 6.5 percent. The $2,925,000
purchase price included the payment of $1,258,425 in cash and the assumption of
a $1,658,565 mortgage on the purchased property. Prior to the sale, the
commercial real property had been listed for sale with a local agent since June
1995 during which time CTI did not receive a qualified offer which approached
the appraised price.
Surgery Center Business Unit
Though not central to CTI's core business of selling information systems
technology, CTI's surgery center business unit generates positive cash flow. In
fiscal 1997, the surgery center business represented less than 2% of CTI's total
assets or revenues.
CTI's surgery center business unit consists of the Ford Center for Foot
Surgery, located in Sparks, Nevada ("Ford Center") and the Sierra Surgery
Center, located in Carson City, Nevada ("Sierra Center") (collectively "the
Surgery Centers"). The Ford Center is located adjacent to the general office of
L. Bruce Ford, D.P.M., for the practice of podiatry, and consists of 860 square
feet of leased space. The Sierra Center consists of 1,000 square feet of leased
space, contiguous with the general offices of Kim Bean, D.P.M. The Surgery
Centers are built to stringent Medicare specifications and are equipped with up-
to-date surgical equipment, including laser surgery.
The Ford Center has an agreement with the professional corporation of L.
Bruce Ford, D.P.M., a director and principal shareholder of CTI, whereby his
professional corporation provides professional services, manages the surgery
center, pays all the expenses, supervises all employees, some of whom are shared
with his general practice, and pays for supplies necessary for the successful
operation of the Ford Center. The parties allocate the salaries of nursing and
other staff, the cost of insurance, supplies, utilities and similar items.
CTI's share of those costs ranges from 20-33 percent of the total costs
incurred. Rent for space and equipment, legal and accounting, and outside
51
professional fees are borne separately by the parties. CTI has a similar
arrangement for professional services, management, expenses, and staffing for
the Sierra Center with the corporation of Kim Bean, D.P.M, a party which is a
CTI Shareholder with less than one percent of the CTI Common Stock outstanding.
CTI's surgery center business is subject to a number of risks, including
adverse regulatory changes or regulatory non-compliance, malpractice claims
(which are covered by the physicians malpractice insurance) and the highly-
competitive market for surgery services.
As part of CTI's plan to focus its resources on the credit union software
business, since the sale of the medical software division in July 1996, CTI has
actively sought a buyer for the surgery center business unit. In June 1997, the
Board of Directors of CTI approved a plan to dispose of CTI's surgery center
business unit. The completion of the disposition was subject to the
identification of a qualified buyer, negotiation of an acceptable purchase price
and terms and execution of a final purchase and sale agreement. On September
30, 1997 the Board approved a transaction whereby the surgery center business
unit will be sold to the Surgery Center Purchasers for a price of approximately
$450,000. The Board's approval of the transaction was subject to the receipt of
a fairness opinion from an independent financial advisor. On October 1, 1997,
CTI transferred the assets of the surgery center business units to the Surgery
Center Purchasers for $450,000 in the form of two-year promissory notes secured
by 400,000 shares of the Surgery Center Purchasers' CTI Common Stock.
GOVERNMENT REPORTING
Although CTI's software business is not directly subject to material
industry or governmental regulation, CTI's credit union customers are subject to
extensive governmental and industrial regulation. CTI's software is designed to
help customers conform to governmental and industrial standards of reporting and
data collection. From time to time, regulation of CTI's customers or businesses
necessitates the development and release of software upgrades which are
specifically constructed to meet the specifications of a new government
regulation. Generally, CTI charges its customers a fee for the purchase and
installation of such compliance upgrades.
COMPETITION
The market for selling data processing services to financial institutions
and the other businesses serviced by CTI is highly competitive. CTI's
competitors include internal data processing departments, affiliates of large
banks, and independent service firms, as well as direct competitors such as
Ultradata Corporation, Users Incorporated, XP Systems, Symitar Incorporated,
Fiserv and Electronic Data Systems, Inc. Some of these companies possess
greater financial and managerial resources than those of CTI.
The competitive factors for CTI's software services include product
technology, product features and functionality, flexibility and compatibility
with other products, continuity of product enhancement, ease of installation and
use, reliability and quality of technical support, documentation and training,
the experience and financial stability of the vendor, and price. While CTI
believes that it has competed effectively to date, competition in the industry
is likely to intensify as current competitors expand their product lines and new
companies enter the market. To be successful in the future, CTI must respond
promptly and effectively to the challenges of technological change, evolving
standards, and its competitors' innovations, by continually enhancing its own
product and support offerings, as well as its marketing programs.
COPYRIGHTS, TRADEMARKS, PATENTS AND LICENSES
In accordance with the industry practice, CTI relies upon a combination of
contract provisions and copyright, trademark and trade secret laws to protect
its proprietary rights in its products. CTI distributes its products under
software license agreements which grant customers a non-exclusive license to use
CTI's products, and which contain terms and conditions prohibiting the
unauthorized reproduction or transfer of CTI's products. In addition, CTI
attempts to protect its trade secrets and other proprietary information through
agreements with employees and consultants. Although CTI intends to protect its
rights vigorously, there can be no assurance that these measures will be
successful.
52
CTI seeks to protect the source code of its products as a trade secret and
as an unpublished copyright work. CTI does not believe that patent laws are a
significant source of protection for CTI's software products. Where possible,
CTI seeks to obtain protection of its names and logos through trademark
registration and other similar procedures.
CTI believes that, due to the rapid pace of innovation within its industry,
factors such as the technological and creative skills of its personnel are more
important in establishing and maintaining a leadership position within the
industry than are the various avenues of legal protection for its technology.
In addition, CTI believes that the nature of its customers, the importance of
CTI's products to them and their need for continuing product support reduce the
risk of unauthorized reproduction.
EMPLOYEES
As of December 31, 1997, CTI had 198 full time employees. To date, CTI has
been successful in recruiting and retaining sufficient numbers of qualified
personnel to conduct its business successfully. None of CTI's employees is
represented by a labor union. CTI has experienced no work stoppages and
believes its relations with employees are good.
INDUSTRY SEGMENTS
As of December 31, 1997 CTI's only business segment was credit union
software.
PROPERTIES
CTI maintains core offices in Salt Lake City, Utah; Dedham, Massachusetts;
and Omaha, Nebraska. CTI's core offices each have over 20 employees.
Additional CTI locations include Eden Prairie, Minnesota and Fayetteville, New
York.
CTI's home office is located in Salt Lake City, Utah, where it leases
approximately 32,885 square feet from an entity controlled by the Majority
Stockholder. The monthly rent under the terms of this lease is currently
$21,500 (subject to escalators), and the primary term expires February 1, 2005.
(see Item 13, Certain Relationships and Related Transactions)
CTI rents its other facilities from third parties under the terms of leases
expiring through April, 2000. CTI believes that its existing facilities are
adequate to meet its current and anticipated requirements.
CTI owns office equipment, including sophisticated computer systems, in
amounts which management believes are appropriate and which are located at CTI's
offices.
LEGAL PROCEEDINGS
The Company is involved in certain legal matters in the ordinary course of
business. In the opinion of management and legal counsel, such matters will not
have a material effect on the financial position or results of operations of the
Company.
53
CTI VOTING SECURITIES AND THE PRINCIPAL HOLDERS THEREOF
The following table sets forth the number of shares of CTI Common Stock and
of the 1994 Series Convertible Preferred Stock, par value $0.001 (which will be
redeemed in accordance with its terms prior to the Merger) ("Preferred Stock"),
held of record or beneficially by each person who held of record or was known by
CTI to own beneficially, more than five percent of CTI Common Stock or the
Preferred Stock, and the name and shareholdings of each officer and director and
of all officers and directors as a group. All percentages are based on the
15,289,437 shares of CTI Common Stock and the 1,000,000 shares of Preferred
Stock issued and outstanding.
AMOUNT AND NATURE OF
NAME OF PERSON OR GROUP OWNERSHIP(1) PERCENT OF CLASS(2)
- ---------------------------- ------------------------------------ --------------------
Principal Stockholders
Richard N. Beckstrand Common Stock 11,169,583 66.0%
5156 Cottonwood Lane Options (3)(4) 1,010,000
Salt Lake City, UT 84117
David J. Rank Common Stock 475,000 3.1
986 West Atherton Drive Options 5,000
Salt Lake City, UT 84123
Gary L. Leavitt Common Stock (5) 709,330 6.2
986 West Atherton Drive Options 257,600
Salt Lake City, UT 84123
Roger L. Kuhns Common Stock 500,000 3.3
986 West Atherton Drive
Salt Lake City, UT 84123
L. Bruce Ford, D.P.M. Common Stock 128,418 *
Pyramid Prof. Center Options 10,000
2321 Pyramid Way Suite 26 Preferred Stock 64,995 6.50
Sparks, NV 89106
Kim Bean, D.P.M.
1801 North Carson Preferred Stock 175,270 17.53
Carson City, Nevada 89701
Val Jensen Pension Plan *
1001 North Mountain Street Preferred Stock 125,270 12.53
Suite 2D
Carson City, Nevada 89701
Hannum Pension Plan
990 South 550 West Preferred Stock 83,513 8.35
Brigham City, Utah 84302
Roderick Sage
975 Ryland Street Preferred Stock (6) 208,513 20.85
Reno, Nevada 89502
The Roberts Family Trust
890 Mill Preferred Stock (7) 208,513 20.85
Reno, Nevada 89502
Officers and Directors
Richard N. Beckstrand See Above
David J. Rank See Above
54
AMOUNT AND NATURE OF
NAME OF PERSON OR GROUP OWNERSHIP(1) PERCENT OF CLASS(2)
- ---------------------------- ------------------------------------ --------------------
Roger L. Kuhns See Above
L. Bruce Ford, D.P.M. See Above
Gary L. Leavitt See Above
Mark Scott Common Stock 45,661 *
Options 10,000
D. Jeff Peck Common Stock --------- *
Options 30,000
Jonathan S. Beckstrand Common Stock 29,000 *
Options 3,000
All Executive Officers Common Stock 13,095,125 76.7
and Directors as a Options 1,325,600
Group (8 persons) Preferred Stock 64,995 6.50
- -------------------------------------------------------------------------------------------
* Indicates less than 1% ownership
(1) Except as otherwise noted, to the best knowledge of CTI, all stock is owned
beneficially and of record by the indicated owner, and each stockholder has
sole voting and investment power over the stock. The total beneficial
ownership of CTI Common Stock includes securities, including shares subject
to stock options which the shareholder has the right to acquire beneficial
ownership within 60 days of the Record Date. Stock options have been
listed separately for presentational convenience and unless otherwise
noted, the beneficial ownership of the Common Stock underlying each stock
option listed may be obtained within 60 days of the Record Date.
(2) The percentage of beneficial ownership for each stockholder is based on an
adjusted total of issued and outstanding CTI Common Stock, equal to the
total common stock issued and outstanding at June 30, 1997 plus any
security of which the stockholder has the right to acquire beneficial
ownership within 60 days of the Record Date.
(3) Mr. Beckstrand's shares include 577,614 shares held by Aspen Business
Company, which is wholly owned by Mr. Beckstrand; 345,306 shares held by
Beckstrand Management which is wholly owned by Mr. Beckstrand; and 264,000
shares held by Firethorn Investment, Ltd. in which Mr. Beckstrand is a
partner. Since Mr. Beckstrand is an officer, director and principal
shareholder of each of these entities, he may be deemed to have voting and
dispositive power over the shares and hence be the beneficial owner of the
shares.
(4) Mr. Beckstrand's CTI Common Stock holdings include 2,162,162 shares
issuable by CTI upon the funding of the remainder of the Mr. Beckstrand's
purchase commitment as set forth by the purchase and sale agreement dated
January 24, 1997. See "CTI's Business--Private Sale of Common Stock."
(5) Includes 109,970 shares held by the Lyman Leavitt Family Trust and 100,000
shares held by the Lynette Leavitt Family Trust which are deemed
beneficially owned by Mr. Leavitt by virtue of his position as Trustee.
(6) Includes shares held by the Roderick Sage, M.D., Ltd., Pension Plan and
Defined Benefit Plan and by Roderick Sage.
(7) Includes shares held by the Roberts Family Trust and Frank Roberts.
55
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
In fiscal 1996, the board of directors of CTI elected to change auditors
from Grant Thornton LLP to KPMG Peat Marwick LLP. The reports of Grant Thornton
LLP for the 1995 fiscal year did not contain an adverse opinion or disclaimer
and were not modified as to uncertainty, audit scope, or accounting principles.
CTI and its former accountants, Grant Thornton LLP, did not disagree on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure. The change in auditors was reported on Form 8-K
dated May 10, 1996.
DESCRIPTION OF FISERV COMMON STOCK
GENERAL
The holders of Fiserv Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Holders of
Fiserv Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors of Fiserv out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of Fiserv,
holders of Fiserv Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities. Holders of Fiserv Common Stock have no
preemptive rights to subscribe for unissued shares of capital stock of Fiserv.
There are no cumulative voting rights with respect to the Fiserv Common Stock,
with the result that holders of a majority of the Fiserv Common Stock may elect
all Fiserv's directors.
As of March __, 1998, there were approximately ______ holders of record
of Fiserv Common Stock.
Fiserv has appointed Firstar Trust Company, Milwaukee, Wisconsin, as
transfer agent and Registrar for the Fiserv Common Stock.
STOCKHOLDER RIGHTS PLAN
On February 23, 1998, Fiserv, Inc. entered into a Shareholder Rights
Agreement with Firstar Trust Co., as Rights Agent (the "Rights Agreement") and
the Board of Directors of Fiserv, Inc. declared a dividend of one preferred
stock purchase right (a "Right") for each outstanding share of Fiserv Common
Stock. Such dividend is payable on March 9, 1998 to the holders of record of
Fiserv Common Stock on such date. Certificates for shares of Fiserv Common
Stock delivered by or on behalf of Fiserv, Inc. after March 9 and prior to the
occurrence of certain events outlined in the Rights Agreement will contain a
notation incorporating the Rights Agreement by reference. Consequently, each
share of Fiserv Common Stock offered hereby has one Right attached. The Rights
will expire on February 23, 2008, unless previously exercised or redeemed at the
option of the Board of Directors.
Generally, under the terms of the Rights Agreement, the Rights will be
exercisable if a person or group has acquired, commenced or announced its
intention to commence a tender or exchange offer to acquire 15% or more of the
Fiserv Common Stock. The Rights will also be exercisable if the majority of
disinterested directors who are not also officers of Fiserv, Inc. determine that
a person or group beneficially owning 10% or more of the Fiserv Common Stock is
likely to (i) seek short-term financial gain to the detriment of the best long-
term interests of Fiserv, Inc. or its shareholders, or (ii) materially and
adversely affect the business or prospects of Fiserv, Inc.
Initially, each Right will entitle its holder to buy one one-hundredths of
a share of Series A Junior Participating Preferred Stock, at an exercise price
of $250, subject to adjustment. If the Rights become exercisable, holders of
each Right, other than the acquiring or adverse person, will have the right,
upon payment of the exercise price, to purchase the number of shares of Fiserv
Common Stock (in lieu of the preferred stock) which, at that time, have a market
value of two times the exercise price of a Right. If the Rights become
exercisable, the Fiserv Board of Directors may also exchange Rights, other than
those held by the acquiring person or adverse person, in whole or in part, at an
exchange ratio of one share of Fiserv common stock per Right. At any time after
a person or group acquires 15% or more of Fiserv common stock, if Fiserv is
acquired in a merger or other business combination or
56
50% or more of its consolidated assets or earning power are sold, Rights holders
other than the acquiring person or group will have the right, upon payment of
the exercise price, to purchase that number of shares of common stock of the
acquiring company (in lieu of preferred shares) which, at the time of the
transaction, have a market value equal to two times the exercise price of a
Right.
The Rights Agreement is filed as an exhibit to a Registration Statement on
Form 8-A dated February 24, 1998 that has been filed by Fiserv with the
Commission The Rights Agreement is incorporated by reference in this Proxy
Statement/Prospectus, and reference is made to it for the complete terms fo the
Rights Agreement and Rights. The foregoing description of the Rights Agreement
is qualified in its entirety by reference to the Rights Agreement and such
exhibits thereto.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF FISERV AND CTI
GENERAL
CTI is incorporated under the laws of the State of Nevada. Accordingly,
the rights of CTI stockholders are governed by CTI's Articles of Incorporation,
as amended ("CTI Articles"), its Bylaws ("CTI Bylaws") and Nevada law. Fiserv
is incorporated under the laws of the State of Wisconsin and, accordingly, the
rights of Fiserv Stockholders are governed by Fiserv's Articles of Incorporation
("Fiserv Articles"), its Bylaws ("Fiserv Bylaws") and Wisconsin law. The Nevada
and Wisconsin corporation laws differ in a number or respects, as do the
respective Articles and Bylaws of CTI and Fiserv.
Upon consummation of the Merger, CTI stockholders will become stockholders
of Fiserv and, as such, all of their rights will be governed by the Fiserv
Articles, Fiserv Bylaws and Wisconsin law.
The following summary of the material differences that may affect the
rights and interests of CTI Stockholders is not intended to be an all-inclusive
discussion of such differences.
BOARD OF DIRECTORS
Nevada law provides that a corporation must have at least one director and
may provide in its articles of incorporation or its bylaws for a fixed number of
directors or a variable number of directors within a fixed maximum and minimum
and for the manner in which the number of directors may be increased or
decreased. Nevada law also provides that the articles of incorporation or the
bylaws may provide for a classified board of directors, but at least one-fourth
of the directors must be elected annually.
Wisconsin law provides that a board of directors shall consist of one or
more natural persons, with the number specified in or fixed in accordance with
the articles of incorporation or bylaws. The number of directors may be
increased or decreased from time to time by amendment to, or in the manner
provided in, the articles of incorporation or bylaws. Directors may be divided
into two or three groups with the term for each group staggered accordingly.
The CTI Articles provide for a board of directors divided into three
classes, with the term of one class expiring each year. The CTI Articles
further require that the CTI board of directors consist of at least three
directors with each class consisting of as near to one-third the total number of
directors as possible. The CTI board of directors currently consists of six
members divided into three classes of two directors, respectively. At each
annual meeting of CTI Stockholders, the successors to the class of directors
whose term expires at the time of such meeting are elected by a majority of the
votes cast, assuming a quorum is present.
The Fiserv Articles provide for a board of directors divided into three
groups, with the term of one group expiring each year. The Fiserv Bylaws state
that directors shall be elected by a plurality of the votes cast by stockholders
at an annual meeting at which a quorum is present. The Fiserv Articles require
that the Fiserv board of directors consist of between three and nine directors.
The Fiserv board of directors currently consists of nine members divided into
three groups of three directors. At each annual meeting of Fiserv's
stockholders, the successors to the class of directors whose term expires at the
time of such meeting are elected by a plurality of the
57
votes cast, assuming a quorum is present. Under Fiserv's Bylaws, a director of
Fiserv may be removed only for cause, by the affirmative vote of the holders of
a 80 percent of the then issued and outstanding stock of Fiserv cast at a
special meeting of stockholders called for that purpose.
REMOVAL OF DIRECTORS
Under Nevada law, unless a higher vote is required by a corporation's
articles of incorporation, a director may be removed from office, with or
without cause, by the affirmative vote of stockholders representing at least
two-thirds of the issued and outstanding voting stock. The CTI Articles do not
require a higher percentage for removal of directors.
Under Wisconsin law, any director or the entire board of directors may be
removed with or without cause by stockholders representing a majority of the
shares entitled to vote at an election of directors, unless the corporation's
articles of incorporation or bylaws provide that directors may be removed only
for cause. Under the Fiserv Bylaws, a director may be removed from office only
for cause, by the affirmative vote of the holders of a 80 percent of the then
issued and outstanding stock of Fiserv cast at a special meeting of stockholders
called for that purpose.
LIMITATION ON DIRECTORS' LIABILITY
Nevada law allows a corporation, through its articles of incorporation, to
limit or eliminate the personal liability of directors to the corporation and
its stockholders for damages for breach of fiduciary duty. However, Nevada law
excludes any limitation on liability for (a) acts or omissions that involve
intentional misconduct, fraud or a knowing violation of law or (b) the payment
of any distribution to stockholders that involves a willful or grossly negligent
violation of Nevada law. The CTI Articles do not limit or eliminate personal
liability of the directors. The Articles provide that the corporation may
indemnify each director, officer, employee, agent and others to the extent
permitted by the laws of the state of Nevada.
Wisconsin law provides that directors are not liable to the corporation, it
stockholders, or any person asserting rights on behalf of the corporation or its
stockholders, for damages, settlements, fees, fines, penalties or other monetary
liabilities arising from a breach of, or a failure to perform, any duty
resulting solely from his or her status as a director, unless the person
asserting the liability proves that the breach or failure to perform constitutes
either (a) a willful failure to deal fairly with the corporation or its
stockholders in connection with a matter in which the director has a material
conflict of interest; (b) a violation of criminal law, unless the director had
reasonable cause to believe that his or her conduct was lawful or no reasonable
cause to believe that his or her conduct was unlawful; (c) a transaction from
which the director derived an improper personal profit; or (d) willful
misconduct. A Wisconsin corporation may limit this immunity in its articles of
incorporation, but the Fiserv Articles do not do so.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nevada law provides that a corporation may indemnify any person made a
party or threatened to be made a party to any type of proceeding (other than
certain actions by or in right of the corporation) because he or she is or was a
director, officer, employee or agent of the corporation or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such proceeding if such
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation; or in a criminal
proceeding, if he or she had no reasonable cause to believe his or her conduct
was unlawful. Expenses incurred by an officer or director (or other employees
or agents as deemed appropriate by the board of directors) in defending civil or
criminal proceedings may be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
such person to repay such amount if it is ultimately determined that such person
is not entitled to be indemnified by the corporation. To indemnify a party, the
corporation must determine that the party met the applicable standards of
conduct.
Wisconsin law requires that a corporation shall indemnify a director or
officer, to the extent he or she has been successful on the merits or otherwise
in the defense of a proceeding, for all reasonable expenses incurred in the
proceeding if the director or officer was a party because he or she is a
director or officer of the corporation. In cases where a director or officer
has not been successful on the merits or otherwise in the defense of such a
58
proceeding, Wisconsin law requires a corporation to indemnify the director or
officer unless liability was incurred because the director or officer breached
or failed to perform a duty that he or she owes to the corporation and the
breach or failure to perform constitutes (a) a willful failure to deal fairly
with the corporation or its stockholders in connection with a matter in which
the director or officer has a material conflict of interest; (b) a violation of
the criminal law, unless the director or officer had reasonable cause to believe
that his or her conduct was lawful or no reasonable cause to believe that his or
her conduct was unlawful; (c) a transaction from which the director or officer
derived an improper personal profit; or (d) willful misconduct. Such
indemnification is not required to the extent limited by the articles of
incorporation of the corporation. Expenses incurred by an officer or director
in defending civil or criminal proceedings may be paid by the corporation in
advance of the final disposition of such proceeding upon the receipt by the
corporation of (a) a written affirmation of his or her good faith belief that he
or she has not breached or failed to perform his or her duties to the
corporation; and (b) a written undertaking to repay the allowance and, if
required by the corporation, to pay reasonable interest on the allowance to the
extent that it is ultimately determined that indemnification is not required
under Wisconsin law and not ordered by a court.
CTI is able, pursuant to the CTI Articles, to indemnify all persons who may
be indemnified under Nevada law to the fullest extent permitted by such law.
Fiserv is required, pursuant to Fiserv Bylaws, to indemnify all persons who may
be indemnified under Wisconsin law to the fullest extent permitted thereunder.
DIVIDENDS
Under both Nevada and Wisconsin law, a corporation may authorize and make a
distribution to its stockholders unless, after giving effect to such
distribution, (i) the corporation would be unable to pay its debts as they
become due, or (ii) except as specifically allowed by the corporation's articles
of incorporation, the corporation's total assets would be less than the sum of
its total liabilities plus the amount necessary, if the corporation were
dissolved at the time of distribution, to satisfy the preferential rights of
stockholders whose preferential rights are superior to those receiving the
distribution.
The CTI Bylaws provide that dividends on capital stock of the corporation,
subject to the provisions of the CTI Articles, if any, may be declared by the
board of directors at any regular or special meeting pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the CTI Articles. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall deem conducive to the interest of
the corporation, and the directors may modify or abolish any such reserves in
the manner in which they were created.
Pursuant to the CTI Articles, the corporation may pay dividends on the
common stock only after the requirements with respect to preferential dividends
of the Preferred Stock and other specified requirements shall have been met.
The Fiserv Bylaws provide that, subject to the provisions of Wisconsin law
and the Fiserv Articles, the board of directors may, out of funds legally
available therefor, at any regular or special meeting declare dividends upon the
capital stock of the corporation as and when they deem expedient. Before
declaring any dividend there may be set apart out of any funds of the
corporation available for dividends such sum or sums as the directors from time
to time in their discretion deem proper for working capital or as a reserve fund
to meet contingencies or for equalizing dividends or for such other purposes as
the board of directors shall deem conducive to the interests of the corporation.
CUMULATIVE VOTING
Both Nevada law and Wisconsin law allow a corporation to provide for
cumulative voting in its articles of incorporation.
The CTI Articles specifically preclude cumulative voting on any matter.
The Fiserv Articles do not provide for cumulative voting rights.
59
RIGHTS OF DISSENTING STOCKHOLDERS
If a stockholder dissents from a merger or consolidation in the manner
provided by Nevada law, Nevada law entitles such holder to appraisal rights
unless the shares received in connection with the transaction are registered on
a securities exchange on the record date fixed to determine the stockholders
entitled to vote on the agreement of merger or consolidation. The CTI Articles
and Bylaws do not confer any additional appraisal rights.
Under the provisions of Wisconsin law, any stockholders who assert
dissenters' rights will have a statutory right to demand payment of the "fair
value" of their stock in cash. To perfect this right, a stockholder must not
vote such shares in favor of a merger agreement at the special meeting called
for such vote (this may be done by marking a proxy either to vote against the
merger agreement or to abstain from voting thereon or by not voting at all) and
must take such other action as is required by the provisions of Wisconsin law,
including delivering written notice of intent to demand the "fair value" of
their common stock.
SPECIAL MEETINGS OF STOCKHOLDERS
The CTI Bylaws permit the President to call a special meeting of
stockholders at his or her request and requires a special meeting to be called
by the President or Secretary at the request in writing of a majority of the
board of directors or at the request in writing of stockholders holding a
majority in amount of the entire capital stock of CTI issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
The Fiserv Bylaws state that a special meeting of the stockholders, or of
any class thereof entitled to vote, for any purpose or purposes, may be called
at any time by the Chairman of the Board, if any, or the President or by order
of the board of directors and shall be called by the President or the Secretary
upon the written request of stockholders holding of record at least 10 percent
of all the votes entitled to be cast on any issue proposed to be considered at
such meeting. Such written request shall state the purpose or purposes for
which such meeting is to be called.
ACTION WITHOUT A STOCKHOLDER MEETING
Under Nevada law, unless prohibited in a corporation's articles of
incorporation or bylaws, any action to be taken at an annual or special meeting
of the stockholders may be taken in the absence of a meeting, without prior
notice and without a vote. Such action may be taken by the written consent of
the stockholders in lieu of a meeting setting forth the action so taken and
signed by the holders of outstanding stock representing the number of shares
necessary to take such action at a meeting at which all shares entitled to vote
were present and voted.
Wisconsin law also provides for actions that would be taken at an annual or
special stockholder meeting to be taken without a meeting. Such an action may
be taken, without action by the board of directors, by written consent of all of
the stockholders entitled to vote on the action. If the articles of
incorporation so provide, such action may also be taken by written consent of
those stockholders representing the voting power to cast not less than the
minimum number or, in the case of voting by voting groups, numbers of votes that
would be necessary to authorize or take the action at a meeting at which all
shares entitled to vote were present and voted, except action may not be taken
in this manner with respect to an election of directors for which stockholders
may vote cumulatively. If action is taken by written consent of fewer than all
of the stockholders, the corporation shall give notice of the action to the
stockholders who were entitled to vote on the action but whose shares were not
represented on the written consent.
The CTI Bylaws provide that any action, the election of directors, which
may be taken by the vote of the stockholders at a meeting, may be taken without
a meeting if authorized by the written consent of stockholders holding at least
a majority of the voting power, unless Nevada law or the CTI Articles require a
greater proportion of voting power to authorize such action in which case such
greater proportion of written consents shall be required.
60
The Fiserv Articles provide that any action required to be taken at any
annual or special meeting of stockholders or any action which may be taken at
any annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing setting forth
the action so taken shall be signed by the holders of outstanding stock having
not less than the minimum number of votes necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
PREEMPTIVE RIGHTS
Although Nevada law permits the designation of preemptive rights in a
corporation's articles of incorporation, the CTI Articles do not provide holders
of common stock with preemptive rights to acquire any securities of CTI.
Wisconsin law provides preemptive rights for holders of common stock from a
"preexisting class," defined under Wisconsin law as shares of a class for which
shares were authorized before January 1, 1991, whether the shares were issued
before, on or after January 1, 1991. Wisconsin law permits the designation of
preemptive rights in a corporation's articles of incorporation for any shares
that are not from a preexisting class. The Fiserv Articles do not provide
holders of common stock preemptive rights to acquire any securities of Fiserv.
MERGER, CONSOLIDATION AND SALES OF ASSETS
Both Wisconsin and Nevada law require that certain extraordinary corporate
actions, such as most mergers, consolidations, dissolutions or sales of
substantially all of a corporation's assets, be approved by the vote of a
majority of the corporation's outstanding shares and by a majority of each class
entitled to vote thereon unless a higher percentage is required by the
corporation's articles of incorporation. Neither the CTI Articles nor the
Fiserv Articles require approval of greater than the majority of each
corporation's outstanding shares and by a majority of each class entitled to
vote thereon required by the state statutes of each respective company.
SHAREHOLDER RIGHTS AGREEMENT
On February 23, 1998, the Fiserv Board of Directors declared a dividend of
one preferred stock purchase right for each outstanding share of Fiserv Common
Stock to shareholders of record at the close of business on March 9, 1998. For
a description of the Fiserv Rights and the related Rights Agreement, together
with a discussion of the effects of the Fiserv Rights, see "Incorporation of
Certain Documents by Reference."
The CTI Board of Directors has not adopted a shareholder rights
agreement.
LEGAL MATTERS
The legality of the issuance of the Fiserv Common Stock being offered
hereby will be passed upon by Charles W. Sprague, General Counsel of Fiserv.
Mr. Sprague owns 27,461 shares of Fiserv Common Stock which number includes
vested but unexercised stock options.
61
EXPERTS
The consolidated financial statements and related financial statement
schedules of Fiserv, Inc. and subsidiaries, except BHC Financial, Inc. and
subsidiaries, as of December 31, 1997 and 1996 and for each of the three years
in the period ended December 31, 1997, incorporated in this Proxy
Statement/Prospectus by reference from Fiserv's Annual Report on Form 10-K for
the year ended December 31, 1997, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports which are incorporated herein
by reference. The financial statements of BHC Financial, Inc. and subsidiaries
(consolidated with those of Fiserv, Inc.) have been audited by Coopers & Lybrand
L.L.P. as stated in their report dated February 14, 1997, except for Note 12 of
the Consolidated Financial Statements as to which the date is March 3, 1997,
which report is included in Fiserv's Annual Report on Form 10-K for the year
ended December 31, 1997. Such financial statements of Fiserv, Inc. and its
consolidated subsidiaries are incorporated by reference, and have been so
incorporated in reliance upon the respective reports of such firms given upon
their authority as experts in accounting and auditing.
The consolidated financial statements of CUSA Technologies, Inc. and
subsidiaries as of June 30, 1997 and 1996 and for each of the years then ended,
and the related financial statement schedules have been included herein in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of CUSA Technologies, Inc. and
subsidiaries for the year ended June 30, 1995 have been included herein in
reliance upon the reports of Grant Thornton LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
STOCKHOLDER PROPOSALS FOR CTI 1998 ANNUAL MEETING
CTI does not intend to hold an Annual Meeting of Stockholders in 1998
unless the Merger is not consummated. In the event that the Merger is not
consummated, stockholder proposals which are intended to be presented at CTI's
1998 Annual Meeting of Stockholders must be received at the principal executive
offices of CTI, located at 986 West Atherton Drive, Salt Lake City, Utah 84123 a
reasonable period prior to the mailing of proxy materials for such meeting in
order to be included in such proxy materials.
62
APPENDIX A
AGREEMENT AND PLAN OF MERGER
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
FISERV, INC.,
FISERV SOLUTIONS, INC.
AND
CUSA TECHNOLOGIES, INC.
Dated as of November 4, 1997
================================================================================
TABLE OF CONTENTS
ARTICLE I MERGER............................................................................... A-1
SECTION 1.01 The Merger................................................................. A-1
SECTION 1.02 Shareholders' Meeting...................................................... A-1
SECTION 1.03 Articles of Merger......................................................... A-2
SECTION 1.04 Effective Time of the Merger............................................... A-2
SECTION 1.05 Closing.................................................................... A-2
SECTION 1.06 Certain Intended Effects of the Merger..................................... A-2
ARTICLE II DIRECTORS AND OFFICERS.............................................................. A-2
SECTION 2.01 Directors.................................................................. A-2
SECTION 2.02 Officers................................................................... A-2
ARTICLE III CONVERSION OF SHARES AND OPTIONS................................................... A-3
SECTION 3.01 Conversion................................................................. A-3
SECTION 3.02 Company Options............................................................ A-3
SECTION 3.03 Surrender and Initial Payment.............................................. A-3
SECTION 3.04 No Further Transfers....................................................... A-5
SECTION 3.05 No Fractional Shares....................................................... A-5
SECTION 3.06 Dissenting Shares.......................................................... A-5
SECTION 3.07 No Pooling................................................................. A-5
ARTICLE IV CERTAIN EFFECTS OF MERGER........................................................... A-6
SECTION 4.01 Effect of Merger........................................................... A-6
SECTION 4.02 Further Assurances......................................................... A-6
ARTICLE V REPRESENTATIONS AND WARRANTIES....................................................... A-6
SECTION 5.01 Representations and Warranties of the Company.............................. A-6
SECTION 5.02 Representations and Warranties of Fiserv and Fiserv Solutions.............. A-17
ARTICLE VI ADDITIONAL COVENANTS AND AGREEMENTS................................................. A-19
SECTION 6.01 Conduct of Business........................................................ A-19
SECTION 6.02 Access to Information...................................................... A-20
SECTION 6.03 Confidentiality............................................................ A-20
SECTION 6.04 Commercially Reasonable Efforts............................................ A-21
SECTION 6.05 Consents and Authorizations................................................ A-21
SECTION 6.06 Non-Assignable Licenses, Leases and Contracts.............................. A-21
SECTION 6.07 Public Announcements....................................................... A-21
SECTION 6.08 Notification of Certain Matters............................................ A-21
SECTION 6.09 Acquisition Proposals...................................................... A-22
SECTION 6.10 Options and Option Plans................................................... A-22
SECTION 6.11 Tax Returns................................................................ A-22
ARTICLE VII CONDITIONS PRECEDENT............................................................... A-22
SECTION 7.01 Conditions Precedent to Each Party's Obligation to Effect the Merger....... A-22
SECTION 7.02 Conditions Precedent to the Obligations of Fiserv and Fiserv
Solutions to Effect the Merger............................................ A-23
SECTION 7.03 Conditions Precedent to the Obligations of the Company to Effect
the Merger................................................................ A-25
ARTICLE VIII SURVIVAL OF REPRESENTATIONS....................................................... A-26
SECTION 8.01 Survival................................................................... A-26
ARTICLE IX TERMINATION; AMENDMENT; WAIVER...................................................... A-26
SECTION 9.01 Termination................................................................ A-26
SECTION 9.02 Effect of Termination.................................................... A-26
SECTION 9.03 Amendment................................................................ A-26
SECTION 9.04 Extension; Waiver........................................................ A-26
ARTICLE X MISCELLANEOUS...................................................................... A-27
SECTION 10.01 Expenses, Etc............................................................ A-27
SECTION 10.02 Execution in Counterparts................................................ A-27
SECTION 10.03 Notices.................................................................. A-27
SECTION 10.04 Entire Agreement......................................................... A-28
SECTION 10.05 Applicable Law........................................................... A-28
SECTION 10.06 Binding Effect; Benefits................................................. A-28
SECTION 10.07 Assignability............................................................ A-28
SECTION 10.08 Invalid Provisions....................................................... A-28
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
A Wisconsin Articles of Merger
B Nevada Articles of Merger
C Outstanding Company Options
D Form of Opinion of Counsel to the Company
E Consents that are Conditions to Closing
F Form of Beckstrand Employment Agreement Amendment
G-1 Form of Company Representation Letter
G-2 Form of Shareholder Representation Letter
G-3 Form of Company FIRPTA Affidavit
G-4 Form of Shareholder FIRPTA Affidavit
H Form of Opinion of Counsel to Fiserv and Fiserv Solutions
INDEX TO SCHEDULES
SCHEDULE
- --------
I Disclosure Schedule
5.02(g) Fiserv Commitments to Issue Capital Stock
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of November 4, 1997 among FISERV,
INC., a Wisconsin corporation ("Fiserv"), FISERV SOLUTIONS, INC., a Wisconsin
corporation ("Fiserv Solutions") and a wholly-owned subsidiary of Fiserv, and
CUSA TECHNOLOGIES, INC., a Nevada corporation (the "Company").
W I T N E S S E T H :
WHEREAS, Fiserv and Fiserv Solutions desire that the Company merge with and
into Fiserv Solutions and the Company also desires that it merge with and into
Fiserv Solutions upon the terms and conditions set forth herein and in
accordance with the Business Corporation Law of the State of Wisconsin and the
Business Corporation Law of the State of Nevada, and that the outstanding shares
of Common Stock, $.001 par value ("Company Common Stock"), of the Company,
excluding any such shares held in the treasury of the Company and shares as to
which dissenters' rights have been properly exercised, be converted upon such
merger (the "Merger") into the right to receive such number of shares of Common
Stock, $.01 par value ("Fiserv Common Stock"), of Fiserv as is provided herein
(Fiserv Solutions and the Company being hereinafter sometimes referred to as the
"Constituent Corporations" and Fiserv Solutions being hereinafter sometimes
referred to as the "Surviving Corporation");
WHEREAS, the Board of Directors of the Company has, in light of and subject
to the terms and conditions set forth herein and subject to their fiduciary
duties under applicable law, approved this Agreement and the transactions
contemplated hereby and agreed to recommend approval and adoption of this
Agreement by the shareholders of the Company;
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, agreements and conditions contained herein, and in order to set forth
the terms and conditions of the Merger and the mode of carrying the same into
effect, the parties hereto hereby agree as follows:
ARTICLE I
MERGER
SECTION 1.01 The Merger. At the Effective Time (as hereinafter defined)
of the Merger, the Company shall be merged with and into Fiserv Solutions on the
terms and conditions hereinafter set forth as permitted by and in accordance
with the Wisconsin Business Corporation Law and the Nevada Business Corporation
Law. Thereupon, the separate existence of the Company shall cease, and Fiserv
Solutions, as the Surviving Corporation, shall continue to exist under and be
governed by the Wisconsin Business Corporation Law, and its Articles of
Incorporation and By-laws as in effect at the Effective Time shall remain
unchanged until further amended in accordance with the provisions thereof and
applicable law.
SECTION 1.02 Shareholders' Meeting. The Company, acting through its Board
of Directors, shall in accordance with applicable law as soon as practicable
following the date hereof:
(i) duly call, give notice of, convene and hold an annual or special
meeting of its shareholders (the "Shareholders' Meeting") for the
purpose of considering and taking action upon this Agreement;
(ii) include in the proxy materials that will be distributed to the
Company's shareholders in connection with the Shareholders'
Meeting, including any amendments or supplements thereto (the
"Proxy Statement"), and that will form a part of the registration
statement (the "Registration Statement") of Fiserv under the
Securities Act of 1933 (the "Securities Act") with respect to the
Fiserv Common Stock to be issued in the Merger, the
recommendation of the Board of Directors of the Company that the
shareholders of the Company vote in favor of the approval and
adoption of this Agreement and the transactions contemplated
hereby; and
A-1
(iii) use its commercially reasonable efforts to obtain and furnish the
information required to be included by it in the Proxy Statement
and, after consultation with Fiserv and Fiserv Solutions, respond
promptly to any comments made by the staff of the Securities and
Exchange Commission (the "SEC") with respect to the Proxy Statement
and cause the Proxy Statement to be mailed to its shareholders at
the earliest practicable time following the date hereof and, subject
to its fiduciary duties under applicable law, to obtain the
necessary approvals of its shareholders of this Agreement and the
transactions contemplated hereby.
SECTION 1.03 Articles of Merger. As soon as practicable following
fulfillment or waiver of the conditions specified in Article VII hereof, and
provided that this Agreement has not been terminated and abandoned pursuant to
Article IX hereof, (a) the Company and Fiserv Solutions will cause the Articles
of Merger in substantially the form of Exhibit A attached hereto (the "Wisconsin
Articles of Merger") to be executed and filed with the Secretary of State of the
State of Wisconsin as provided in the Wisconsin Business Corporation Law and (b)
the Company and Fiserv Solutions will cause the Articles of Merger in
substantially the form of Exhibit B attached hereto (the "Nevada Articles of
Merger"; collectively with the Wisconsin Articles of Merger, the "Articles of
Merger") to be executed and filed with the Secretary of State of State of Nevada
as provided in the Nevada Business Corporation Law. The purpose of the
Surviving Corporation shall be to engage in any and all business activities in
which a corporation is permitted to engage in accordance with the Wisconsin
Business Corporation Law.
SECTION 1.04 Effective Time of the Merger. The Merger shall become
effective immediately upon the later of the filing of the Wisconsin Articles of
Merger with the Secretary of State of the State of Wisconsin and the filing of
the Nevada Articles of Merger with the Secretary of State of the State of Nevada
or on such other time or date thereafter as the parties hereto may agree. The
time and date of such effectiveness is herein sometimes referred to as the
"Effective Time".
SECTION 1.05 Closing. Evidence of the fulfillment or waiver of the
conditions set forth in Article VII hereof (the "Closing") shall be provided by
the parties hereto to each other (a) at the offices of Fiserv, Inc., 255 Fiserv
Drive, Brookfield, WI 53045 at 10 a.m., local time, on the business day next
after the date on which the last of the conditions set forth in Article VII
hereof is fulfilled or waived or (b) at such other time and place as the parties
hereto may agree.
SECTION 1.06 Certain Intended Effects of the Merger. The parties hereto
have endeavored to structure the Merger as a tax-free "reorganization" under
Section 368(a)(1)(A) and (a)(2)(D) of the Internal Revenue Code of 1986, as
amended (the "Code"), and to have the Merger qualify as a "pooling of interests"
under Accounting Principles Board Opinion Number 16, as modified and amended.
The parties represent, warrant and agree: (i) to report the transaction in such
manner; and (ii) not to take or fail to take any action that would jeopardize a
"pooling of interests" or such tax treatment.
ARTICLE II
DIRECTORS AND OFFICERS
SECTION 2.01 Directors. From and after the Effective Time, the members of
the Board of Directors of the Surviving Corporation shall consist of the members
of the Board of Directors of Fiserv Solutions (as constituted immediately prior
to the Effective Time).
SECTION 2.02 Officers. From and after the Effective Time, the officers of
the Surviving Corporation shall consist of the officers of Fiserv Solutions (as
constituted immediately prior to the Effective Time). Officers of the Company
shall retain their titles as officers of the CUSA Division of Fiserv Solutions,
such Division to be renamed by mutual agreement of the Company, Fiserv and
Fiserv Solutions. Such officers shall retain the authority to execute contracts
for the CUSA Division.
A-2
ARTICLE III
CONVERSION OF SHARES AND OPTIONS
SECTION 3.01 Conversion.
(a) Conversion Formula. Upon the Effective Time, each share of Company
Common Stock issued and outstanding immediately prior to the Effective
Time, except shares held in the treasury of the Company, which shall
be cancelled, and shares as to which dissenters' rights have been
properly exercised, shall, without any further action on the part of
Fiserv or Fiserv Solutions, on the one hand, or the Company, on the
other hand, be converted into the right to receive such number of
shares of Fiserv Common Stock as shall equal the quotient (the
"Exchange Ratio") of (i) the Company Stock Value (as hereinafter
defined) divided by (ii) an amount equal to the average closing price
of Fiserv Common Stock as reported on the National Market System by
NASDAQ (as reported in The Wall Street Journal) for the 20 business
days ending on the second business day prior to the Effective Time.
(b) "Company Stock Value" Defined. The term "Company Stock Value" shall
mean the quotient of (i) the sum of (A) $24,933,500, minus (B) the
Company Merger Costs (as hereinafter defined), plus (C) the product of
(I) the number of outstanding "in-the-money" options (an "In-the-Money
Option" or the "In-the-Money Options"; collectively with other options
granted under the CUSA Option Plan [as hereinafter defined], the
"Options") issued pursuant to the Company stock option plans
(collectively, the "CUSA Option Plan") times (II) the respective
exercise prices of such In-the-Money Options, divided by (ii) the sum
of (A) the number of shares of Company Common Stock outstanding
immediately prior to the Effective Time plus (B) the number of such
outstanding In-the-Money Options. The term "Company Merger Costs"
shall mean the aggregate of all accounting (which shall not include
regular audit fees), legal, printing, filing, financial advisory and
other fees and expenses of the Company and Taxes (as hereinafter
defined) assessed in connection with the transactions contemplated
hereby, in each case incurred or anticipated to be incurred in
connection with the Merger, all estimated and agreed to by the parties
two business days prior to the Effective Time.
SECTION 3.02 Company Options. At the Effective Time, each then
outstanding Option shall by virtue of the Merger and without any action on the
part of the holder thereof, be converted as described in, and in accordance
with, Section 6.10 of this Agreement. The outstanding Options are listed in
Exhibit C hereto.
SECTION 3.03 Surrender and Initial Payment.
(a) At any time after the Effective Time, each shareholder shall be
entitled, upon surrender of any certificate or certificates which
formerly represented shares of Company Common Stock outstanding on the
Effective Time to Firstar Trust Company, Milwaukee, Wisconsin, the
Exchange Agent appointed by Fiserv, to receive a certificate or
certificates representing the number of shares of Fiserv Common Stock
into which the shares of Company Common Stock theretofore represented
by the certificate or certificates so surrendered shall have been
converted as provided in Section 3.01 above, subject to an aggregate
holdback (the "Holdback") of shares of Fiserv Common Stock by Fiserv
Solutions in an amount equal to $3,000,000 divided by the amount set
forth in Section 3.01(a)(ii), which shares shall be held in escrow by
Kimball, Parr, Waddoups, Brown & Gee (the "Escrow Agent") pursuant to
an escrow agreement, in respect of all damages to and liabilities of
Fiserv or Fiserv Solutions, as the case may be, (including without
limitation those resulting from or relating to demands, claims,
actions or causes of action, assessments or other losses, costs and
expenses directly relating thereto, interest and penalties thereon and
reasonable attorneys' fees and expenses in respect thereof) by reason
of or resulting from:(i) Specified Liabilities (as hereinafter
defined) to the extent that they exceed $825,067; and (ii) any other
actions, suits or proceedings which were not disclosed and would have
been required to be disclosed in the Disclosure Schedule if known at
the Effective Time related to events occurring or actions taken on or
prior to the Effective Time but not related to client contractual
A-3
obligations with respect to continuing operations; which amounts, or
such lesser amounts as shall be payable following reduction of such
amount by claims made against Fiserv Solutions, less any and all
counterclaims or insurance proceeds which are available to Fiserv
Solutions or the Company with respect to clauses (i) and (ii), shall
be payable to the shareholders of the Company on the first anniversary
of the Effective Time, provided, however, that any claims still
outstanding at the first anniversary of the Effective Time will be
resolved as soon as practicable. The Representatives, acting in
consultation with the senior management of Fiserv Solutions, shall
resolve all claims presented with respect to clauses (i) and (ii) and
shall have the authority to utilize $1,500,000 of the Holdback in the
resolution of such claims, provided, however, that to the extent such
claims exceed $1,500,000 they shall be resolved by the senior
management of Fiserv Solutions, acting in consultation with the
Representatives. In no event shall the actual damages chargeable by
Fiserv or Fiserv Solutions for claims arising pursuant to clauses (i)
and (ii) exceed $3,000,000 in aggregate and (I) of items considered
"specific contingencies" under a "pooling of interests" exceed ten
percent of the Company Stock Value, or (II) of items considered
"general contingencies" under a "pooling of interests" (x) exceed ten
percent of the Company Stock Value or (y) be resolved after one year
after the Effective Time. The term "Specified Liabilities" shall mean
all amounts to be paid or received (but not including interest) with
respect thereto after June 30, 1997 for the following: (w) all
liabilities net of all assets of discontinued operations, which as of
June 30, 1997 were estimated to equal $304,464, (x) all Taxes
associated with the sale of discontinued operations and all other
Taxes payable for the periods ended June 30, 1997, which as of June
30, 1997 were estimated to equal $597,000, (y) any actions, suits or
proceedings listed in the Disclosure Schedule for subsection 5.01(l)
which as of June 30, 1997 were estimated to equal $5,000 and (z) other
possible liabilities associated with clauses (w) and (x), which as of
June 30, 1997 were estimated to equal $18,603. Notwithstanding the
foregoing, in no event shall the Company be liable for any claim which
is not raised on or before the day which is 289 days after the
Effective Time.
(b) No later than 299 days subsequent to the Effective Time, Fiserv
Solutions shall deliver to a group of persons consisting of Richard N.
Beckstrand, Jonathan S. Beckstrand, David J. Rank and one other person
to be selected (the "Representatives") a list of all items subject to
the Holdback, including Specified Liabilities and the total damages
relating to each item (the "Holdback Schedule"). If the
Representatives dispute the correctness of the Holdback Schedule,
they, acting together, shall notify Fiserv and Fiserv Solutions of
their objections within 15 business days after delivery of the
Holdback Schedule and shall set forth in reasonable detail in such
notice the reason for the Representatives' objections. If the
Representatives fail to deliver such notice within such time period,
the shareholders shall be deemed to have accepted Fiserv Solutions'
calculation of the Specified Liabilities and other items subject to
the Holdback. If the Representatives deliver such notice, Fiserv,
Fiserv Solutions and the Representatives shall endeavor in good faith
to resolve their dispute concerning the Holdback Schedule within 15
business days after the receipt by Fiserv and Fiserv Solutions of such
notice. If they are unable to do so within such 15-business-day
period, the dispute shall be submitted to an audit partner experienced
in the credit union service bureau industry of an independent
nationally-recognized accounting firm in the United States as shall be
mutually acceptable to Fiserv and Fiserv Solutions, on the one hand,
and the Representatives, on the other hand (an "Independent Accounting
Firm"), whom the parties initially designate to be Arthur Andersen &
Co. LLP, who shall act as an expert and not as an arbitrator, and who
shall resolve the dispute within 30 days of the submission of such
dispute, or if no such Independent Accounting Firm is available to a
mutually agreed neutral arbitrator (the "Arbitrator"). The decision
of the Independent Accounting Firm or the Arbitrator, as the case may
be, as to the Holdback Schedule shall be final and binding upon
Fiserv, Fiserv Solutions and the shareholders. The expense of the
Independent Accounting Firm or the Arbitrator, as the case may be,
shall be borne in proportion to the difference between the final
determined amount of the Independent Accounting Firm or the
Arbitrator, as the case may be, and such amounts proposed by Fiserv
and Fiserv Solutions, on the one hand, and the Representatives acting
for the shareholders on the other hand. The Representatives and
Fiserv and Fiserv Solutions shall cooperate with the other party in
the determination of the Holdback Schedule, including without
A-4
limitation, allowing the Representatives access after the Effective
Time to the books and records of the Company and to the accounting and
other representatives and advisors of the Company and its books and
records for the purposes of making such determination. Within three
business days following final determination of the Holdback Schedule,
the Escrow Agent shall return to Fiserv a number of shares, valued at
the Effective Time, of Fiserv Common Stock equal to the total damages
listed on the Holdback and/or deliver the remaining shares of Fiserv
Common Stock to the shareholders hereunder in accordance with
previously received instructions of the shareholders. Notwithstanding
the foregoing, the Representatives may elect, with respect to any item
listed on the Holdback Schedule considered a "specific contingency"
under a "pooling of interests" that has not been finally determined,
to defer the return of shares from the escrow to Fiserv, if any,
relating to that portion of the "specific contingency" not so
determined until final determination thereof in accordance with the
provisions of this Section 3.03, provided, however, that a number of
shares of Fiserv Common Stock having a value equal to all "specific
contingencies" up to a maximum of 10% of the Merger consideration
shall be retained by the Escrow Agent until such "specific
contingencies" shall have been resolved. Within 15 days of the
Effective Time, the Representatives shall receive a one-time payment
of $10,000 each in consideration for their services hereunder. Fiserv
Solutions shall be responsible for all costs associated with the
escrow, including the fee of the Escrow Agent which is estimated to be
$3,000.
(c) If any certificate representing shares of Fiserv Common Stock is to be
made in a name other than that in which the certificate theretofore
surrendered for exchange is registered, it shall be a condition of
such exchange that the certificate so surrendered be properly endorsed
or otherwise in proper form for transfer and that the person
requesting such transfer either pay to Fiserv any transfer or other
Taxes required by reason of the transfer to a person other than the
registered holder of the certificate surrendered or establish to the
satisfaction of Fiserv that such Tax has been paid or is not payable.
SECTION 3.04 No Further Transfers. Upon and after the Effective Time, no
transfer of the shares of Company Common Stock outstanding prior to the
Effective Time shall be made on the stock transfer books of the Surviving
Corporation.
SECTION 3.05 No Fractional Shares. No certificate or scrip representing
fractional shares of Fiserv Common Stock shall be issued upon the surrender for
exchange of certificates, and no dividend, stock split or interest shall relate
to any such fractional shares. In lieu of any fractional share of Fiserv Common
Stock being issued, such fractional share will be rounded down to the nearest
whole share of Fiserv Common Stock and cash shall be paid to the shareholder in
respect of such fractional share.
SECTION 3.06 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock outstanding
immediately prior to the Effective Time and held by a holder who has not voted
in favor of the Merger or consented thereto in writing and who has demanded
appraisal for such Shares in accordance with the Nevada Business Corporation Law
("Dissenting Shares") shall not be converted into the right to receive the
Merger consideration unless such holder fails to perfect or withdraws or
otherwise loses his right to appraisal. If, after the Effective Time, such
holder fails to perfect or withdraws or loses his right to appraisal, such
Dissenting Shares shall be treated as if they had been converted as of the
Effective Time into the right to receive the Merger consideration without
interest thereon. The Company shall give Fiserv prompt notice of any demands
received by the Company for appraisal of shares of Company Common Stock, and,
prior to the Effective Time, Fiserv shall have the right to participate in all
negotiations and proceedings with respect to such demands. Prior to the
Effective Time, the Company shall not, except with prior written consent of
Fiserv, make any payment with respect to, settle or offer to settle any such
demands.
SECTION 3.07 No Pooling. In the event that the transactions contemplated
hereby may not be accounted for as a "pooling of interests", the consideration
to be paid in the Merger shall be payable in cash, without interest.
A-5
ARTICLE IV
CERTAIN EFFECTS OF MERGER
SECTION 4.01 Effect of Merger. Upon and after the Effective Time, the
separate existence of the Company shall cease and the Surviving Corporation
shall possess all the rights, privileges, immunities and franchises, of a public
as well as of a private nature, of each of the Constituent Corporations; and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, and all other choices in action, and every
other interest of or belonging to or due to each of the Constituent Corporations
shall be taken and deemed to be transferred to and vested in the Surviving
Corporation without further act or deed; and the title to any real estate, or
any interest therein, vested in either of the Constituent Corporations shall not
revert or be in any way impaired by reason of the Merger. The Surviving
Corporation shall be responsible and liable for all the liabilities and
obligations of each of the Constituent Corporations and any claims existing or
action or proceeding pending by or against either of the Constituent
Corporations may be prosecuted as if the Merger had not taken place, or the
Surviving Corporation may be substituted in its place. Neither the rights of
creditors nor any liens upon the property of either of the Constituent
Corporations shall be impaired by the Merger.
SECTION 4.02 Further Assurances. If at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary, desirable or
proper (a) to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, the title to any property or right of the Constituent Corporations
acquired or to be acquired by reason of, or as a result of, the Merger, or (b)
otherwise to carry out the purposes of this Agreement, the Constituent
Corporations agree that the Surviving Corporation and its proper officers and
directors shall and will execute and deliver all such property, deeds,
assignments and assurances in law and do all acts necessary, desirable or proper
to vest, perfect or confirm title to such property or rights in the Surviving
Corporation and otherwise to carry out the purposes of this Agreement, and that
the proper officers and directors of the Constituent Corporations and the proper
officers and directors of the Surviving Corporation are fully authorized in the
name of the Constituent Corporations or otherwise to take any and all such
action.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01 Representations and Warranties of the Company. Except as
otherwise set forth in the Disclosure Schedule (the "Disclosure Schedule")
annexed hereto, the Company represents and warrants to, and agrees with, Fiserv
and Fiserv Solutions as follows:
(a) Organization and Qualification, etc. The Company is a corporation
duly organized, validly existing and in good standing under the laws
of the State of Nevada, has corporate power and authority to own all
of its properties and assets and to carry on its business as it is now
being conducted, and is duly qualified to do business and is in good
standing in each other jurisdiction as set forth in the Disclosure
Schedule where the failure to so qualify would have a Material Adverse
Effect (as hereinafter defined). The copies of the Company's Articles
of Incorporation and By-Laws, as amended to date, which have been
delivered to Fiserv and Fiserv Solutions are complete and correct, and
such instruments, as so amended, are in full force and effect at the
date hereof.
"Material Adverse Effect" for purposes of this Agreement when used
with respect to any party means any change in, or effect on, or series
of changes in, or effects on, the business of such party as currently
conducted by such party that is materially adverse to the results of
the operations or financial or other condition of such party and its
subsidiaries considered as a whole before giving effect to the
transactions contemplated by this Agreement.
A-6
(b) Capital Stock. The authorized capital stock of the Company consists
of 25,000,000 shares of Company Common Stock and 5,000,000 shares of
Preferred Stock, $.001 par value, of which as of the date hereof
15,289,437 shares of Company Common Stock and 1,000,000 shares of 1994
Series Convertible Preferred Stock are validly issued and outstanding,
fully paid and nonassessable, and no shares of Company Common Stock or
Preferred Stock are in the treasury of the Company. As of the date
hereof the Company has no commitments to issue or sell any shares of
its capital stock or any securities or obligations convertible into or
exchangeable for, or giving any person any right to subscribe for or
acquire from the Company, any shares of its capital stock and no
securities or obligations evidencing any such rights are outstanding.
The Company Common Stock is regularly traded on an established public
securities market.
(c) Subsidiaries. The Company does not own of record or beneficially,
directly or indirectly, (i) any shares of outstanding capital stock or
securities convertible into capital stock of any other corporation or
(ii) any participating interest in any partnership, joint venture,
limited liability company or other non-corporate business enterprise.
The Company owns directly all the outstanding capital stock of the
subsidiaries listed in the Disclosure Schedule (the "Subsidiaries")
(except for directors' qualifying shares, if any), free and clear of
all encumbrances other than Permitted Exceptions (as hereinafter
defined). The capital stock of each Subsidiary is duly authorized and
validly issued and outstanding, fully paid and nonassessable. No
Subsidiary has issued or sold any shares of its capital stock or any
securities or obligations convertible into or exchangeable for, or
given any person any right to acquire from such Subsidiary, any shares
of its capital stock, and no such securities or obligations are
outstanding. Each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, and has the corporate power and authority to own and
hold its properties and to carry on its business as currently
conducted. The copies of the articles or certificate of incorporation
and by-laws of each Subsidiary, as amended to date, which have been
delivered to Fiserv and Fiserv Solutions were complete and correct,
and such instruments, as so amended, are in full force and effect at
the date hereof. For purposes of this Section 5.01, the term
"Company" shall be deemed to include the Subsidiaries where relevant
or appropriate.
(d) Authority Relative to Agreement. The Company has the corporate power
and authority to execute and deliver this Agreement and to consummate
the transactions contemplated on the part of the Company hereby. The
execution and delivery by the Company of this Agreement and the
consummation by the Company of the transactions contemplated hereby
have been duly authorized by its Board of Directors. Except for
approval of this Agreement by the shareholders of the Company, no
other corporate or institutional proceedings on the part of the
Company are necessary to authorize the execution and delivery of this
Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company and, assuming the due
authorization, execution and delivery of this Agreement by Fiserv and
Fiserv Solutions, is a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except
as such enforcement is subject to the effect of (i) any applicable
bankruptcy, insolvency, reorganization or similar laws relating to or
affecting creditors' rights generally and (ii) general principles of
equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and other similar
doctrines affecting the enforceability of agreements generally
(regardless of whether considered in a proceeding in equity or at
law).
(e) Non-Contravention. The execution and delivery of this Agreement by
the Company do not and the consummation by the Company of the
transactions contemplated hereby will not (i) violate any provision of
the Articles of Incorporation or By-Laws of the Company, or (ii)
violate, or result, with the giving of notice or the lapse of time or
both, in a violation of, any provision of, or result in the
acceleration of or entitle any party to accelerate (whether after the
giving of notice or lapse of time or both) any material obligation
under, or result in the creation or imposition of any material lien,
charge, pledge, security interest or other encumbrance upon any of the
property of the Company pursuant to any provision of, any material
mortgage, lien, lease, agreement, license,
A-7
instrument, order, arbitration award, judgment or decree to which the
Company is a party or by which any of its assets is bound, and do not
and will not violate or conflict with any other material restriction
of any kind or character to which the Company is subject or by which
any of its assets may be bound, and the same does not and will not
constitute an event permitting termination of any material mortgage,
lien, lease, agreement, license or instrument to which the Company is
a party or (iii) violate any law, ordinance or regulation to which the
Company is subject.
(f) Government Approvals. Except for the filing of the Wisconsin Articles
of Merger with the Secretary of State of the State of Wisconsin, the
filing of the Nevada Articles of Merger with the Secretary of State of
the State of Nevada, compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), compliance with
the requirements of the Securities Act and the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"), and compliance with all
applicable state securities laws, no consent, authorization, order or
approval of, or filing or registration with, any governmental
commission, board or other regulatory body is required for the
execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby,
except (i) as may be necessary as a result of any facts or
circumstances relating solely to Fiserv or Fiserv Solutions, as the
case may be, or (ii) where the failure to obtain such consents,
authorizations or approvals or to make such filings or registrations
would not prevent the consummation of the transactions contemplated
hereby.
(g) SEC Reports. The Company has provided Fiserv and Fiserv Solutions
with all required forms, reports and documents which it has been
required to file with the SEC since July 1, 1995 (collectively, the
"Company SEC Reports"), each of which has complied in all material
respects with all applicable requirements of the Securities Act and
the Exchange Act. As of their respective dates, the Company SEC
Reports, including, without limitation, any financial statements or
schedules included therein, did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading,
except, in the case of any Company SEC Report, any statement or
omission therein that has been corrected or otherwise disclosed in a
subsequent Company SEC Report. The audited consolidated financial
statements and unaudited interim consolidated financial statements of
the Company included in its Annual Report on Form 10-K for the fiscal
year ended June 30, 1995 and in its Quarterly Reports on Form 10-Q for
the fiscal quarters ended September 30, 1995, December 31, 1995 and
March 31, 1996, in its Annual Report on Form 10-K for the fiscal year
ended June 30, 1996, and in its Quarterly Reports on Form 10-Q for the
fiscal quarters ended September 30, 1996, December 31, 1996 and March
31, 1997 and the audited consolidated financial statements of the
Company included in its Annual Report on Form 10-K for the fiscal year
ended June 30, 1997 delivered to Fiserv and Fiserv Solutions
(collectively, the "Company Financial Statements") fairly present, in
conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto),
the financial position of the Company as of the dates thereof and its
results of operations and cash flows for the periods then ended
(subject to normal year-end adjustments and the absence of certain
footnote disclosures in the case of any unaudited interim financial
statements).
(h) Absence of Certain Changes or Events. Since June 30, 1997, except as
disclosed in the Company Financial Statements, the Company has not:
(i) incurred any obligation or liability (fixed or contingent),
except normal trade or business obligations incurred in the
ordinary course of business and consistent with past practice;
(ii) discharged or satisfied any lien, security interest or
encumbrance or paid any obligation or liability (fixed or
contingent), other than in the ordinary course of business and
consistent with past practice;
A-8
(iii) mortgaged, pledged or subjected to any lien, security interest
or other encumbrance any of its assets or properties (other than
Permitted Exceptions (as hereinafter defined));
(iv) transferred, leased or otherwise disposed of any of its assets or
properties or acquired any assets or properties, except in any
case in the ordinary course of business and consistent with past
practice;
(v) cancelled or compromised any debt or claim, except in the
ordinary course of business and consistent with past practice;
(vi) waived or released, under any contract, rights of the Company
having value to the Company, except in any case in the ordinary
course of business and consistent with past practice;
(vii) transferred or granted any rights under any concessions,
leases, licenses, agreements, patents, inventions, trademarks,
trade names, service marks or copyrights or with respect to any
know-how, except in the ordinary course of business and
consistent with past practice;
(viii) except in the ordinary course of business and consistent with
past practice, made or granted any wage or salary increase
applicable to any group or classification of employees generally,
paid any bonuses, entered into any employment contract with any
officer or employee or made any loan to, or entered into any
transaction of any other nature with, any officer or employee of
the Company;
(ix) entered into any transaction, contract or commitment, except
those listed, or which pursuant to the terms hereof are not
required to be listed, on the Disclosure Schedule, this Agreement
and the transactions contemplated hereby, and those entered into
in the ordinary course of business and consistent with past
practice;
(x) declared, paid or made any provision for payment of any dividends
or other distribution in respect of shares of Company Common
Stock, or acquired or made any provision for acquiring any shares
of Company Common Stock;
(xi) declared, paid or made provisions for any other payment to the
shareholders of the Company holding 5% or more of the outstanding
Company Common Stock (a "Significant Shareholder" or the
"Significant Shareholders") or any other affiliate of the
Significant Shareholders or the Company;
(xii) suffered any casualty loss or damage (whether or not such loss
or damage shall have been covered by insurance) which affects in
any material respect its ability to conduct its business; or
(xiii) suffered any Material Adverse Effect.
For purposes of this Agreement, "Permitted Exceptions" shall mean (i)
mechanic's, materialman's, warehouseman's, landlord's and carrier's liens
and purchase money security interests arising in the ordinary course of
business; (ii) liens for Taxes (as hereinafter defined) and assessments not
yet payable; (iii) liens for Taxes, assessments and charges and other
claims, the validity of which the Company is contesting in good faith; (iv)
liens for worker's compensation, unemployment insurance or other types of
social security incurred in the ordinary course of business; and (v)
imperfections of title, easements, rights of way, liens, security
interests, claims and other charges and encumbrances the existence of which
would not have in the aggregate an Adverse Effect.
A-9
For purposes of this Agreement, "Adverse Effect" means any change in,
or effect on, or series of changes in, or effects on, the business of the
Company as currently conducted that would result in the incurrence of
damages or liability of the sum of $25,000 or more.
(i) Title to Properties; Absence of Liens and Encumbrances, etc. The
Company has good and marketable title to all of the real, tangible,
personal and mixed properties and assets owned by it and used in its
business, free and clear of any liens, charges, pledges, security
interests or other encumbrances (other than Permitted Exceptions),
except as reflected in the Company Financial Statements. The
Company's intangible properties and assets (excluding leasehold
interests and other than any intangible properties and assets
described in Sections 5.01(j) and 5.01(n), which sections contain the
Company's representations and warranties with respect to such
intangible properties and assets) are free and clear of any liens,
charges, pledges, security interests or other encumbrances (other than
Permitted Exceptions), except as reflected in the Company Financial
Statements. Upon consummation of the Merger, the Surviving
Corporation will have full right, title and interest in and to all the
Company's trademarks, tradenames, servicemarks and service names, and
all registrations therefor, with the full right and power to transfer
such rights.
(j) Software. To the knowledge of the Company, the Disclosure Schedule
contains a list or description by type of all operating and
applications computer programs and data bases ("Software") which the
Company uses or has available for use and plans to use, and such
Software constitutes all the Software which is used in connection with
or is necessary to operate the business of the Company as currently
conducted. Except as indicated in the Disclosure Schedule, such
Software is owned outright by the Company. As to any Software which
is listed in the Disclosure Schedule and is not owned by the Company,
to the knowledge of the Company, the Company has the right to use
and/or distribute the same pursuant to valid leases, licenses or other
commercial arrangements therefor, and, except as otherwise disclosed
in the Disclosure Schedule, to the knowledge of the Company, all such
leases, licenses and commercial arrangements are in full force and
effect and there is no default, nor any event which with notice or the
lapse of time or both, will become a default under any such lease or
license by the Company or any other parties thereto except for any
default not reasonably expected to result in an Adverse Effect. To
the knowledge of the Company, none of the Software used by or
available to the Company as aforesaid, and no use thereof, infringes
upon or violates any patent, copyright, trade secret or other
proprietary right of anyone else and the Company has received no
notice of any claim with respect to any such infringement or
violation. The Company possesses the original and all copies of all
documentation, including without limitation all source codes, for all
Software owned outright by it (other than such as shall have been
furnished to customers in connection with the provision of the
services of the Company). Upon consummation of the transactions
contemplated hereby, (x) the Company will continue to own all of the
Software owned outright by the Company prior to the Closing, free and
clear of all claims, liens, encumbrances, obligations and liabilities
except Permitted Exceptions and those liens existing at Closing and
except for such claims, liens, encumbrances, obligations and
liabilities of the Company (i) applicable to Software licensed to
third parties and (ii) as may be granted by the Company after the
Closing Date; and (y) with respect to all agreements for the lease or
license of Software which require consents or other actions (which
consents or other actions are listed in the Disclosure Schedule) as a
result of the consummation of the transactions contemplated hereby in
order for the Company to continue to use and operate such Software
after the Closing Date, the Company will endeavor to obtain such
consents or take such other actions as required.
(k) List of Properties, Contracts and Other Data. The Disclosure Schedule
contains a list setting forth with respect to the Company as of the
date hereof the following:
(i) all real properties owned in fee simple by the Company;
A-10
(ii) all leases of real or personal property to which the Company is a
party, either as lessee or lessor with a brief description of the
property to which each such lease relates, except such leases of
personal property as require payment during their remaining life
aggregating less than $25,000;
(iii) (A) all patents, trademarks and trade names, trademark and
trade name registrations, servicemark registrations, copyrights
and copyright registrations, unexpired as of the date hereof, all
applications pending on said date for patents or for trademark,
trade name, service mark or copyright registrations, all other
proprietary rights owned or held by the Company and reasonably
necessary to, or used by the Company primarily in connection
with, its business and (B) all licenses granted by or to the
Company and all other agreements to which the Company is a party
which relate, in whole or in part, to any items of the categories
mentioned in (A) above, other than any such license or other
agreement requiring payments during its remaining life
aggregating less than $25,000 or terminable by the Company within
one year without payment of a premium or penalty;
(iv) all collective bargaining agreements, employment and consulting
agreements (other than consulting agreements terminable by the
Company within 60 days without payment of a premium or a
penalty), Employee Plans, as defined in Section 5.01(r),
including, but not limited to, executive compensation plans,
bonus plans, deferred compensation agreements, employee pension
plans or retirement plans, employee profit sharing plans,
employee stock purchase and stock option plans, group life
insurance, hospitalization insurance or other plans or
arrangements providing for benefits to employees of the Company;
(v) all contracts and commitments (including, without limitation,
mortgages, indentures and loan agreements) to which the Company
is a party, or to which it or any of its assets or properties are
subject and which are not specifically referred to in (i), (ii),
(iii) or (iv) above; provided that there need not be listed in
the Disclosure Schedule (unless required pursuant to the
preceding clauses (i), (ii), (iii) or (iv) above) any contract or
commitment incurred in the ordinary course of business and
consistent with past practice which requires payments to or by
the Company during its remaining life aggregating less than
$25,000; and
(vi) the current annual compensation of all employees of the Company
(by position or by department) as of a recent date (a copy of
which has been submitted to Fiserv but is not included in the
Disclosure Schedule).
True and complete copies of all documents and descriptions complete in all
material respects of all oral agreements or commitments (if any) referred
to in (i) through (v) above (other than insurance plans which have been
summarized) have been provided or made available to Fiserv or its counsel.
The Company has not been notified in writing of any claim that any contract
listed in the Disclosure Schedule for this subsection (k) is not valid and
enforceable in accordance with its terms for the periods stated therein, or
that there is under any such contract any existing default or event of
default or event which with notice or lapse of time or both would
constitute such a default, except for any such claim which would not have
in the aggregate an Adverse Effect.
(l) Litigation. Except as set forth in the Disclosure Schedule, there are
no actions, suits, investigations or proceedings with respect to the
business of the Company pending against the Company of which the
Company is aware at law or in equity, or before or by any federal,
state, municipal, foreign or other governmental department,
commission, board, bureau, agency or instrumentality, nor, to the
knowledge of the Company, are there any such actions, suits,
investigations or proceedings with respect to the business of the
Company threatened or pending against the Company.
A-11
(m) Labor Controversies. Except as would not reasonably be expected to
have in the aggregate an Adverse Effect:
(i) there are no controversies known to the Company between the
Company and any employees or any unresolved labor union
grievances or unfair labor practice or labor arbitration
proceedings pending or, to the knowledge of the Company,
threatened, related to the Company and, to the knowledge of the
Company, there are not and during the last two years prior to the
date hereof there have not been any formal or informal organizing
efforts by a labor organization and/or a group of Company
employees; and
(ii) the Company has not received notice of any claim that it has not
complied with any laws relating to the employment of labor,
including any provisions thereof relating to wages, hours,
collective bargaining, the payment of social security and similar
taxes, equal employment opportunity, employment discrimination
and employment safety, or that it is liable for any arrears of
wages or any Taxes or penalties for failure to comply with any of
the foregoing.
(n) Patent, Trademark, etc. Claims. No person has made or, to the
knowledge of the Company, threatened to make any claims that the
operation of the business of the Company is in violation or
infringement of any patent, patent license, trade name, trademark,
servicemark, brandmark, brand name, copyright, know-how or other
proprietary or trade rights of any third party; and the Company knows
of no non-frivolous basis for any such claims except as would not
reasonably be expected to result in an Adverse Effect.
(o) Use of Real Property. The Company has not received any written notice
of violation of any applicable zoning or building regulation,
ordinance or other law, order, regulation or requirement relating to
the operations of the Company or any notice of default under any
lease, contract, commitment, license or permit, relating to the use
and operation of the owned or leased real property listed in the
Disclosure Schedule, in either case which would have in the aggregate
an Adverse Effect and, to the knowledge of the Company, there is no
such violation or default which would have in the aggregate an Adverse
Effect. The Company has not received any written notice that any
plant or other building which is owned or covered by a lease set forth
in the Disclosure Schedule hereto does not substantially conform with
all applicable ordinances, codes, regulations and requirements, and
the Company has not received written notice that any law or regulation
presently in effect or condition precludes or restricts continuation
of the present use of such properties by the Company.
(p) Accounts Receivable. The accounts receivable reflected on the balance
sheet of the Company as of June 30, 1997 and all accounts receivable
arising between June 30, 1997 and the date hereof, arose from bona
fide transactions in the ordinary course of business; except as
contemplated by the relevant contract, the services involved have been
provided to the account obligor and no further services are required
to be provided in order to complete the sales and to entitle the
Company or its assignees to collect the accounts receivable in full.
No such account has been assigned or pledged to any other person, firm
or corporation.
(q) Compliance with Law.
(i) The Company is not in default with respect to any order of any
court, governmental authority or arbitration board or tribunal to
which it is a party or, to the knowledge of the Company, to which
the Company is subject and which applies to its business, and, to
the knowledge of the Company, the Company has not been notified
that it is in violation of any laws, ordinances, governmental
rules or regulations to which it is subject or that it has failed
to obtain any licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its assets and
properties or to the conduct of its business.
A-12
(ii) The Company has on file a valid Form I-9 for each employee hired by
the Company on or after November 7, 1986 and continuously employed
after November 6, 1986 or the applicable date of hire. To the
knowledge of the Company, all employees of the Company are (A) United
States citizens, or lawful permanent residents of the United States,
(B) aliens whose right to work in the United States is unrestricted,
(C) aliens who have valid, unexpired work authorization issued by the
Attorney General of the United States (Immigration and Naturalization
Service) or (D) aliens who have been continually employed by the
Company since November 6, 1986 or the applicable date of hire. The
Company has not been the subject of an immigration compliance or
employment visit from, nor has the Company been assessed any fine or
penalty by, or been the subject of any order or directive of, the
United States Department of Labor or the Attorney General of the
United States (Immigration and Naturalization Service).
(r) Employee Benefits.
(i) The Disclosure Schedule sets forth a list identifying each
"employee benefit plan" as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including any "multiemployer plan," as defined in
Section 3(37) of ERISA, (the "Pension Plans") and a list
identifying each "employee welfare benefit plan," as defined in
Section 3(1) of ERISA, (the "Welfare Plans") that, in either
case, are maintained, administered or contributed to by the
Company, or which cover any employee or former employee of the
Company. Collectively, the Pension Plans and Welfare Plans are
hereinafter referred to as the "Employee Plans". Except as
otherwise identified on the Disclosure Schedule (A) no Employee
Plan is maintained, administered or contributed to by any entity
other than the Company, and (B) no Employee Plan is maintained
under any trust arrangement which covers any employee benefit
arrangement which is not an Employee Plan.
(ii) The Company has delivered or has caused to be delivered to Fiserv
true and complete copies of (A) the Employee Plans (including
related trust agreements, custodial agreements, insurance
contracts, investment contracts and other funding arrangements,
if any, and adoption agreements, if any), (B) any amendments to
Employee Plans, (C) written interpretations of the Employee
Plans, (D) material employee communications by the plan
administrator of any Employee Plan (including, but not limited
to, summary plan descriptions and summaries of material
modifications, as defined under ERISA), (E) the three most recent
annual reports (e.g., the complete Form 5500 series) prepared in
connection with each Employee Plan (if any such report was
required), including all attachments (including without
limitation the audited financial statements, if any) and (F) the
three most recent actuarial valuation reports prepared in
connection with each Employee Plan (if any such report was
required).
(iii) There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company relating to,
or change in employee participation or coverage under any
Employee Plan that would increase materially the expense of
maintaining such Employee Plan above the level of expense
incurred in respect of such Employee Plan for the most recent
plan year with respect to Employee Plans. The execution of this
Agreement and the consummation of the transactions contemplated
hereby do not and will not constitute an event under any Employee
Plan, which either alone or upon the occurrence of a subsequent
event will or may result in any payment, acceleration, vesting or
increase in benefits to any employee, former employee or director
of the Company.
(iv) Each Employee Plan has been maintained in compliance with its
terms and the requirements prescribed by any and all statutes,
orders, rules and regulations, including but not limited to,
ERISA and the Internal Revenue Code of 1986, as amended, (the
"Code"), which are applicable to such Employee Plan.
A-13
(v) Each Pension Plan is "qualified" within the meaning of Section
401(a) of the Code, and has been qualified during the period from
the date of its adoption to the date of this Agreement, and each
trust created thereunder is tax-exempt under Section 501(a) of
the Code. The Company has delivered or caused to be delivered to
Fiserv the latest determination letters of the Internal Revenue
Service relating to each Pension Plan. Such determination letters
have not been revoked. Furthermore, there are no pending
proceedings or, to the knowledge of the Company, threatened
proceedings in which the "qualified" status of any Pension Plan
is at issue and in which revocation of the determination letter
has been threatened. Each such Pension Plan has not been amended
or operated, since the receipt of the most recent determination
letter, in a manner that would adversely affect the "qualified"
status of the Plan. No distributions have been made from any of
the Pension Plans that would violate in any respect the
restrictions under Treas. Reg. Section 1.401(a)(4)-5(b), and none
will have been made by the Effective Time.
(vi) There are no pending or, to the knowledge of the Company,
threatened (A) claims, suits or other proceedings by any
employees, former employees or plan participants or the
beneficiaries, spouses or representatives of any of them, other
than ordinary and usual claims for benefits by participants or
beneficiaries, or (B) suits, investigations or other proceedings
by any federal, state, local or other governmental agency or
authority, of or against any Employee Plan, the assets held
thereunder, the trustee of any such assets or the Company
relating to any of the Employee Plans. If any of the actions
described in this subsection are initiated prior to the Effective
Time, the Company shall notify Fiserv of such action prior to the
Effective Time.
(vii) The Company has not engaged (A) in any transaction or acted or
failed to act in a manner that violates the fiduciary
requirements of Section 404 of ERISA, or (B) in any "prohibited
transaction" within the meaning of Section 406(a) or 406(b) of
ERISA, or of Section 4975(c) of the Code, with respect to any
Employee Plans, and will not so engage, act or fail to act prior
to the Effective Time. Furthermore, to the knowledge of the
Company, no other "party in interest," as defined in Section
3(14) of ERISA, or "disqualified person," as defined in Section
4975(e)(2) of the Code, has engaged in any such "prohibited
transaction".
(viii) No liability has been incurred by the Company or by a trade or
business, whether or not incorporated, which is deemed to be
under common control or affiliated with the Company within the
meaning of Section 4001 of ERISA or Section 414(b), (c), (m) or
(o) of the Code (an "ERISA Affiliate") for any tax, penalty or
other liability with respect to any Employee Plan and, to the
knowledge of the Company, such Plans do not expect to incur any
such liability prior to the Effective Time.
(ix) The Company has made all required contributions under each
Pension Plan on a timely basis or, if not yet due, adequate
accruals therefor have been provided for in the financial
statements. No Pension Plan has incurred any "accumulated
funding deficiency" within the meaning of Section 302 of ERISA or
Section 412 of the Code and no Pension Plan has applied for or
received a waiver of the minimum funding standards imposed by
Section 412 of the Code.
(x) Except for required premium payments, no liability to the Pension
Benefit Guaranty Corporation (the "PBGC") has been incurred by
the Company with respect to any Pension Plan that has not been
satisfied in full, and no event has occurred and there exists no
condition or set of circumstances that could result in the
imposition of any such liability. The Company has complied, or
will comply, with all requirements for premium payments,
including any interest and penalty charges for late payment, due
to PBGC on or before the Effective Time with respect to each
Pension Plan for which any premiums
A-14
are required. No proceedings to terminate, pursuant to Section
4042 of ERISA, have been instituted or, to the knowledge of the
Company, are threatened by the PBGC with respect to any Pension
Plan (or any Pension Plan maintained by an ERISA Affiliate).
There has been no termination or partial termination, as defined
in Section 411(d) of the Code and the regulations thereunder, of
any Pension Plan. No reportable event, within the meaning of
Section 4043 of ERISA, has occurred with respect to any Pension
Plan.
(xi) As of the date of this Agreement, with respect to each Pension
Plan which is covered by Title IV of ERISA and which is not a
multiemployer plan, the current value of the accumulated benefit
obligations (based on the actuarial assumptions that would be
utilized upon termination of such Pension Plan) do not exceed the
current fair value of the assets of such Pension Plan. Except as
listed in the Disclosure Schedule, there has been (A) no material
adverse change in the financial condition of any such Pension
Plan, (B) no change in actuarial assumptions with respect to any
such Pension Plan and (C) no increase in benefits under any such
Pension Plan as a result of plan amendment, written
interpretations, announcements, change in applicable law or
otherwise which, individually or in the aggregate, would result
in the value of any such Pension Plan's accrued benefits
exceeding the current value of such Pension Plan's assets.
(xii) Neither the Company nor any ERISA Affiliate has ever
maintained, adopted or established, contributed or been required
to contribute to, or otherwise participated or been required to
participate in, nor will they become obligated to do so through
the Effective Time, any "multiemployer plan" (as defined in
Section 3(37) of ERISA). No amount is due from, or owed by, the
Company or any ERISA Affiliate on account of a "multiemployer
plan" (as defined in Section 3(37) of ERISA) or on account of any
withdrawal therefrom.
(xiii) No Employee Plan provides benefits, including without
limitation, any severance or other post-employment benefit,
salary continuation, termination, death, disability, or health or
medical benefits (whether or not insured), life insurance or
similar benefit with respect to current or former employees (or
their spouses or dependents) of the Company beyond their
retirement or other termination of service other than (A)
coverage mandated by applicable law, (B) death, disability or
retirement benefits under any Pension Plan, (C) deferred
compensation benefits accrued as liabilities on the financial
statements of the Company or (D) benefits, the full cost of which
is borne by the current or former employee (or his or her
beneficiary).
(xiv) The Company has complied with, and satisfied, the requirements
of Part 6 of Subtitle B of Title I of ERISA and Section 4980(B)
of the Code, and all regulations thereunder ("COBRA") with
respect to each Employee Plan that is subject to the requirements
of COBRA. Each Employee Plan which is a group health plan,
within the meaning of Section 9805(a) of the Code, has complied
with and satisfied the applicable requirements of Section 9801
and 9802 of the Code.
(s) Insurance. The Disclosure Schedule summarizes the amount and kinds of
insurance as to which the Company has insurance policies or contracts
relating the business or operations of the Company. All such
insurance policies and contracts are in full force and effect. No
notice of cancellation or termination of any such insurance policies
or contracts has been given to the Company by the carrier of any such
policy.
(t) Bank Accounts. The Disclosure Schedule lists all bank, money market,
savings and similar accounts and safe deposit boxes of the Company
specifying the account numbers and the authorized signatories of
persons having access to them.
A-15
(u) Taxes.
(i) The Company has (A) duly and timely filed all Tax Returns (as
defined below) required to be filed for all periods ending on or
prior to the Effective Time, which Tax Returns are true, correct
and complete and (B) timely paid all Taxes (as defined below) due
and payable in respect of all periods up to and including the
Effective Time and has properly accrued on the Company Financial
Statements all Taxes not yet payable in respect of all periods up
to and including the Effective Date. Prior to the Effective
Time, the Company shall provide Fiserv with a schedule which sets
forth each Taxing jurisdiction in which the Company has filed or
is required to file Tax Returns and whether the Company has filed
consolidated, combined, unitary or separate income or franchise
Tax Returns with respect to each such jurisdiction and a copy of
such Tax Returns as have been requested by Fiserv. The Company
has timely and properly withheld or collected, paid over and
reported all Taxes required to be withheld or collected by the
Company on or before the date hereof.
(ii) Except as set forth in the Disclosure Schedule, (A) no Taxing
authority has asserted any adjustment that could result in an
additional Tax for which the Company is or may be liable, (B)
there is no pending audit, examination, investigation, dispute,
proceeding or claim (collectively, "Proceeding") relating to any
Tax for which the Company is or may be liable and to the
knowledge of the Company, no Taxing authority is contemplating
such a Proceeding and there is no basis for any such Proceeding,
(C) no statute of limitations with respect to any Tax for which
the Company is or may be liable has been waived or extended, (D)
there is no outstanding power of attorney authorizing anyone to
act on behalf of the Company in connection with any Tax, Tax
Return or Proceeding relating to any Tax, (E) there is no
outstanding closing agreement, ruling request, request to consent
to change a method of accounting, subpoena or request for
information with or by any Taxing authority with respect to the
Company, its income, assets or business, or any Tax for which the
Company is or may be liable, (F) the Company is not a party to
any Tax sharing or Tax allocation agreement, arrangement or
understanding and (G) the Company has not and has never been
included in any consolidated, combined or unitary Tax Return.
(iii) The Company is not a party to any agreement, contract or
arrangement that would result, individually or in the aggregate,
in the payment of any amount that would not be deductible by
reason of Section 162, 280G or 404 of the Code. The Company is
not a "consenting corporation" within the meaning of Section
341(f) of the Code. The Company does not have any "tax-exempt
use property" within the meaning of Section 168(h) of the Code.
None of the assets of the Company is required to be treated as
being owned by any other person pursuant to the "safe harbor"
leasing provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954, as in effect prior to the repeal of said leasing
provisions. The Company has never made or been required to make
an election under Section 338 of the Code.
(iv) For any period for which the Company incurred a net operating
loss and such loss has been applied to reduce taxable income for
periods for which the statute of limitations has not expired, the
Company has books and records supporting such loss.
(v) For purposes of this Agreement, "Taxes" shall mean all federal,
state, local and foreign taxes, charges, fees, levies,
deficiencies or other assessments of whatever kind or nature
(including, without limitation, all net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, unemployment,
excise, estimated, severance, stamp, occupation, real property,
personal property, intangible property, minimum, environmental,
windfall profits or other taxes, customs, duties, fees,
assessments or charges of any kind whatsoever), including any
A-16
liability therefor as a transferee under Section 6901 of the
Code, as a result of Treasury Regulation Section 1.1502-6, or in
each case, any similar provision under applicable law, or as a
result of any Tax sharing or similar agreement, together with any
interest, penalties, additions to tax or additional amounts
imposed by any Taxing authority (domestic or foreign).
(vi) As used herein, "Tax Return" includes any return, declaration,
report, information return or statement, and any amendment
thereto, including without limitation any consolidated, combined
or unitary return or other document (including any related or
supporting information or schedule), filed or required to be
filed with any federal, state, local or foreign governmental
entity or agency in connection with the determination,
assessment, collection or payment of Taxes or the administration
of any laws, regulations or administrative requirements relating
to Taxes or ERISA.
(v) Proxy Statement; Registration Statement. None of the information
supplied by the Company in writing for inclusion in the Proxy
Statement, the Registration Statement or any other SEC filing will at
the respective times that the Proxy Statement, the Registration
Statement, any other SEC filing or any amendments or supplements
thereto are filed with the SEC or at the time that it or any amendment
or supplement thereto is mailed to the Company's shareholders, at the
time of the Shareholders' Meeting or at the Effective Date contain any
untrue statement of a material fact or 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.
(w) Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by the Company
directly with Fiserv, without the intervention of any other person on
behalf of the Company in such manner as to give rise to any valid
claim by any other person against the Company for a finder's fee,
brokerage commissions or similar payment.
SECTION 5.02 Representations and Warranties of Fiserv and Fiserv
Solutions. Fiserv and Fiserv Solutions, jointly and severally, represent and
warrant to, and agree with, the Company as follows:
(b) Organization and Qualification, etc. Fiserv and Fiserv Solutions are
corporations duly organized, validly existing and in good standing
under the laws of the States of Wisconsin, and each has corporate
power and authority to own its properties and assets and to carry on
its business as it is now being conducted. Each of Fiserv and Fiserv
Solutions is duly qualified to do business and is in good standing in
each jurisdiction where the failure to be so qualified would have a
Material Adverse Effect.
(c) Authority Relative to Agreement. Each of Fiserv and Fiserv Solutions
has the corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated on its part
hereby. The execution and delivery by Fiserv and Fiserv Solutions of
this Agreement and the consummation by each of them of the
transactions contemplated on its part hereby have been duly authorized
by their respective Board of Directors and, in the case of Fiserv
Solutions, its sole shareholder. No other corporate proceedings on
the part of Fiserv or Fiserv Solutions are necessary to authorize the
execution and delivery of this Agreement by Fiserv or Fiserv Solutions
or the consummation by Fiserv or Fiserv Solutions of the transactions
contemplated hereby. This Agreement has been duly executed and
delivered by Fiserv and Fiserv Solutions and, assuming the due
authorization, execution and delivery of the Agreement by the Company,
is their valid and binding agreement, enforceable against Fiserv or
Fiserv Solutions, as the case may be, in accordance with its terms,
except as such enforcement is subject to the effect of (i) any
applicable bankruptcy, insolvency, reorganization or similar laws
relating to or affecting creditors' rights generally and (ii) general
principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, and other
similar doctrines affecting the enforceability of agreements generally
(regardless of whether considered in a proceeding in equity or at
law).
A-17
(d) Non-Contravention. The execution and delivery of this Agreement by
Fiserv and Fiserv Solutions do not and the consummation by Fiserv and
Fiserv Solutions of the transactions contemplated hereby will not (i)
violate any provision of the Articles of Incorporation or By-Laws of
Fiserv or Fiserv Solutions, as the case may be, or (ii) violate, or
result, with the giving of notice or the lapse of time or both, in a
violation of, any provision of, or result in the acceleration of or
entitle any party to accelerate (whether after the giving of notice or
lapse of time or both) any obligation under, or result in the creation
or imposition of any material lien, charge, pledge, security interest
or other encumbrance upon any of the property of Fiserv or Fiserv
Solutions pursuant to any provision of, any mortgage or lien or
material lease, agreement, license or instrument or any order,
arbitration award, judgment or decree to which Fiserv or Fiserv
Solutions is a party or by which any of their respective assets is
bound and do not and will not violate or conflict with any other
material restriction of any kind or character to which Fiserv or
Fiserv Solutions is subject or by which any of its assets may be
bound, and the same does not and will not constitute an event
permitting termination of any such mortgage or lien or material lease,
agreement, license or instrument to which Fiserv or Fiserv Solutions
is a party or (iii) violate in any material respect any law, ordinance
or regulation to which Fiserv or Fiserv Solutions is subject.
(e) Government Approvals. Except for the filing of the Wisconsin Articles
of Merger with the Secretary of State of the State of Wisconsin, the
filing of the Nevada Articles of Merger with the Secretary of State of
the State of Nevada, compliance with the HSR Act, compliance with the
requirements of the Securities Act and the Exchange Act and compliance
with all applicable state securities laws, no consent, authorization,
order or approval of, or filing or registration with, any governmental
commission, board or other regulatory body is required for or in
connection with the execution and delivery of this Agreement by Fiserv
and Fiserv Solutions and the consummation by Fiserv and Fiserv
Solutions of the transactions contemplated hereby and thereby.
(f) SEC Reports. Fiserv has provided the Company with all required forms,
reports and documents which it has been required to file with the
Securities and Exchange Commission since January 1, 1996
(collectively, the "Fiserv SEC Reports"), each of which has complied
in all material respects with all applicable requirements of the
Securities Act and the Exchange Act. As of their respective dates,
the Fiserv SEC Reports, including, without limitation, any financial
statements or schedules included therein, did not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except, in the case of any Fiserv SEC Report, any
statement or omission therein that has been corrected or otherwise
disclosed in a subsequent Fiserv SEC Report. The audited financial
statements and unaudited interim financial statements of Fiserv
included in its Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 and in its Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1996, June 30, 1996 and September 30,
1996, in its Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and in its Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1997 and June 30, 1997 present, in
conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto),
fairly present the consolidated financial position of the Fiserv and
its consolidated subsidiaries as of the dates thereof and their
consolidated results of operations and changes in financial position
for the periods then ended (subject to normal year-end adjustments and
the absence of certain footnote disclosures in the case of any
unaudited interim financial statements).
(g) Capitalization of Fiserv Solutions. The authorized capital stock of
Fiserv Solutions consists of 1,000 shares of common stock, $.01 par
value, of which 100 shares are validly issued and outstanding, fully
paid and nonassessable and all of which are owned by Fiserv. As of
the date hereof, Fiserv Solutions has no commitments to issue or sell
any of its capital stock or any securities or obligations convertible
into or exchangeable for, or giving any person any right to subscribe
for or acquire from Fiserv Solutions, any shares of its capital stock
and no securities or obligations evidencing such rights are
outstanding.
A-18
(h) Capitalization of Fiserv. The authorized capital stock of Fiserv
consists of 150,000,000 shares of Fiserv Common Stock and 25,000,000
shares of Preferred Stock, of which no shares of Preferred Stock and
[53,000,000] shares of Fiserv Common Stock are validly issued and
outstanding, fully paid and nonassessable. Except as set forth on
Schedule 5.02(g), as of the date hereof, Fiserv has no commitments to
issue or sell any of its capital stock or any securities or
obligations convertible into or exchangeable for, or giving any person
any right to subscribe for or acquire from Fiserv, any shares of its
capital stock and no securities or obligations evidencing such rights
are outstanding.
(i) Fiserv Common Stock Issued to Shareholders. The shares of Fiserv
Common Stock to be issued to the shareholders of the Company as Merger
consideration in accordance with Section 3.01 hereof shall, upon
consummation of the Merger, be validly issued and outstanding, fully
paid and nonassessable shares of Fiserv Common Stock and all shares of
Fiserv Common Stock to be issued upon exercise of Options shall be
fully reserved and upon exercise of such Options as provided under the
CUSA Option Plan shall be validly issued and outstanding, fully paid
and nonassessable shares of Fiserv Common Stock, in each case covered
by the Registration Statement or a registration statement on Form S-8,
as the case may be, each of which shall be effective as of the
Effective Time under the Securities Act.
(j) Absence of Material Adverse Effect. Since December 31, 1996, Fiserv
has not experienced any change which could have a Material Adverse
Effect.
(k) Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Fiserv and
Fiserv Solutions directly with the Company, without the intervention
of any person on behalf of Fiserv or Fiserv Solutions in such manner
as to give rise to any valid claim by any person against Fiserv or
Fiserv Solutions for a finder's fee, brokerage commission, or similar
payment.
(l) Proxy Statement; Registration Statement. None of the information
supplied by Fiserv or Fiserv Solutions in writing for inclusion in the
Proxy Statement, the Registration Statement or any other SEC filing
will at the respective times that the Proxy Statement, the
Registration Statement, any other SEC filing or any amendments or
supplements thereto are filed with the SEC or at the time that it or
any amendment or supplement thereto is mailed to the Company's
shareholders, at the time of the Shareholders' Meeting or at the
Effective Time contain any untrue statement of a material fact or 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.
ARTICLE VI
ADDITIONAL COVENANTS AND AGREEMENTS
SECTION 6.01 Conduct of Business.
(b) During the period from the date hereof to the Effective Time, except
as otherwise contemplated by this Agreement, the Company shall conduct
its operations according to its ordinary and usual course of business
and the Company shall use its commercially reasonable efforts to
preserve substantially intact its business organization, keep
available the services of its officers and employees, and maintain its
present relationships with licensors, suppliers, distributors,
customers and others having significant business relationships with
it. Representatives of the Company will confer with representatives
of Fiserv and Fiserv Solutions to keep them informed with respect to
the general status of the on-going operations of the business of the
Company.
A-19
(c) During the period from the date hereof to the Effective Time, except
as contemplated by this Agreement and except as may relate to any
merger and acquisition activity, Fiserv and Fiserv Solutions shall
each conduct its operations according to its ordinary and usual course
of business.
SECTION 6.02 Access to Information.
(a) Fiserv and Fiserv Solutions may prior to the Effective Time have
access to the business and properties of the Company and information
concerning its financial and legal condition as Fiserv and Fiserv
Solutions deem necessary or advisable in connection with the
consummation of the transactions contemplated hereby, provided that
such access shall be during normal business hours and shall not
interfere with normal operations of the Company. The Company agrees
to permit Fiserv and Fiserv Solutions and their authorized
representatives, including Deloitte & Touche LLP, or cause them to be
permitted to have, after the date hereof and until the Effective Time,
full access to the premises, books and records of the Company during
normal business hours, and the officers of the Company will furnish
Fiserv and Fiserv Solutions with such financial and operating data and
other information with respect to the business and properties of the
Company as Fiserv and Fiserv Solutions shall from time to time
reasonably request.
(b) The Company may prior to the Effective Time have access to the
business and properties of Fiserv and information concerning its
financial and legal condition as the Company deems necessary or
advisable in connection with the consummation of the transactions
contemplated hereby, provided that such access shall be during normal
business hours and shall not interfere with normal operations of
Fiserv. Fiserv agrees to permit the Company and its authorized
representatives, or cause them to be permitted to have, after the date
hereof and until the Effective Time, full access to the premises,
books and records of Fiserv during normal business hours, and the
officers of Fiserv will furnish the Company with such financial and
operating data and other information with respect to the business and
properties of Fiserv as the Company shall from time to time reasonably
request.
SECTION 6.03 Confidentiality.
(a) The Company covenants and agrees on behalf of itself and its
Significant Shareholders that, for a period of four years following
the Effective Date, it will hold all information concerning the
Company, and all information concerning Fiserv and Fiserv Solutions
received by it or such shareholders from Fiserv and Fiserv Solutions
(other than any information which (i) becomes generally available to
the public, (ii) was available to the Company or such shareholders on
a non-confidential basis prior to its disclosure by Fiserv or Fiserv
Solutions or (iii) becomes available to such shareholders or, prior to
the Effective Time, the Company on a non-confidential basis from a
source other than Fiserv or Fiserv Solutions that is not prohibited
from disclosing such information to such persons by a contractual,
legal or fiduciary obligation) on a confidential basis, not use
themselves or voluntarily disclose to others any such information,
promptly return every document furnished by Fiserv or Fiserv Solutions
in connection herewith and return or destroy any copies thereof it may
have made and to destroy any summaries, compilations or similar
documents it may have made or derived from such material, and have its
representatives promptly return such documents, return or destroy such
copies and destroy such summaries, compilations or similar documents.
The Company further covenants and agrees for itself and its principal
shareholders that each will keep confidential and not use trade
secrets of the Company or Fiserv.
(b) In the event the transactions contemplated hereby shall not be
consummated, Fiserv and Fiserv Solutions each covenant and agree on
behalf of itself and its affiliates that, for a period of four years
following the Effective Date, it will hold all information concerning
the Company received by it from the Company or the Significant
Shareholders (other than any information which (i) becomes generally
available to the public, (ii) was available to Fiserv or Fiserv
Solutions, as the case may be, on a non-confidential basis prior to
its disclosure by the Company or such Significant Shareholder or (iii)
becomes available to Fiserv or Fiserv Solutions on a non-confidential
basis
A-20
from a source other than the Company or the Significant Shareholders
that is not prohibited from disclosing such information to such
persons by a contractual, legal or fiduciary obligation) on a
confidential basis, not use themselves or voluntarily disclose to
others any such information, promptly return every document furnished
by the Company or the Significant Shareholders in connection herewith
and return or destroy any copies thereof it may have made and to
destroy any summaries, compilations or similar documents it may have
made or derived from such material, and have its representatives
promptly return such documents, return or destroy such copies and
destroy such summaries, compilations or similar documents. Each of
Fiserv and Fiserv Solutions further covenants and agrees for itself
and its affiliates that each will keep confidential and not use trade
secrets of the Company.
SECTION 6.04 Commercially Reasonable Efforts. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use its
commercially reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation, (i)
cooperation in the preparation and filing with the SEC of any required materials
and any necessary amendments thereto; (ii) cooperation in the preparation and
filing with the SEC as promptly as practicable following the date hereof of the
Proxy Statement and Registration Statement; (iii) such actions as may reasonably
be required to have the Registration Statement declared effective under the
Securities Act; (iv) such actions as may be reasonably required to have the
Proxy Statement cleared by the SEC as promptly as practicable after filing; (v)
such actions as may reasonably be required to be taken under applicable state
securities laws in connection with the issuance of the Fiserv Common Stock upon
consummation of the Merger; (vi) best efforts to lift or rescind or otherwise
diligently pursue any injunction or restraining order or other order relating to
the Merger; (vii) cooperation in the preparation and filing of all items
required to be filed under the HSR Act; and (viii) the execution of any
additional instruments necessary to consummate the transactions contemplated
hereby. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party hereto shall take all such necessary
action.
SECTION 6.05 Consents and Authorizations. As soon as practicable, each of
the parties hereto will commence to take all reasonable action to obtain all
authorizations, consents, orders and approvals of all third parties and of all
federal, state and local regulatory bodies and officials which may be or become
necessary for its execution and delivery of, and the performance of its
obligations pursuant to, this Agreement.
SECTION 6.06 Non-Assignable Licenses, Leases and Contracts. The Company
shall use its commercially reasonable efforts to obtain and deliver to Fiserv or
Fiserv Solutions at or prior to the Effective Time such consents or waivers as
shall be reasonably requested by Fiserv or Fiserv Solutions for any contracts
which, as a result of the occurrence of the Merger hereunder, would be breached
or violated or would give any other party the right to cancel the same, in order
that such contracts shall not be so breached or violated or result in such right
of cancellation.
SECTION 6.07 Public Announcements. Fiserv and Fiserv Solutions, on the
one hand, and the Company, on the other hand, will consult with each other
before issuing any press release or otherwise making any public statements with
respect to the transactions contemplated by this Agreement and shall not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law or by obligations
under any listing agreement with any national securities exchange.
SECTION 6.08 Notification of Certain Matters. The Company shall give
prompt notice to Fiserv and Fiserv Solutions, and Fiserv and Fiserv Solutions
shall give prompt notice to the Company, of (i) the occurrence or nonoccurrence
of any event the occurrence or nonoccurrence of which would cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Date and (ii)
any material failure of the Company, Fiserv or Fiserv Solutions, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder.
A-21
SECTION 6.09 Acquisition Proposals. Subject to the fiduciary obligations
of the parties, so long as the parties are negotiating in good faith with
respect to this transaction, from the date hereof until December 31, 1997,
neither the Company nor any of its affiliates, or any of their respective
directors, officers, employees, representatives or agents shall, directly or
indirectly, solicit or initiate inquiries or proposals from, or participate in
any discussions or negotiations with, any person or entity (other than Fiserv
and its affiliates and their respective directors, officers, employees,
representatives and agents) concerning any acquisition, business combination or
purchase of all or any significant portion of the assets of, or any equity
interest in, the Company.
SECTION 6.10 Options and Option Plans.
(a) As soon as practicable following the date of this Agreement, the Board
of Directors of the Company or, to the extent of its authority, any
committee thereof administering the CUSA Option Plan, shall take all
actions necessary or appropriate to cause each Option outstanding at
the Effective Time, to be converted, effective at the Effective Time
and subject to the consummation of the Merger, into an option to
purchase, on the same terms and conditions (including exercise rights
and restrictions) as were applicable to such Option at the Effective
Time, subject to Section 7.02(k), a number of shares of Fiserv Common
Stock (with any fractional shares of Fiserv Common Stock being
disregarded) equal to the product determined by multiplying the number
of shares of Company Common Stock subject to such Option by the
Exchange Ratio, at an exercise price per share (rounded upward to the
nearest full cent) equal to the quotient determined by dividing the
exercise price of such Option by the Exchange Ratio. Such shares of
Fiserv Common Stock are hereafter referred to as the "Option
Conversion Shares".
(b) As soon as practicable after the Effective Time and in any event
within five days thereafter, Fiserv Solutions (as successor in
interest to the Company) and Fiserv shall jointly deliver a notice to
each holder of an Option setting forth (i) the number of Option
Conversion Shares (and the price per share) that may be purchased by
such holder upon the exercise of any Options held by such holder after
consummation of the Merger, and (ii) confirming that each Option, as
converted, shall continue to be subject to the terms and conditions,
including without limitation, the terms and conditions relating to
exercisability, as in effect with respect to such Option at the
Effective Time.
(c) Prior to the Effective Time, but effective as of the Effective Time,
Fiserv shall take all actions necessary or appropriate to assume the
CUSA Option Plan and to reserve for issuance thereunder the number of
shares of Fiserv Common Stock covered by the Options at the Effective
Time.
(d) As soon as practicable following the Effective Time, and in any event
within ten days of the Effective Time, Fiserv shall file a
Registration Statement on Form S-8 to register the shares of Fiserv
Common Stock issuable upon the exercise of the Options, as converted.
SECTION 6.11 Tax Returns. The Company will file and the Company will
cause each Subsidiary to file, on a timely basis, all Tax Returns required to be
filed by the Company or any Subsidiary with respect to any period ending on or
prior to the Effective Time and to timely pay all Taxes required to be paid.
Such Tax Returns will be prepared on a basis consistent with prior Tax Returns
filed by them and will not make, amend or terminate any election by the Company
or any Subsidiary without Fiserv's prior written consent. The Company will give
Fiserv a copy of each such Tax Return for its review with sufficient time for
comments prior to filing.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01 Conditions Precedent to Each Party's Obligation to Effect the
Merger. The obligation of each party hereto to effect the Merger is subject to
the satisfaction at or prior to the Effective Time of the following conditions:
A-22
(a) Shareholder Approval. This Agreement shall have been adopted by the
affirmative vote of the shareholders of the Company at the
Shareholders' Meeting (or any proper adjournment thereof) by the
requisite vote in accordance with the Articles of Incorporation of the
Company and the Nevada Business Corporation Law.
(b) Legal Actions or Proceedings. No statute, rule, regulation, executive
order, decree, ruling or injunction or other order shall have been
enacted, entered, promulgated, or enforced by any court or
governmental authority (which order, decree, ruling, injunction or
other order the parties shall use their best efforts to lift or
reverse), that prohibits, restrains, enjoins or restricts the
consummation of the Merger.
(c) HSR Act. Any waiting period applicable to the Merger under the HSR
Act shall have terminated or expired.
(d) Effectiveness of Registration Statement. The Registration Statement
shall have become effective and no stop order suspending such
effectiveness shall have been issued or proceedings for such purpose
shall have been instituted or threatened.
(e) Regulatory Approvals. All permits and consents required by state
securities laws for the consummation of the Merger shall have been
obtained.
SECTION 7.02 Conditions Precedent to the Obligations of Fiserv and Fiserv
Solutions to Effect the Merger. The obligations of Fiserv and Fiserv Solutions
to consummate the Merger under this Agreement are subject to the satisfaction in
all material respects or waiver by Fiserv and Fiserv Solutions prior to or at
the Effective Time of each of the following conditions:
(b) Accuracy of Representations and Warranties. The representations and
warranties of the Company contained in this Agreement, in the
Disclosure Schedule or in any closing certificate or document
delivered to Fiserv and Fiserv Solutions pursuant hereto shall be true
and correct at and as of the Effective Time as though made at and as
of that time other than such representations and warranties as are
specifically made as of another date, and the Company shall have
delivered to Fiserv and Fiserv Solutions a certificate to that effect.
(c) Compliance with Covenants. The Company shall have performed and
complied with all covenants of this Agreement to be performed or
complied with by them at or prior to the Effective Time, and the
Company shall have delivered to Fiserv and Fiserv Solutions a
certificate to that effect.
(d) All Proceedings to be Satisfactory. Fiserv and Fiserv Solutions and
their counsel shall have received certified or other copies of all
documents relating to the Company incident to the transactions
contemplated hereby as Fiserv, Fiserv Solutions or said counsel may
reasonably request and such documents shall be reasonably satisfactory
in form and substance to Fiserv, Fiserv Solutions and said counsel.
(e) Opinion of Counsel for the Company. Fiserv shall have received the
favorable opinion of James Arrowsmith, General Counsel of the Company,
dated the Effective Time, substantially in the form and to the effect
set forth in Exhibit D hereto.
(f) Consents. The Company shall have received all consents to the Merger
listed in Exhibit E hereto.
(f) Employment Agreements; Beckstrand Arrangements. All outstanding
employment agreements between the Company and employees of the Company
shall have been amended to reduce the respective terms thereof from
five years to two years. In addition, a severance arrangement between
the Company and Richard N. Beckstrand shall have been entered into, in
form and substance satisfactory to Fiserv and Fiserv Solutions and
substantially in the form of Exhibit F attached hereto.
A-23
(g) Tax Matters. The Company and each of the Significant Shareholders
shall have delivered to Fiserv and Fiserv Solutions a Tax
Representation Letter substantially in the respective forms of
Exhibits G-1 and G-2 attached hereto. The Company and each of the
Significant Shareholders shall have delivered to Fiserv and Fiserv
Solutions an affidavits of non-foreign status with respect to each
such shareholder and the Company, in the form required by Section 1445
of the Code and the regulations thereunder, signed under penalties of
perjury in substantially the form of Exhibits G-3 and G-4 attached
hereto. The Company understands that such affidavits will be retained
by Fiserv and Fiserv Solutions and will be made available to the
Internal Revenue Service upon request.
(h) Beckstrand Options. Richard N. Beckstrand shall have exercised his
1,000,000 outstanding Options which were issued on January 24, 1997 in
relation to a Stock Purchase and Sale Agreement, and Fiserv and Fiserv
Solutions shall have received satisfactory evidence to that effect.
(i) Dissenters' Rights. The owners of no more than 5% of the Company
Common Stock shall have exercised Dissenters' Rights in connection
with the transactions contemplated hereby.
(j) Disposition of Surgery Centers. The surgery centers, consisting of
Ford Center for Foot Surgery, Inc. and Sierra Surgery Center, Inc.,
shall have been sold and the purchasers thereof shall have assumed all
past and future liabilities with respect thereto.
(k) Redemption of Preferred Stock. The Preferred Stock shall have been
redeemed in accordance with its terms.
(l) Waiver of Options. The holders of Options approved at the meeting of
the Board of Directors of the Company on June 20, 1997 and David Rank
with respect to Options covering 55,555 shares of Company Common Stock
approved at a meeting of the Board of Directors of the Company on
December 31, 1996, shall have waived such Options, which thereupon
shall have been cancelled.
(m) Supporting Documents. On or prior to the Effective Time Fiserv,
Fiserv Solutions and their counsel shall have received copies of the
following supporting documents:
(i) (1) copies of the Articles of Incorporation of the Company, and
all amendments thereto, certified as of a recent date by the
Secretary of State of the State of Nevada and (2) a certificate
of said Secretary dated as of a recent date as to the due
incorporation and good standing of the Company and listing all
documents of the Company on file with said Secretary; and
(iii) certificates of the Secretary or an Assistant Secretary of the
Company, dated the Effective Time and certifying substantially to
the effect (1) that attached thereto is a true and complete copy
of the By-laws of the Company as in effect on the date of such
certification and at all times since December 31, 1996; (2) that
attached thereto is a true and complete copy of resolutions
adopted by the Board of Directors and the shareholders of the
Company authorizing the execution, delivery and performance of
this Agreement and that all such resolutions are still in full
force and effect and are all the resolutions adopted in
connection with the transactions contemplated by this Agreement;
(3) that the Articles of Incorporation of the Company have not
been amended since the date of the last amendment referred to in
the certificate delivered pursuant to clause (i)(2) above; and
(4) as to the incumbency and specimen signature of each officer
of the Company executing this Agreement and any certificate or
instrument furnished pursuant hereto, and a certificate by
another officer of the Company as to the incumbency and signature
of the officer signing the certificate referred to in this
paragraph (ii).
All such documents shall be reasonably satisfactory in form and substance
to Fiserv, Fiserv Solutions and their counsel.
A-24
SECTION 7.03 Conditions Precedent to the Obligations of the Company
to Effect the Merger. The obligations of the Company to consummate the
Merger under this Agreement are subject to the satisfaction in all material
respects or waiver by the Company prior to or at the Effective Time of each
of the following conditions:
(a) Accuracy of Representations and Warranties. The representations and
warranties of Fiserv and Fiserv Solutions contained in this Agreement
or in any closing certificate or document delivered to the Company
pursuant hereto shall be true and correct on and as of the Effective
Time as though made at and as of that time, other than such
representations and warranties as are specifically made as of another
time, and Fiserv and Fiserv Solutions shall have delivered the Company
a certificate to that effect.
(b) Compliance with Covenants. Fiserv and Fiserv Solutions shall have
performed and complied with all covenants of this Agreement to be
performed or complied with by Fiserv and/or Fiserv Solutions on or
prior to the Effective Time, and Fiserv and Fiserv Solutions shall
have delivered to the Company a certificate to such effect.
(c) All Proceedings to be Satisfactory. The Company and its counsel shall
have received all such counterpart originals or certified or other
copies of all documents relating to Fiserv and Fiserv Solutions
incident to the transactions contemplated hereby as the Company or
said counsel may reasonably request and such documents shall be
reasonably satisfactory in form and substance to the Company and said
counsel.
(d) Opinion of Counsel for Fiserv and Fiserv Solutions. The Company shall
have received the favorable opinion of Charles W. Sprague, Executive
Vice President and General Counsel of Fiserv, dated the Effective
Time, substantially in the form and to the effect set forth in Exhibit
H hereto.
(e) Supporting Documents. On or prior to the Effective Time, the Company
and its counsel shall have received copies of the following supporting
documents:
(i) (1) copies of the Articles of Incorporation of Fiserv and Fiserv
Solutions, and all amendments thereto, certified as of a recent
date by the Secretary of State of the State of Wisconsin, and (2)
certificates of said Secretary dated as of a recent date as to
the due incorporation and good standing of Fiserv or Fiserv
Solutions, as the case may be, and listing all documents of the
relevant company on file with said Secretary; and
(ii) a certificate of the Secretary or an Assistant Secretary of each
of Fiserv and Fiserv Solutions dated the Effective Time and
certifying substantially to the effect (1) that attached thereto
is a true and complete copy of the By-laws of the particular
company as in effect on the date of such certification and at all
time since December 31, 1997; (2) that attached thereto is a true
and complete copy of resolutions adopted by the Board of
Directors of the particular company authorizing the execution,
delivery and performance of this Agreement and that all such
resolutions are still in full force and effect and are all the
resolutions adopted in connection with the transactions
contemplated by this Agreement; (3) that the Articles of
Incorporation of the particular corporation has not been amended
since the date of the last amendment referred to in the
certificate delivered pursuant to clause (i)(2) above; and (4) as
to the incumbency and specimen signature of each officer of the
particular company executing this Agreement and a certification
by another officer of such company as to the incumbency and
signature of the officer signing the certificate referred to in
this paragraph (ii).
All such documents shall be reasonably satisfactory in form and substance
to the Company and its counsel.
A-25
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS
SECTION 8.01 Survival. The representations and warranties of the parties
hereto contained herein shall not survive the Effective Time.
ARTICLE IX
TERMINATION; AMENDMENT; WAIVER
SECTION 9.01 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time:
(a) by mutual written consent of Fiserv and Fiserv Solutions, on the
one hand, and the Company, on the other hand; or
(b) by either Fiserv and Fiserv Solutions, on the one hand, or the
Company, on the other hand, if (x) the Effective Time shall not
have occurred on or before December 31, 1997, (provided that the
right to terminate this Agreement under this Section 9.01(b)
shall not be available to any party whose failure to fulfill, or
to cause to be fulfilled, any obligation under this Agreement has
been the cause of or resulted in the failure of the Effective
Time to occur on or before such date) or (y) any court of
competent jurisdiction or other governmental body shall have
issued an order, decree or ruling or taken any other action
(which order, decree or ruling the parties shall use their best
efforts to lift or reverse) permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling
or other action shall have become final and nonappealable.
SECTION 9.02 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 9.01, this Agreement shall
forthwith become void and have no effect, without any liability, on the part of
any party hereto or its affiliates, directors, officers or shareholders, other
than the provisions of this Section 9.02. Nothing contained in this Section
9.02 shall relieve any party from liability for any breach of this Agreement.
SECTION 9.03 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
SECTION 9.04 Extension; Waiver. At any time prior to the Effective Time,
Fiserv and Fiserv Solutions, on the one hand, and the Company, on the other
hand, may (i) extend the time for the performance of any of the obligations or
other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) to the
extent permitted by applicable laws, waive compliance by the other party with
any of the agreements or conditions contained herein. Any agreement on the part
of any party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
A-26
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Expenses, Etc. Whether or not the transactions contemplated
by this Agreement are consummated, none of the parties hereto shall have any
obligation to pay any of the fees and expenses of the other parties incident to
the negotiation, preparation and execution of this Agreement, including the fees
and expenses of counsel, accountants and other experts. Each of Fiserv and
Fiserv Solutions, on the one hand, and the Company, on the other hand, will
indemnify the other parties, and hold them harmless from and against any claims
for finders' fees or brokerage commissions in relation to or in connection with
such transactions as a result of any agreement or understanding between such
indemnifying party and any third party.
SECTION 10.02 Execution in Counterparts. For the convenience of the
parties, this Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 10.03 Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and delivered or mailed by
registered or certified mail postage prepaid, or sent by telex, telecopier,
facsimile transmission or telegraph as follows:
If to the Company, to:
CUSA Technologies, Inc.
986 West Atherton Drive
Salt Lake City, UT 84123
FAX 801-265-3224
Attention: Richard N. Beckstrand
with a copy to:
Richard G. Brown, Esq.
Kimball, Parr, Waddoups, Brown & Gee
Suite 1300
185 S. State Street
P.O. Box 11019
Salt Lake City, UT 84147
Fax: 801-532-7750
If to Fiserv or Fiserv Solutions to:
Fiserv, Inc.
255 Fiserv Drive
Brookfield, WI 53045
or
P.O. Box 979
Brookfield, WI 53008-0979
FAX (414) 879-5245
Attention: Kenneth R. Jensen
with a copy to:
Charles W. Sprague
Fiserv, Inc.
255 Fiserv Drive
Brookfield, WI 53045
or
P.O. Box 979
Brookfield, WI 53008-0979
FAX (414) 879-5532
A-27
or such other address or addresses as any party hereto shall have designated by
notice in writing to the other parties hereto. Any notice or other
communication pursuant to this Agreement shall be deemed to have been duly given
or made and to have become effective when delivered in hand to the party to
which directed or if sent by first-class mail postage prepaid or by telex,
telecopier, facsimile transmission or telegraph and properly addressed as set
forth above at the time when received by the addressee.
SECTION 10.04 Entire Agreement. This Agreement and its Exhibits and
Schedules constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral and written, between the parties hereto with respect to the
subject matter hereof. No representation, warranty, promise, inducement or
statement of intention has been made by any party hereto which is not embodied
in this Agreement or such other documents, and no party hereto shall be bound
by, or be liable for, any alleged representation, warranty, promise, inducement
or statement of intention not embodied herein or therein.
SECTION 10.05 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada, without reference
to provisions regarding conflicts of law.
SECTION 10.06 Binding Effect; Benefits. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Notwithstanding anything contained in this Agreement to
the contrary, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement.
SECTION 10.07 Assignability. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable by any party hereto without the
prior written consent of the other parties hereto.
SECTION 10.08 Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under any present or future law,
rule or regulation, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof. The remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom.
Furthermore, in lieu of such illegal, invalid or unenforceable provision, there
shall be added automatically as a part of this Agreement a legal, valid and
enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible.
A-28
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
FISERV, INC.
By: /s/ Kenneth R. Jensen
---------------------
Senior Executive Vice President
FISERV SOLUTIONS, INC.
By: /s/ Kenneth R. Jensen
---------------------
Title: Senior Executive Vice President
CUSA TECHNOLOGIES, INC.
By: /s/ Richard N. Beckstrand
-------------------------
Title:
A-29
AMENDMENT NO. 1
---------------
AMENDMENT NO. 1 dated as of December 31, 1997 to the Agreement and Plan of
Merger dated as of November 4, 1997 (the "Merger Agreement") among Fiserv, Inc.,
a Wisconsin corporation ("Fiserv"), Fiserv Solutions, Inc., a Wisconsin
corporation ("Fiserv Solutions") and a wholly owned subsidiary of Fiserv, and
CUSA Technologies, Inc., a Nevada corporation (the "Company").
1. The terms used herein shall have the same meanings as ascribed to such
terms in the Merger Agreement.
2. The date "December 31, 1997" in Section 6.09 and Section 9.01(b)(x) of
the Merger Agreement is hereby changed to "March 31, 1998."
3. The following shall be added to Section 7.02 of the Merger Agreement:
"(n) Certificates. The Company shall have received from each holder
of 5% or more of the Company Common Stock a certificate to the effect
that such holder has no plan or intention to sell, exchange or
otherwise dispose of the shares of Fiserv Common Stock it receives in
the Merger."
4. The following shall be added to Section 7.03 of the Merger Agreement:
"(f) Fairness Opinion, The Company shall have received an opinion of
Houlihan Valuation Advisors that as of the date of this Agreement the
consideration to be paid to the CTI shareholders pursuant to the
Merger Agreement is fair to CTI's public shareholders from a financial
point of view.
All other provisions of the Merger Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be duly executed as of the date first above written.
FISERV, INC.
By: /s/ Kenneth R. Jensen
---------------------
Senior Executive Vice President
FISERV SOLUTIONS, INC.
By: /s/ Kenneth R. Jensen
---------------------
Senior Executive Vice President
CUSA TECHNOLOGIES, INC.
By: /s/ Jonathan S. Beckstrand
--------------------------
Secretary
A-30
AMENDMENT NO. 2
---------------
AMENDMENT NO. 2 dated as of February 27, 1998 to Agreement and Plan of
Merger dated as of November 4, 1997, as amended by Amendment No. 1 dated as of
December 31, 1997 (together, the "Merger Agreement"), among Fiserv, Inc., a
Wisconsin corporation ("Fiserv"), Fiserv Solutions, Inc., a Wisconsin
corporation ("Fiserv Solutions") and a wholly owned subsidiary of Fiserv, and
CUSA Technologies, Inc., a Nevada corporation (the "Company")
1. The terms used herein shall have the same meanings as ascribed to such
terms in the Merger Agreement.
2. Section 3.07 of the Merger Agreement shall be amended to read in its
entirety as follows:
"SECTION 3.07 No Pooling. In the event that it is determined at
or prior to the Effective Time that the transactions contemplated
hereby may not be accounted for as a "pooling of interests", the
consideration to be paid in the Merger shall be payable in cash,
without interest."
All other provisions of the Merger Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
be duly executed as of the date first above written.
FISERV, INC.
By: /s/ Charles W. Sprague
----------------------
Executive Vice President
FISERV SOLUTIONS, INC.
By: /s/ Charles W. Sprague
----------------------
Title: Executive Vice President
CUSA TECHNOLOGIES, INC.
By: /s/ Jonathan S. Beckstrand
--------------------------
Secretary
A-31
AMENDMENT NO. 3
---------------
AMENDMENT NO. 3 dated as of March 19, 1998 to Agreement and Plan of Merger
dated as of November 4, 1997, as amended by Amendment No. 1 dated as of December
31, 1997 and Amendment No. 2 dated as of February 27, 1998 (as amended, the
"Merger Agreement") among Fiserv, Inc., a Wisconsin corporation ("Fiserv"),
Fiserv Solutions, Inc., a Wisconsin corporation ("Fiserv Solutions") and a
wholly owned subsidiary of Fiserv, and CUSA Technologies, Inc., a Nevada
corporation (the "Company").
1. The terms used herein shall have the same meanings as ascribed to such
terms in the Merger Agreement.
2. The date "March 31, 1998" in Section 6.09 and Section 9.01(b)(x) of
the Merger Agreement is hereby changed to "May 8, 1998."
3. Section 3.01(a)(ii) is hereby amended by adding after "(ii)" the
following: "the lesser of (A) $55.594 or (B)."
4. Section 3.03(a) is hereby amended: (a) by deleting the phrase "the
first anniversary of the Effective Time" as it appears at the end of
the first sentence immediately prior to the proviso and in the proviso
and substituting therefor "December 31, 1998"; and (b) by deleting the
phrase "the day which is 289 days after the Effective Time" in the
last sentence thereof and substituting therefor "October 16, 1998."
5. Section 3.03(b) is hereby amended by deleting the phrase "299 days
subsequent to the Effective Time" in the first sentence thereof and
substituting therefor "October 26, 1998."
All other provisions of the Merger Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to
be duly executed as of the date first above written.
FISERV, INC.
By: /s/ Kenneth R. Jensen
---------------------
Senior Executive Vice President
FISERV SOLUTIONS, INC.
By: /s/ Kenneth R. Jensen
---------------------
Title: Senior Executive Vice President
CUSA TECHNOLOGIES, INC.
By: /s/ Richard N. Beckstrand
-------------------------
Title: Chairman of the Board
A-32
APPENDIX B
OPINION OF HOULIHAN VALUATION ADVISERS
November 4, 1997
To The Board of Directors of CUSA Technologies, Inc.
986 West Atherton Drive
Salt Lake City, UT 84123
Re: Fairness Opinion - Proposed Merger of CUSA Technologies, Inc.
with FISERV, Inc.
Gentlemen:
Houlihan Valuation Advisors ("HVA") has been retained by the Board of Directors
of CUSA Technologies, Inc. ("CTI" or "the Company") to issue a fairness opinion
for the proposed merger ("Transaction") between CTI and Fiserv, Inc. ("Fiserv").
The fairness opinion ("the Opinion") is issued from a financial point of view
from the perspective of the public shareholders of CTI. It is anticipated by
Company management that the Transaction will close in early February 1998. The
Opinion is as of November 4, 1997 and is valid as of that date. Circumstances
could change which would render this opinion invalid as of the actual closing
date. To be valid as of the closing date, the Opinion will have to be reviewed
and updated by HVA.
The Agreement and Plan of Merger among Fiserv, Inc., Fiserv Solutions, Inc.
("Fiserv Solutions") and CTI Technologies dated November 4, 1997 ("the Merger"),
provides for the acquisition of the Company by Fiserv in an all-stock
transaction valued at $24,873,500 ("the Transaction"). Under the terms of the
Agreement, Fiserv will acquire all of the outstanding shares of the Company
(18,451,599) for $1.348 per share, subject to a "holdback" of an amount of
Fiserv shares worth $3.0 million. The "holdback" shares will be placed in
escrow in respect to any claims arising from certain contingencies. At the close
of the transaction, each outstanding share of CTI common stock will be converted
into the right to receive such number of shares of Fiserv common stock as shall
equal the quotient of the CTI common stock value divided by an amount equal to
the average closing price of Fiserv common stock as reported on the National
Market System by NASDAQ for the 20 business days ending on the second business
day prior to the closing.
Based on the terms of the transaction and estimates of closing costs provided by
CTI management, the CTI shares are valued at $1.348 prior to any allowance for
holdbacks. If the full amount of the agreed upon holdback for contingent
liabilities of $3.0 million is absorbed by claims against the holdback, the net
value of CTI common stock is $1.185 per share. As of November 4, 1997 CTI
management estimated that the likely claim against the holdback will be in the
range of $200,000, resulting in a net transaction value per CTI share of $1.337
per share.
The Transaction will be accounted for as a pooling of interests. The terms of
the Merger are more fully set forth in the Merger Agreement.
B-1
In delivering this opinion, HVA has completed the following tasks:
. Reviewed CTI Annual Reports to Stockholders for the fiscal years
ended June 30, 1996 and 1997 on Form 10-K filed with the
Securities and Exchange Commission (the "SEC")
. Reviewed Fiserv Annual Reports on Form 10-K filed with the SEC for
the fiscal years ended December 31, 1996 and 1995
. Reviewed Fiserv Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1997, June 30, 1997 and September 30,
1997 filed with the SEC
. Reviewed CTI's audited Consolidated Financial Statements for years
ended June 30, 1997, 1996 and 1995.
. Reviewed CTI's unaudited financial statements for the three months
ending September 30, 1997
. Reviewed CTI's projected income statements for continuing
operations for calendar years ending December 31, 1997 and 1998
. Reviewed the reported market prices and trading activity for CTI
common stock for the period of October 23, 1996 through November
4, 1997
. Reviewed the reported market prices and trading activity for Fiserv
common stock for the period of October 22, 1996 through November
4, 1997
. Reviewed transaction premium data prepared by Houlihan Lokey Howard
& Zukin as presented in Mergerstat Review 1997
. Discussed the financial condition, results of operations, business
and prospects of CTI and Fiserv with the management of each
company
. Compared the results of operations and financial condition of CTI
and Fiserv with those of certain other publicly-traded data
processing and software firms that HVA deemed to be reasonably
comparable to CTI and Fiserv, as the case may be
. Reviewed the financial terms of certain recent transactions of CTI
common stock
. Reviewed a copy of the Agreement and Plan of Merger among Fiserv,
Inc., Fiserv Solutions, Inc. and CTI Technologies, Inc. dated
November 4, 1997
. Reviewed an analysis of Fiserv prepared by Edward S. Casco, Jr.,
CFA and Stephen E. Kohler of BTAlex Brown Research dated November
14, 1997
In addition to a review of the above described documents, the following
analytical procedures were conducted in arriving at our Opinion:
. HVA met with representatives of the Company at the Company's
administrative offices in Salt Lake City, Utah and conducted
discussions regarding matters pertinent to our analysis. Inquiries
were made with certain officers of the Company who have senior
responsibility for operating matters regarding: (i) the operations,
financial
B-2
condition, future prospects and projected operations and
performance of the Company; (ii) whether management is aware of
any events or conditions which might cause any of the assumptions
set forth in this Opinion to be incorrect; and (iii) whether
management is aware of any material change in the Company's
assets, financial condition or business outlook since June 30,
1997, the date of the Company's most recent audited financial
statements, or September 30, 1997, the date of the Company's most
recent internally generated financial statements.
. Certain financial forecasts and accompanying assumptions prepared
by Company management for the calendar years ending December 31,
1997 and 1998 were reviewed, and the assumptions underlying such
forecasts were discussed, with Company management
. Generally recognized financial analysis and valuation procedures
were undertaken to ascertain the financial condition of the
Company as well as to estimate its fair market value
. Performed such other analyses and reviewed and analyzed such
other information as HVA deemed appropriate
In rendering this opinion, HVA did not assume responsibility for independently
verifying, and did not independently verify, any financial or other information
concerning CTI and Fiserv furnished to it by CTI or Fiserv, or the publicly-
available financial and other information regarding CTI, Fiserv and other
software and data processing firms. HVA has assumed that all such information is
accurate and complete. HVA has further relied on assurances of management of CTI
and Fiserv that they are not aware of any facts that would make such financial
or other information relating to such entities inaccurate or misleading.
With respect to financial forecasts for CTI provided to HVA by CTI management,
HVA has assumed, for the purposes of this opinion, that the forecasts have been
reasonably prepared on bases reflecting the best available estimates and
judgments of its management at the time of preparation as to the future
financial performance of CTI. We are unaware of and have not received any
information which would lead us to believe that it was unreasonable to utilize
the aforementioned projections as part of our analysis related to the Opinion.
However, we assume no responsibility for the projections or the assumptions
relating to them.
HVA has assumed that there has been no material change in CTI's assets,
financial condition, results of operations, business or prospects since June 30,
1997 with the noted exception of the subsequent agreement by the Directors of
CTI to sell its surgery centers prior to the Merger. HVA did not undertake an
independent appraisal of the assets or liabilities of CTI nor was HVA furnished
with any such appraisals. HVA's conclusions and opinion are necessarily based
upon economic, market and other conditions and the information made available to
HVA as of the date of this opinion. HVA expresses no opinion on matters of
legal, regulatory, tax or accounting nature related to the Merger.
B-3
We have not been requested to, and did not, solicit third party indications of
interest in acquiring all or any part of the common stock of the Company.
Furthermore, at your request, we have not negotiated the Transaction or advised
you with respect to alternatives to it.
LIMITING CONDITIONS
The Opinion is subject to the following limiting conditions:
1. Neither HVA nor its principals have any present or intended interest in CTI
or Fiserve or in any related entities. HVA's fees for the Opinion are based
on professional time and a charge for the Opinion, and are in no way
contingent upon the final conclusions derived.
2. The Opinion is intended only for the specific use and purpose stated
herein. It is intended for no other uses and is not to be copied or given
to unauthorized persons without the direct written consent of HVA. The
Opinion and information contained herein are valid only for the stated
purpose and date of the study, and should in no way be construed to be
investment advice.
3. It is beyond the scope of the Opinion to render any opinion relative to the
solvency or insolvency of CTI or Fiserv either prior to or following the
Transaction. HVA has not been requested to render such an opinion, and
nothing in the Opinion should be construed as such.
4. This engagement is limited to the production of the Opinion and the
conclusions and opinions contained herein. HVA has no obligation to provide
future services (e.g., expert testimony in court or before governmental
agencies) related to the contents of the Opinion unless prior arrangements
for such services have been made.
It is our understanding that CTI's Board of Directors either has had or will
have the opportunity to make their own independent investigation of the
Transaction, and their decision to participate in the Transaction should be
based primarily on such investigation. Delivery of the Opinion to CTI's Board
of Directors is subject to the conditions, limitations and assumptions set forth
in the Opinion.
This Opinion is for the benefit of the Board of Directors of CTI and shall not
be relied upon by others and shall not be published or otherwise used, nor shall
any public references to HVA be made without our written consent. However,
notwithstanding the foregoing, HVA consents to a description of and the
inclusion of the text of its written Opinion in the proxy and prospectus to be
issued in connection with the special meeting of the Company's Stockholders.
This Opinion is not intended to be and does not constitute a recommendation to
any Stockholder as to how such Stockholder should vote with respect to the
Merger.
B-4
CONCLUSIONS
Based upon the foregoing and in reliance thereon, it is our opinion that the
proposed Transaction, assuming it is consummated as proposed, is fair from a
financial point of view to the public shareholders of CTI based on the
circumstances existing as of November 4, 1997. HVA reserves the right, in the
event that events or facts subsequent to the date of the Opinion become known
which have a material impact on the value of the Company, to supplement or
withdraw the Opinion prior to the closing date of the Transaction.
HOULIHAN VALUATION ADVISORS
/s/ Frederic L. Jones
- -----------------------------------------------------
Frederic L. Jones, ASA
B-5
APPENDIX C
SECTION 92A.300 ET.SEQ. OF NEVADA BUSINESS CORPORATION LAW
NEVADA REVISED STATUTES
CHAPTER 92A
MERGERS AND EXCHANGES OF INTEREST
(ADDED BY CH. 586, L. '95, EFF. 10-1-95)
RIGHTS OF DISSENTING OWNERS
92A.300 DEFINITIONS.--As used in NRS 92A.300 to 92A.500, inclusive, unless
the context otherwise requires, the words and terms defined in NRS 92A.305 to
92A.335, inclusive, have the meanings ascribed to them in those sections.
92A.305 "BENEFICIAL STOCKHOLDER" DEFINED.--"Beneficial stockholder" means a
person who is a beneficial owner of shares held in a voting trust or by a
nominee as the stockholder of record.
92A.310 "CORPORATE ACTION" DEFINED.--"Corporate action" means the action of
a domestic corporation.
92A.315 "DISSENTER" DEFINED.--"Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and
who exercises that right when and in the manner required by NRS 92A.410 to
92A.480, inclusive.
92A.320 "FAIR VALUE" DEFINED.--"Fair value," with respect to a dissenter's
shares, means the value of the shares immediately before the effectuation of the
corporate action to which he objects, excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion would be inequitable.
92A.325 "STOCKHOLDER" DEFINED.--"Stockholder" means a stockholder of record
or a beneficial stockholder of a domestic corporation.
92A.330 "STOCKHOLDER OF RECORD" DEFINED.--"Stockholder of record" means the
person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares of the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.
92A.335 "SUBJECT CORPORATION" DEFINED.--"Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporation action creating the dissenter's rights becomes effective
or the surviving or acquiring entity of the issuer after the corporate action
becomes effective.
92A.340 COMPUTATION OF INTEREST.--Interest payable pursuant to NRS 92A.300
to 92A.500, inclusive, must be computed from the effective date of the action
until the date of payment, at the average rate currently paid by the entity on
its principal bank loans or, if it has no bank loans, at a rate that is fair and
equitable under all of the circumstances.
92A.350 RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED PARTNERSHIP.--A
partnership agreement of a domestic limited partnership or, unless otherwise
provided in the partnership agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the partnership interest of a
dissenting general or limited partner of a domestic limited partnership are
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent
entity.
92A.360 RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED-LIABILITY COMPANY.
- --The articles of organization or operating agreement of a domestic limited-
liability company or, unless otherwise provided in the articles of organization
or operating agreement, an agreement of merger or exchange, may provide that
contractual rights with respect to the interest of a dissenting member are
available in connection with any merger or exchange in which the domestic
limited-liability company is a constituent entity.
C-1
92A.370 RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT CORPORATION.--1.
Except as otherwise provided in subsection 2 and unless otherwise provided in
the articles or bylaws, any member of any constituent domestic nonprofit
corporation who voted against the merger may, without prior notice, but within
30 days after the effective date of the merger, resign from membership and is
thereby excused from all contractual obligations to the constituent or surviving
corporations which did not occur before his resignation and is thereby entitled
to those rights, if any, which would have existed if there had been no merger
and the membership had been terminated or the member had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws,
no member of a domestic nonprofit corporation, including, but not
limited to, a cooperative corporation, which supplies services
described in chapter 704 of NRS to it members only, and no person who
is a member of a domestic nonprofit corporation as a condition of or
by reason of the ownership of an interest in real property, may resign
and dissent pursuant to subsection 1.
92A.380 RIGHTS OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS AND
TO OBTAIN PAYMENT OF SHARES.--1. Except as otherwise provided in NRS 92A.370 to
92A.390, a stockholder is entitled to dissent from, and obtain payment of the
fair value of his shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic
corporation is a party:
(1) If approval by the stockholders is required for the merger
by NRS 92A.120 to 92A.160, inclusive, or the articles of
incorporation and he is entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged
with its parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owner's
interests will be acquired, if he is entitled to vote on the
plan.
(c) Any corporate action taken pursuant to a vote of the stockholders
to the event that the articles of incorporation, bylaws or a
resolution of the board of directors provides that voting or
nonvoting stockholders are entitled to dissent and obtain payment
for their shares.
2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent
with respect to him or the domestic corporation.
92A.390 LIMITATIONS ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN CLASSES OR
SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.--1. There is no
right of dissent with respect to a plan of merger or exchange in favor of
stockholders of any class or series which, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting at
which the plan of merger or exchange is to be acted on, were either listed on a
national securities exchange, included in the national market system by the
National Association of Securities Dealers, Inc., or held by at least 2,000
stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the
shares provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
C-2
(1) Cash, owner's interests or owner's interests and cash in
lieu of fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the
plan of merger or exchange, were either listed on a
national securities exchange, included in the national
market system by the National Association of Securities
Dealers, Inc., or held of record by at least 2,000
holders of owner's interests of record; or
(2) A combination of cash and owner's interests of the kind
described in sub-subparagraphs (I) and (II) of subparagraph
(1) of paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of
the stockholders of the surviving domestic corporation under NRS
92A.130.
92A.400 LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS ONLY TO
SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER.--l.A
stockholder may assert dissenter's rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the subject corporation in
writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares
held on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the
beneficial stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the
beneficial stockholder or over which he has the power to direct
the vote.
92A.410 NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT.--1. If a
proposed corporate action creating dissenters' rights is submitted to a vote at
a stockholders' meeting, the notice of the meeting must state that stockholders
are or may be entitled to assert dissenters' rights under NRS 92A.300 to
92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken without a
vote of the stockholders, the domestic corporation shall notify in
writing all stockholders entitled to assert dissenters' rights that
the action was taken and send them the dissenter's notice described in
NRS 92A.430.
92A.420 PREREQUISITES TO DEMAND FOR PAYMENT OF SHARES.--1. If a proposed
corporate action creating dissenters' rights is submitted to a vote at a
stockholders' meeting, a stockholder who wishes to assert dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is
taken, written notice of his intent to demand payment for his
shares if the proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 is
not entitled to payment for his shares under this chapter.
C-3
92A.430 DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO ASSERT
RIGHTS; CONTENTS.--1. If a proposed corporate action creating dissenters' rights
is authorized at a stockholders' meeting, the subject corporation shall deliver
a written dissenter's notice to all stockholders who satisfied the requirements
to assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and
when certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to
what extent the transfer of the shares will be restricted after
the demand for payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of
the terms of the proposed action and requires that the person
asserting dissenter's rights certify whether or not he acquired
beneficial ownership of the shares before that date;
(d) Set a date by which the subject corporation must receive the
demand for payment, which may not be less than 30 nor more than
60 days after the date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
92A.440 DEMAND FOR PAYMENT AND DEPOSIT OF CERTIFICATES; RETENTION OF RIGHTS
OF STOCKHOLDER.--l. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's
notice for this certification; and
(c) Deposit his certificates, if any, in accordance with the terms of
the notice.
2. The stockholder who demands payment and deposits his certificates, if
any, retains all other rights of a stockholder until those rights are
canceled or modified by the taking of the proposed corporate action,
3. The stockholder who does not demand payment or deposit his
certificates where required, each by the date set forth in the
dissenter's notice, is not entitled to payment for his shares under
this chapter.
92A.450 UNCERTIFIED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER DEMAND FOR
PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER.--l. the subject corporation may
restrict the transfer of shares not represented by a certificate from the date
the demand for their payment is received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder
until those rights are canceled or modified by the taking of the
proposed corporate action.
92A.460 PAYMENT FOR SHARES: GENERAL REQUIREMENTS:--l. Except as otherwise
provided in NRS 92A.470, within 30 days after receipt of a demand for payment,
the subject corporation shall pay each dissenter who complied with NRS 92A.440
the amount the subject corporation estimates to be the fair value of his shares,
plus accrued interest. The obligation of the subject corporation under this
subsection may be enforced by the district court:
C-4
(a) Of the county where the corporation's registered office is
located; or
(b) At the election of any dissenter residing or having its
registered office in this state, of the county where the
dissenter resides or has its registered office. The court shall
dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a
statement of income for that year, a statement of changes in the
stockholders' equity for that year and the latest available
interim financial statements, if any;
(b) A statement of the subject 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 rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
92A.470 PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF DISSENTER'S
NOTICE.--l. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment,
after taking the proposed action, it shall estimate the fair value of
the shares, plus accrued interest, and shall offer to pay this amount
to each dissenter who agrees to accept it in full satisfaction of his
demand. The subject 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 dissenters' right-
to demand payment pursuant to NRS 92A.480.
92A.480 DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE.--l. A dissenter may notify the
subject corporation in writing of his own estimate of the fair value of his
shares and the amount of interest due, and demand payment of this estimate, less
any payment pursuant to NRS 92A.460, or reject the offer pursuant to NRS 92A.470
and demand payment of the fair value of his shares and interest due, if he
believes that the amount paid pursuant to NRS 92A.460 or offered pursuant to NRS
92A.47 is less than the fair value of his shares or that the interest is
incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this
section unless he notifies the subject corporation of his demand in
writing within 30 days after the subject corporation made or offered
payment for his shares.
92A.490 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF SUBJECT
CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER.--l. If a demand for payment
remains unsettled, the subject corporation shall commence a proceeding within 60
days after receiving the demand and petition the court to determine the fair
value of the shares and accrued interest. If the subject corporation does not
commence the proceeding within the 60-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the
subject corporation is a foreign entity without a resident agent in
the state, it shall commence the proceeding in the county where the
registered office of the
C-5
domestic corporation merged with or whose shares were acquired by the
foreign entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the
proceeding as in an action against their shares. All parties must 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 is plenary and exclusive. The court may appoint one
or more persons as appraisers to receive powers described in the order
appointing them, or any amendment thereto. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a part to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value
of his shares, plus interest, exceeds the amount paid by the
subject corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold
payment pursuant to NRS 92A.470.
92A.500 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS AND
FEES.--l. The court in a proceeding to determine fair value shall determine all
of the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject 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.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds
equitable:
(a) Against the subject corporation and in favor of all dissenters if
the court finds the subject corporation did not substantially
comply with the requirements of-NRS 92A.300 to 92A.500,
inclusive; or
(b) Against either the subject corporation or a dissenter in favor
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 NRS
92A.300 to 92A.500, inclusive.
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
subject corporation, the court may award to those counsel reasonable
fees to be paid out of the amounts awarded to the dissenters who were
benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may
assess the costs against the subject corporation, except that the
court may assess costs against all or some of the dissenters who are
parties to the proceeding, in amounts the court finds equitable, to
the extent the court finds that such parties did not act in good faith
in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of
N.R.C.P. 68 or NRS 17.115.
C-6
APPENDIX D
TABLE OF CONTENTS
PART I
CTI's unaudited consolidated financial statements as of and for
the three and six month periods ended December 31, 1997 and
notes thereto........................................................ D-1
PART II
CTI's audited consolidated financial statement as of and for
the years ended June 30, 1995, 1996 & 1997 and notes thereto......... D-10
PART I
CTI has included the consolidated balance sheets of CTI and its subsidiaries as
of December 31, 1997 (unaudited) and June 30, 1997 (the end of CTI's most recent
fiscal year), the unaudited consolidated statements of operations for the three
months ended December 31, 1998 and 1997 and the unaudited consolidated
statements of operations for the three months ended December 31, 1998 and 1997
together with unaudited condensed notes thereto.
In the opinion of management of CTI, the financial statements reflect all
adjustments, all of which are normal recurring adjustments, necessary to fairly
present the financial condition of CTI for the interim periods presented. The
financial statements included in this report on Form 10-Q should be read in
conjunction with the audited financial statements of CTI and the notes thereto
included in the annual report of CTI on form 10-K for the year ended June 30,
1997.
D-1
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets
(Unaudited)
December 31, June 30,
1997 1997
------------ ---------
Assets
------
Current Assets:
Cash $ 1,490,169 2,861,994
Trade accounts receivable, net of allowance for
doubtful accounts 4,391,475 2,489,176
Inventories 661,576 370,479
Prepaid expenses and other assets 308,517 313,991
Net assets of discontinued operations 573,745 --
----------- ---------
Total current assets 7,425,482 6,035,640
Property and equipment:
Buildings and improvements 134,836 134,836
Furniture, fixtures and equipment 2,303,698 2,332,357
Other 776,355 721,450
----------- ---------
Total property and equipment 3,214,889 3,188,643
Less accumulated depreciation and amortization 1,781,617 1,528,951
----------- ---------
Net property and equipment 1,433,272 1,659,692
Equipment under capital lease obligations, net 216,860 259,255
Receivables from related parties 54,369 52,440
Software development and acquisition costs, net 1,945,410 1,659,398
Other assets 48,814 73,047
----------- ---------
$11,124,207 9,739,472
=========== =========
The accompanying notes are an integral part of these financial statements.
D-2
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets
(Unaudited)
December 31, June 30,
1997 1997
------------ -----------
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Current installments of long-term debt $ -- 29,367
Current installments of obligations under capital
leases 142,326 163,148
Accounts payable 1,543,882 1,760,421
Accrued liabilities 1,053,232 1,698,865
Customer deposits 2,689,226 1,622,469
Income taxes payable 350,597 485,480
Net liabilities of discontinued operations -- 304,464
Deferred revenue 5,982,291 5,506,377
------------ -----------
Total current liabilities 11,761,554 11,570,591
Obligations under capital leases, excluding current
installments 58,505 118,241
------------ -----------
Total liabilities 11,820,059 11,688,832
Commitments and contingent liabilities -- --
Stockholders' deficit:
Series A convertible preferred stock, $.001 par
value; authorized 1,500,000 shares; issued and
outstanding 1,000,000 shares 1,000 1,000
Common stock, $.001 par value; authorized
25,000,000 shares; issued and outstanding
15,289,437 shares at December 31, 1997 and
June 30, 1997 15,289 15,289
Additional paid-in capital 16,347,576 16,347,576
Accumulated deficit (17,059,717) (18,313,225)
------------- -----------
Total stockholders' deficit $ 11,124,207 9,739,472
============= ===========
The accompanying notes are an integral part of these financial statements.
D-3
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Operations
(Unaudited)
Three months ended Six months ended
December 31, December 31,
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
Net revenues:
Hardware and software sales $ 2,830,642 $2,611,661 $ 5,324,093 $ 4,297,460
Support, maintenance and other services 4,173,873 4,380,825 8,258,944 8,366,926
----------- ---------- ----------- -----------
Total revenues 7,004,515 6,992,486 13,583,037 12,664,386
----------- ---------- ----------- -----------
Cost of goods sold and other direct costs:
Hardware and software 1,023,244 1,041,112 1,992,630 1,752,666
Support, maintenance and other services 2,576,465 2,729,117 5,233,417 5,370,375
----------- ---------- ----------- -----------
Total costs of goods sold and other direct costs 3,599,709 3,770,229 7,226,047 7,123,041
----------- ---------- ----------- -----------
Gross profit 3,404,806 3,222,257 6,356,990 5,541,345
Product development costs 622,087 592,239 1,313,240 1,087,728
Selling, general and administrative expenses 1,971,292 2,429,194 3,777,568 4,981,502
----------- ---------- ----------- -----------
Operating income (loss) 811,427 200,824 1,266,182 (527,885)
Other Income (expense):
Interest income (expense), net 60,759 (51,196) 47,089 (151,934)
Other, net (41,258) 5,931 (11,364) (637)
----------- ---------- ----------- -----------
Income (loss) from continuing operations
before income taxes 830,928 155,559 1,301,907 (680,456)
Income tax expense -- -- -- --
----------- ---------- ----------- -----------
Income (loss) from continuing operations 830,928 155,559 1,301,907 (680,456)
Loss from discontinued operations, net of income taxes -- (32,920) -- (143,379)
Income (loss) from disposal of discontinued operations,
net of income taxes 8,262 (78,455) 11,601 (160,176)
----------- ---------- ----------- -----------
Net Income (loss) $ 839,190 44,184 1,313,508 (984,011)
=========== ========== =========== ===========
Income (loss) per common and common equivalent share:
Basic earnings per share
Continuing operations $ 0.05 $ 0.01 $ 0.08 $ (0.08)
Discontinued operations $ 0.00 $ (0.01) $ 0.00 $ (0.03)
Net Income (loss) $ 0.05 $ 0.00 $ 0.09 $ (0.11)
Diluted earnings per share
From continuing operations $ 0.05 $ 0.01 $ 0.08 $ (0.08)
From discontinued operations $ 0.00 $ (0.01) $ 0.00 $ (0.03)
Net Income (loss) $ 0.05 $ 0.00 $ 0.08 $ (0.11)
Weighted average common and common equivalent shares:
Basic 15,289,437 8,917,718 15,289,437 8,917,718
Diluted 16,289,437 8,917,718 16,289,437 8,917,718
The accompanying notes are an integral part of these financial statements.
D-4
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six months ended December 31,
1997 1996
----------- -----------
Cash flows from operating activities:
Income (loss) from continuing operations $ 1,301,907 (680,456)
Adjustments to reconcile income (loss) from continuing operations
to net cash used in operating activities:
Depreciation and amortization 599,369 681,142
Provision for doubtful accounts (86,854) (7,710)
Loss on sale of fixed assets 11,364 --
Net change in current assets and liabilities:
Trade accounts receivable (1,815,445) (2,096,482)
Inventories (291,097) (89,045)
Prepaids expenses and other assets 5,474 (30,919)
Accounts payable and accrued liabilities (924,102) (2,208,019)
Customer deposits 1,066,757 1,812,035
Income taxes payable (134,882) (5,441)
Deferred revenue 475,914 1,041,307
----------- -----------
Net cash provided by (used in) continuing operating activities 208,405 (1,583,588)
Net cash used in discontinued operations (883,279) (2,044,432)
----------- -----------
Net cash used in operating activities (674,874) (3,628,020)
Cash flows from investing activities:
Software development costs (538,470) (221,119)
Capital expenditures (97,406) (260,374)
Advances to related parties -- (102,546)
Proceeds from the sale of fixed assets 7,946 --
Decrease (increase) in other assets 24,233 (9,941)
Net cash provided by investing activities of discontinued operations 16,671 7,700,000
----------- -----------
Net cash provided by (used in) investing activities (587,026) 7,106,020
Cash flows from financing activities:
Repayments and obligations under capital leases (80,558) (79,694)
Net borrowings under lines of credit -- (662,005)
Repayments of long-term debt with related parties -- (1,167,398)
Preferred dividend distributions -- (60,000)
Repayments of long-term debt (29,367) (824,722)
Net cash used in financing activities of discontinued operations -- (155,128)
----------- -----------
Net cash used in financing activities (109,925) (2,948,947)
Net increase (decrease) in cash (1,371,825) 529,053
Cash at the beginning of the period 2,861,994 583,080
----------- -----------
Cash at the end of the period $ 1,490,169 1,112,133
=========== ===========
The accompanying notes are an integral part of these financial statements.
D-5
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of CUSA
Technologies, Inc. (the Company) have been prepared in accordance with generally
accepting accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these
financial statements do not include all of the information and footnote
disclosures required by generally accepted accounting principles for complete
financial statements. These financial statements and footnote disclosures should
be read in conjunction with the audited consolidated financial statements and
the notes thereto included in the Company's latest report on Form 10-K for the
year ended June 30, 1997. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments (consisting
of only normal recurring adjustments) necessary to fairly present the Company's
consolidated financial position as of December 31, 1997 and its consolidated
results of operations and cash flows for the six months ended December 31, 1997
and 1996. The results of operations for the three and six months ended December
31, 1997 may not be indicative of the results that may be expected for the year
ending June 30, 1998.
(2) LIQUIDITY
During the six months ended December 31, 1997, the Company had income
from continuing operations of $1,301,907, income from the disposal of
discontined operations of $11,601, and used cash in operating activities of
$674,874, including cash used in discontinued operations of $883,279. During the
six-months ending December 31, 1997, the accrued liabilities of discontinued
operations were substantially reduced through cash settlements. These cash
settlements have reduced the uncertainty surrounding estimates of accrued
contingent obligations associated with discontinued operations. At December 31,
1997 the net assets of discontinued operations were $573,745 compared to net
liabilities of discontinued operations of $304,464 at June 30, 1997,
representing a net decrease in the accrued liabilities of discontinued
operations of $878,209 during the six months ended December 31, 1997.
At December 31, 1997 the Company had a stockholders' deficit of
$695,852. During fiscal 1997, management implemented a plan to return the
Company to profitable operations and a positive cash flow through focusing
operations and resources on the credit union software business. Although the
Company has a stockholders' deficit at December 31, 1997 and used cash from
operations in the six months ended December 31, 1997, in the opinion of
management the Company will meet its operating and debt cash requirements, at
least through the next twelve months. The Company is subject to many
uncertainties over which management has limited control, any one of which could
adversely affect the Company's operating cash flows, and thus create cash flow
problems for the Company.
D-6
CUSA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(3) DISCONTINUED OPERATIONS
As part of an overall business plan, the Board of Directors and
management decided to concentrate the Company's business activities on the
credit union business. Consequently, the following divisions have been
discontinued:
(a) MEDICAL AND COMMERCIAL SOFTWARE DIVISIONS
In June 1996, the Board of Directors of the Company committed to
dispose of the business and assets of the medical and commercial software
divisions. On July 2, 1996, the Company entered into an asset purchase agreement
with Physician Computer Network, Inc. (PCN) whereby PCN agreed to acquire
substantially all of the assets and assume certain liabilities of the medical
and commercial software divisions.
In June 1996, upon adoption of the plan to dispose of the
medical and commercial software divisions, the Company recorded a
provision for the estimated loss on the disposal of the divisions in the
amount of $2,494,451. The provision related to the expected loss on the
sale to PCN (net of disposal costs), severance benefits to division
employees, certain occupancy costs under non-cancelable leases, and
anticipated future losses related to assets and operations not sold to PCN
until their ultimate disposition. The reported loss provision was based on
certain management estimates and assumptions. In the past, actual results
have differed from the estimated loss provision originally recorded,
however management believes that all material contingencies related to the
discontinued operations have been adequately accrued at December 31, 1997.
As estimates and assumptions are adjusted or as actual results occur, the
loss provision is adjusted and accordingly, is reported in the current
period as additional gain or loss on the disposal of discontinued
operations. During the three and six month periods ended December 31, 1997
no additional losses related to the medical or commercial software
divisions were recorded. During the three and six month periods ended
December 31, 1996, the Company recorded additional losses on the disposal
of the divisions in the amount of $78,455 and $160,176, respectively.
(b) RENTAL SOFTWARE AND REAL-ESTATE RENTAL DIVISIONS
In March of 1997, the Board of Directors of the Company committed to
dispose of the business and assets of the equipment rental software and real
estate rental divisions. In the accompanying consolidated statements of
operations, net losses from these divisions for the three and six month periods
ending December 31, 1996 were reclassified from continuing operations to
discontinued operations to be consistent with the December 31, 1997
presentation. All assets and liabilities from these divisions were disposed of
prior to June 30, 1997. At December 31, 1997, there were $459,193 in notes and
other receivables related to the sale of the equipment rental software division
which are included in the net assets of discontinued operations.
(c) SURGERY CENTERS
Since March of 1997, the Company has been searching for a buyer for its
surgery center business. In June of 1997, the Board of Directors of the Company
committed to dispose of the business and assets of the Ford Center for Foot
Surgery, Inc. and the Bean Center for Foot Surgery, Inc. (Surgery Centers). As
of October 1, 1997 the Company sold the assets related to the Surgery Centers to
an entity owned by the Chief Executive Officer, majority shareholder and
chairman of the board, and two shareholders of the Company, one of whom is also
a member of the board (the Surgery Center Purchasers). The assets were sold for
$450,000, represented by two promissory notes secured by 400,000 shares of the
Company's
D-7
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
common stock. The notes carry an interest rate of eight percent. On
December 31, 1997, the Company sold 100% of the common stock of the
Surgery Centers to the Center Purchasers for $10,000. As of December
31, 1997, the Company had a $460,000 receivable, which has been
included in the net assets of discontinued operations.
During the three months ended December 31, 1997, the Company recorded
an $8,262 gain from the sale of the Surgery Centers. The gain, combined
with $3,339 of net income from the operations of the discontinued
Surgery Centers during the three months ending September 30, 1997,
amounts to $11,601 of income from disposal of discontinued operations
for the six-months ended December 31, 1997. During the three and six
month periods ending December 31, 1996, the Company recorded income
from the surgery centers of $34,110 and $55,868, respectively, which is
included in the loss from discontinued operations, net of income taxes.
Summary operating results of discontinued operations for the medical,
commercial, and equipment rental software, the real estate rental, and the
surgery center divisions for the three and six month periods ending December 31,
1997 and 1996 are as follows:
THREE MONTHS ENDING SIX MONTHS ENDING
--------------------------- -------------------------
DECEMBER 31, DECEMBER 31 DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
---- ---- ---- ----
Revenues $ 0 587,505 77,553 1,136,091
Gross Profit 0 306,360 10,630 561,266
Income/(loss) before income
taxes 0 (111,375) 3,339 (303,555)
Income tax benefit 0 0 0 0
---------- --------- ------ ---------
Income/(loss) from discontinued
operations $ 8,262 (111,375) 11,601 (303,555)
----------- --------- ------- --------
The remaining assets and liabilities related to the discontinued operations have
been separately classified on the balance sheet as net assets (or net
liabilities) of discontinued operations. At December 31, 1997, the net assets of
discontinued operations totaled $573,745, consisting of $919,193 in receivables
from the purchasers of the various discontinued operations less accrued
liabilities related to the closure of the medical and commercial software
divisions of $345,448.
D-8
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(4)INCOME (LOSS) PER SHARE
Basic earnings per share (Basic EPS) is computed by dividing net income (loss)
available to common shareholders by the weighted average common shares
outstanding during the period. Net Income (loss) used in this calculation is
reduced (loss is increased) by the dividends paid to preferred stockholders.
During each of the three month periods ending December 31, the preferred
dividends paid were $30,000. During each of the six month periods ending
December 31, the preferred dividends paid were $60,000. During earnings per
share (Diluted EPS) is computed by dividing net income (loss) available to
common shareholders by the weighted average common shares outstanding during the
period as adjusted for dilutive potential common shares.
(5) CONTINGENT LIABILITIES
The Company is involved in certain legal matters in the ordinary course of
business. In the opinion of management and legal counsel, such matters will not
have a material effect on the financial position or results of operations of
the Company.
(6) MERGER
On November 4, 1997 the Company announced the execution of a definitive
Agreement and Plan of Merger, which provides for the acquisition of the Company
by Fiserv, Inc. (Fiserv) in an all-stock transaction valued at approximately $25
million (the Merger). Under the terms of the agreement Fiserv will acquire all
of the outstanding shares of the Company (estimated to number 18,452,000 at the
closing) for approximately $1.35 per share, subject to a "holdback" of an amount
of Fiserv shares worth approximately $3 million. The "holdback" shares will be
placed in escrow in respect of any claims arising from certain contingencies.
The transaction will be accounted for as a pooling of interests. The exact
number of Fiserv shares to be exchanged for each CUSA share will be determined
by dividing approximately $1.35 by the average closing price of Fiserv's common
stock during the 20 trading days-ending on the second trading day prior to the
effective date of the Merger. The agreement in subject to all normal
conditions to closing including receipt of all necessary regulatory consents and
the Company's shareholder approval. The obligation of Fiserv to complete the
Merger is subject to certain conditions including, but not limited to, the
redemption by the Company of the 1994 Series Preferred Stock.
In connection with the execution of the definitive agreement, Richard N.
Beckstrand (chief executive officer, chairman of the Board of Directors, and
principal shareholder, "the Investor"), executed an irrevocable proxy allowing
Fiserv the power to vote the Investor's sixty nine percent beneficial ownership
in favor of the Merger Agreement.
The Merger is structured as a tax-free reorganization under Section 368(a)(1)(A)
and (a)(2)(D) of the Internal Revenue Code of 1986, as amended, and thus will be
tax free to the CUSA shareholders. However, if the all stock merger cannot be
accounted for as a "pooling of interests," the Merger will be converted from all
stock to cash-for-stock and will be taxable to the CUSA shareholders.
As of December 31, 1997, Fiserv and the Company were preparing a joint proxy
statement/prospectus to be filed with the Securities and Exchange Commission on
Form S-4. It is anticipated that a shareholders meeting will take place and that
the merger will be approved and finalized in March of 1998.
D-9
CUSA TECHNOLOGIES, INC.
Consolidated Financial Statements
June 30, 1997, 1996, and 1995
(With Independent Auditors' Report Thereon)
D-10
CUSA TECHNOLOGIES, INC.
Index to Consolidated Financial Statements
Page
Independent Auditors Reports:
Report of KPMG Peat Marwick LLP, Independent D-12
Auditors (as to the fiscal years ended June 30, 1997 and 1996)
Report of Grant Thornton LLP, Independent Certified Public
Accountants (as to the fiscal year ended June 30, 1995) D-13
Financial Statements:
Consolidated Balance Sheets as of June 30, 1997 and 1996 D-14
Consolidated Statements of Operations for the years ended
June 30, 1997, 1996, and 1995 D-16
Consolidated Statements of Stockholders' Deficit for the
years ended June 30, 1997, 1996, and 1995 D-17
Consolidated Statements of Cash Flows for the
years ended June 30, 1997, 1996, and 1995 D-19
Notes to Consolidated Financial Statements D-20
Schedules:
Report of KPMG Peat Marwick LLP, Independent Auditors D-42
Schedule II - Valuation and Qualifying Accounts D-43
D-11
Independent Auditors' Report
----------------------------
Board of Directors and Stockholders
CUSA Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of CUSA
Technologies, Inc. and subsidiaries as of June 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the years then ended. These consolidated 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 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CUSA Technologies,
Inc. as of June 30, 1997 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
We also audited the reclassifications that were applied to restate the 1995
financial statements as a result of the discontinued operations as described in
note 4. In our opinion, such reclassifications are appropriate and have been
properly applied.
KPMG Peat Marwick LLP
Salt Lake City, Utah
October 9, 1997
D-12
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
----------------------------
Board of Directors and Stockholders
CUSA Technologies, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of CUSA Technologies, Inc. and Subsidiaries
for the year ended June 30, 1995 (before restatement for the discontinued
medical, commercial, rental software, office rental complex and surgery centers
divisions as described in Note 4). 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and consolidated
cash flows of CUSA Technologies, Inc. and Subsidiaries for the year ended of
June 30, 1995, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Salt Lake City, Utah
September 15, 1995
D-13
CUSA TECHNOLOGIES, INC.
Consolidated Balance Sheets
June 30, 1997 and 1996
Assets 1997 1996
------ ---------- ----------
Current assets:
Cash and cash equivalents $2,861,994 583,080
Trade accounts receivable, net of allowance for doubtful accounts
of $221,000 in 1997 and $495,000 in 1996 (notes 5, 6, and 7) 2,489,176 2,589,428
Inventories (notes 5 and 7) 370,479 137,902
Prepaid expenses and other assets 313,991 422,029
Net assets of discontinued operations (note 4) - 6,127,253
---------- ----------
Total current assets 6,035,640 9,859,692
Property and equipment (notes 5 and 7):
Leasehold improvements 134,836 121,482
Furniture, fixtures, and equipment 2,332,357 2,521,005
Other 721,450 668,405
---------- ----------
Total property and equipment 3,188,643 3,310,892
Less accumulated depreciation and amortization 1,528,951 1,024,462
---------- ----------
Net property and equipment 1,659,692 2,286,430
Equipment under capital lease obligations less accumulated
amortization of $473,750 in 1997 and $400,813 in 1996 (note 12) 259,255 219,940
Receivables from related parties (note 13) 52,440 93,701
Software development and acquisition costs less accumulated
amortization of $819,274 in 1997 and $411,142 in 1996
(notes 3, 4, and 16) 1,659,398 1,398,510
Other assets 73,047 166,418
---------- ----------
$9,739,472 14,024,691
========== ==========
See accompanying notes to consolidated financial statements.
D-14
Liabilities and Stockholders' Deficit 1997 1996
------------------------------------- ----------- -----------
Current liabilities:
Line of credit with banks (note 5) $ - $ 891,022
Current installments of long-term debt (note 7) 29,367 1,462,244
Current installments of obligations under capital leases (note 12) 163,148 205,888
Accounts payable 1,760,421 3,738,559
Accrued liabilities 1,698,865 3,233,359
Customer deposits 1,622,469 1,642,081
Income taxes payable (notes 4 and 11) 485,480 18,081
Payables to related parties (note 13) - 1,167,398
Net liabilities of discontinued operations (note 4) 304,464 -
Deferred revenue 5,506,377 4,831,740
------------ ------------
Total current liabilities 11,570,591 17,190,408
Long-term debt with related parties (note 6) - 2,445,000
Long-term debt, excluding current installments (note 7) - 430,894
Obligations under capital leases, excluding current
installments (note 12) 118,241 193,977
------------ ------------
Total liabilities 11,688,832 20,260,279
Commitments and contingent liabilities (notes 2, 4, 12, and 14)
Stockholders' deficit (notes 3, 4, 6, 8, 9, 13 and 14):
Series A convertible preferred stock, $.001 par value.
Authorized 1,500,000 shares; issued and outstanding
1,000,000 shares ($2.00 liquidation value) 1,000 1,000
Common stock, $.001 par value. Authorized 25,000,000
shares; issued and outstanding 15,289,437 shares at June
30, 1997 and 8,916,438 shares at June 30, 1996 15,289 8,916
Additional paid-in capital 16,347,576 10,530,308
Accumulated deficit (18,313,225) (16,775,812)
------------ ------------
Total stockholders' deficit (1,949,360) (6,235,588)
------------ ------------
$ 9,739,472 $ 14,024,691
============ ============
D-15
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Operations
Years ended June 30, 1997, 1996, and 1995
1997 1996 1995
------------ ------------ ------------
Net revenues:
Hardware and software sales $ 9,442,148 11,180,004 10,658,134
Support, maintenance, and other services 17,447,765 15,642,755 10,950,006
------------ ------------ ------------
Total revenues 26,889,913 26,822,759 21,608,140
------------ ------------ ------------
Cost of goods sold and other direct costs:
Hardware and software 4,097,113 5,923,075 4,681,804
Support, maintenance, and other services 10,843,749 9,359,764 6,067,347
------------ ------------ ------------
Total cost of goods sold and other direct costs 14,940,862 15,282,839 10,749,151
------------ ------------ ------------
Gross profit 11,949,051 11,539,920 10,858,989
Product development costs 2,481,421 1,085,253 1,048,942
Selling, general, and administrative expenses 8,713,650 12,627,058 7,972,383
Nonrecurring charges (note 16) - 6,905,343 -
------------ ------------ ------------
Operating income (loss) 753,980 (9,077,734) 1,837,664
Other income (expense):
Interest expense (276,901) (439,232) (240,943)
Other, net (40,438) (37,434) 55,645
------------ ------------ ------------
Income (loss) from continuing operations
before income taxes 436,641 (9,554,400) 1,652,366
Income tax expense (note 11) - - 727,432
------------ ------------ ------------
Earnings (loss) from continuing operations 436,641 (9,554,400) 924,934
Loss from discontinued operations, net of income taxes
(note 4) (219,330) (5,401,641) (148,908)
Estimated loss from disposal of discontinued operations,
net of income taxes (note 4) (1,634,724) (2,494,451) -
------------ ------------ ------------
Net income (loss) $ (1,417,413) (17,450,492) 776,026
============ ============ ============
Earnings (loss) per common and common equivalent share:
From continuing operations $ 0.04 (1.10) 0.12
From discontinued operations (0.17) (0.91) (0.02)
------------ ------------ ------------
Net income (loss) $ (0.13) (2.01) 0.10
============ ============ ============
Weighted average common and common equivalent shares 11,062,181 8,695,419 7,655,280
See accompanying notes to consolidated financial statements.
D-16
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Stockholders' Deficit
Years ended June 30, 1997, 1996, and 1995
Retained
Preferred Stock Common Stock earnings Total
--------------------- --------------------- Additional (accumu- stock-
Number Number of paid-in lated holders'
of shares Amount shares Amount capital deficit) (deficit)
--------- --------- ---------- --------- ---------- ---------- ----------
Balances at June 30, 1994 1,000,000 $ 1,000 4,739,294 4,739 4,082,185 147,468 4,235,392
Shares issued in business acquisitions (note 3) - - 3,514,227 3,514 4,593,046 (6,148) 4,590,412
Sale of shares to employees under stock purchase
plan (note 9) - - 254,635 255 434,730 - 434,985
Shares issued under stock option plans (note 9) - - 1,360 2 1,846 - 1,848
Proceeds from common stock warrants (note 6) - - - - 5,000 - 5,000
Preferred stock dividends (note 8) - - - - - (122,666) (122,666)
Net income - - - - - 776,026 776,026
--------- --------- --------- --------- ---------- ---------- ----------
Balances at June 30, 1995 1,000,000 1,000 8,509,516 8,510 9,116,807 794,680 9,920,997
Shares issued in business acquisitions (note 3) - - 350,267 350 1,336,239 - 1,336,589
Shares issued for software development - - 50,000 50 149,950 - 150,000
Shares issued under stock option plans (note 9) - - 20,905 20 2,798 - 2,818
Shares redeemed from former employees - - (14,250) (14) (75,486) - (75,500)
Preferred stock dividends (note 8) - - - - - (120,000) (120,000)
Net loss - - - - - (17,450,492) (17,450,492)
--------- --------- ---------- --------- ---------- ---------- ----------
Balances at June 30, 1996 1,000,000 1,000 8,916,438 8,916 10,530,308 (16,775,812) (6,235,588)
D-17
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Stockholders' Deficit (continued)
Years ended June 30, 1997, 1996, and 1995
Retained
Preferred Stock Common Stock earnings Total
-------------------- --------------------- Additional (accumu- stock-
Number Number paid-in lated holders'
of shares Amount of shares Amount capital deficit) deficit
--------- -------- ---------- --------- ---------- ---------- ----------
Proceeds from sale of stock (note 8) - $ - 6,486,486 $ 6,486 5,993,514 - 6,000,000
Shares redeemed and/or returns
(notes 4 and 13) - - (113,487) (113) (176,246) - (176,359)
Preferred stock dividends (note 8) - - - - - (120,000) (120,000)
Net loss - - - - - (1,417,413) (1,417,413)
--------- -------- ---------- --------- ---------- ---------- ----------
Balances at June 30, 1997 1,000,000 $ 1,000 15,289,437 $ 15,289 16,347,576 (18,313,225) (1,949,360)
========= ======== ========== ========= ========== ========== ==========
See accompanying notes to consolidated financial statements.
D-18
CUSA TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
Years ended June 30, 1997, 1996, and 1995
1997 1996 1995
----------- ---------- ----------
Cash flows from operating activities:
Earnings (loss) from continuing operations $ 436,641 (9,554,400) 924,934
Adjustments to reconcile earnings (loss) from continuing
operations to net cash provided by (used in) operating
activities:
Depreciation and amortization 1,405,466 2,143,667 1,285,101
Provision for doubtful accounts (273,771) 451,249 36,000
Nonrecurring charges - 6,905,343 -
Net change in current assets and liabilities:
Trade accounts receivable 374,023 (884,856) (1,482,744)
Inventories (232,577) 317,139 238,637
Prepaid expenses and other current assets 108,038 (195,150) (115,564)
Accounts payable and accrued liabilities (3,622,667) 2,193,103 (202,213)
Customer deposits (19,612) 695,445 596,764
Deferred revenue 674,637 959,255 503,999
Income taxes 467,398 (91,181) 8,936
Deferred income taxes - - 767,508
----------- ---------- ----------
Net cash provided by (used in) continuing
operating activities (682,424) 2,939,614 2,561,358
Net cash used in discontinued operations (4,507,121) (3,043,119) (754,433)
----------- ---------- ----------
Net cash provided by (used in) operating
activities (5,189,545) (103,505) 1,806,925
----------- ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment, net (297,659) (1,878,911) (696,963)
Cash paid for business acquisitions, including
acquisition costs, less cash acquired - (48,234) (79,366)
Software development costs (669,020) (890,947) (262,982)
Receivables from related parties 41,261 (36,815) -
Change in other assets 93,371 (76,531) (46,552)
Net cash used in investing activities of discontinued
operations - (171,086) (771,571)
----------- ---------- ----------
Net cash used in investing activities (832,047) (3,102,524) (1,857,434)
----------- ---------- ----------
Cash flows from financing activities:
Proceeds from debt with related parties 100,000 1,300,000 1,145,000
Proceeds from long-term debt - 1,981,023 -
Repayment of debt with related parties (1,267,398) - -
Net borrowings (repayments) of lines of credit (891,022) 517,775 (321,000)
Repayments of obligations under capital leases (230,728) (224,320) (172,109)
Repayment of long-term debt (4,308,771) (638,172) (240,321)
Reduction of payables to related parties - (994,257) (868,717)
Sale of common stock and exercise of stock options 6,000,000 2,818 441,832
Preferred dividend distributions (60,000) (120,000) (122,666)
Redemption of common stock - (75,500) -
Net cash provided by financing activities of
discontinued operations 8,958,425 1,220,859 628,282
----------- ---------- ----------
Net cash provided by financing activities 8,300,506 2,970,226 490,301
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 2,278,914 (235,803) 439,792
Cash and cash equivalents at beginning of year 583,080 818,883 379,091
----------- ---------- ----------
Cash and cash equivalents at end of year $2,861,994 583,080 818,883
=========== ========== ==========
See accompanying notes to consolidated financial statements.
D-19
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
June 30, 1997, 1996, and 1995
(1) Description of Business Operations and Summary of Significant Accounting
Policies
(a) Description of Business Operations
The principal business operations of CUSA Technologies, Inc. (CTI) and
its subsidiaries (collectively, "the Company") are the development,
license, and support of computer software technology and resale and
maintenance of hardware for credit unions. As described in note 4, in
June 1996, the Board of Directors of CTI committed to dispose of the
business and assets of the medical and commercial divisions which was
completed on July 1, 1996. During 1997, the Company sold it's office
rental complex and its rental software division and the Board of
Directors also committed to dispose of the Company's surgical centers.
Certain amounts in the prior years' consolidated financial statements
and related notes have been reclassified to conform to the current
year's presentation as required with respect to discontinued
operations. Unless otherwise specified, disclosures in the following
footnotes relate to assets, liabilities, and operations of continuing
operations.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of CTI and all of its subsidiaries, substantially all of
which are wholly-owned at June 30, 1997. All significant intercompany
balances and transactions have been eliminated in consolidation.
(c) Revenue Recognition
Revenue on hardware and software sales is generally recognized upon
shipment. A portion of the revenue is deferred on certain sales when
the Company has a significant obligation for future services. Software
support and hardware maintenance services are billed in advance.
Revenue from software support and hardware maintenance is deferred and
recognized ratably over the maintenance period (generally one year).
Revenue for other goods and services is recognized when the goods are
shipped or when the services are rendered.
(d) Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with
an original maturity to the Company of less than ninety days.
(e) Financial Instruments
The carrying value of the Company's financial instruments at June 30,
1997 approximates fair value.
D-20
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(f) Inventories
Inventories, which consist principally of computer hardware and
supplies held for resale, are stated at the lower of cost or market.
Cost is determined using the first-in, first-out method.
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated service
lives. Leasehold improvements are amortized over the lives of the
respective leases or the service lives of the improvements, whichever
is shorter.
The estimated lives used in determining depreciation and amortization
are:
Leasehold improvements 5-32 years
Furniture, fixtures, and equipment 3-10 years
Other 3-5 years
Equipment under capital leases is amortized over the lives of the
respective leases or, for those leases which substantially transfer
ownership, over the service lives of the assets. Amortization expense
for capital leases is included with depreciation and amortization
expense.
The straight-line method of depreciation and amortization is followed
for substantially all assets for financial reporting purposes. Certain
assets are depreciated under accelerated methods for tax purposes.
(h) Intangible Assets
All research and development costs incurred by the Company in the
development and acquisition of computer software to be sold to
customers is charged to expense until the technological feasibility of
the software is established. After technological feasibility has been
established, software development and acquisition costs are
capitalized until the software is available for general release to
customers. Software development and acquisition costs are recorded at
the lower of unamortized historical cost or estimated net realizable
value. Software development and acquisition costs are amortized on a
product-by-product basis using the straight-line method over their
estimated useful lives of three to five years. Amortization of
software development and acquisition costs was $408,132, $684,232, and
$366,644 for the years ended June 30, 1997, 1996 and 1995,
respectively.
The excess of purchase price over fair value of net tangible and
identifiable intangible assets acquired in certain business
acquisitions is amortized using the straight-line method, principally
over fifteen years. Amortization expense was $360,209 and $364,146 for
the years ended June 30, 1996 and 1995, respectively (none in 1997).
D-21
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(h) Intangible Assets (continued)
On an ongoing basis, management reviews the valuation and amortization
of software development and acquisition costs and the excess purchase
price to determine possible impairment by comparing the carrying value
to the undiscounted estimated future cash flows of the related
businesses (note 16).
(i) Income Taxes
The Company accounts for income taxes under the asset and liability
method, under which deferred taxes are determined based on the
difference between the financial statement and the tax bases of assets
and liabilities using enacted tax rates in effect in the years in
which the deferred tax assets or liabilities are expected to be paid
or recovered. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance related to deferred
tax assets is recorded when it is more likely than not that such tax
benefits will not be realized.
(j) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(k) Earnings (Loss) Per Share
Earnings or loss per common and common equivalent share is computed by
dividing net earnings (loss) by the weighted average common shares
outstanding during each year, including common equivalent shares (if
dilutive). Common equivalent shares include stock options, convertible
preferred stock, and convertible debt. Earnings used in the
calculation are reduced (loss in increased) by the dividends paid to
preferred stockholders. Fully diluted earnings (loss) per share is not
materially different from primary earnings (loss) per share.
(l) Stock-Based Compensation
Effective July 1, 1996, the Company adopted the footnote disclosure
provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123). SFAS 123
encourages entities to adopt a fair value based method of accounting
for stock options or similar equity instruments. However, it also
allows an entity to continue measuring compensation cost for stock-
based compensation using the intrinsic-value method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25). The Company has elected to
continue to apply the provisions of APB 25 and provide pro forma
footnote disclosures required by SFAS 123.
D-22
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(m) Accounting Standards Not Yet Adopted
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per
Share (SFAS 128). SFAS 128 establishes a different method of computing
earnings (loss) per share than is currently required under the
provisions of Accounting Principles Board Opinion No. 15. Under SFAS
128, the Company will be required to present both basic earnings
(loss) per share and diluted earnings (loss) per share. Basic and
diluted loss per share is expected to be comparable to the currently
presented loss per share.
SFAS 128 is effective for the consolidated financial statements for
interim and annual periods ending after December 15, 1997.
Accordingly, the Company plans to adopt SFAS 128 in the second quarter
of its 1998 fiscal year and at that time all historical earnings per
share data presented will be restated to conform to the provisions of
SFAS 128.
(n) Reclassifications
Certain reclassifications have been made in the 1996 and 1995
consolidated financial statements to conform with classifications
adopted in 1997.
(2) Liquidity
During the year ended June 30, 1997, the Company incurred a net loss of
$1,417,413, used cash in operating activities of $5,189,545, including
$4,507,121 from discontinued operations and at June 30, 1997 had a
stockholders' deficit of $1,949,360. The Company also had a net loss during
the year ended June 30, 1996 of $17,450,492, including $7,896,092 from
discontinued operations. A significant portion of the net loss during 1996
relates to the noncash write down of the excess of purchase price over fair
value of net tangible and identifiable intangible assets acquired and
software development and acquisition costs to their estimated fair value
(note 16). During the year ending June 30, 1997, management implemented
plans to return the Company to profitable operations and positive cash
flow. In the opinion of management, the continued implementation of these
plans will permit the Company to meet its operating and debt cash
requirements, at least through the next fiscal year; however, the Company
is subject to many uncertainties over which management has limited control,
any one of which could adversely affect the Company's operating cash flows,
and thus create cash flow problems for the Company.
(3) Business Acquisitions
During the period from December 1994 through February 1996, CTI acquired
various entities. In each acquisition where CTI issued its stock as part or
all of the purchase consideration, the stock has been valued at the average
of the bid and ask prices on the date of closing, less an appropriate
discount for restrictions on marketability.
D-23
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(3) Business Acquisitions (continued)
(a) Fiscal 1996
Preferred Health Systems, Inc.
Effective October 1, 1995, CTI acquired 100 percent of the equity
interest in Preferred Health Systems, Inc. (PHS), a software
development company. In connection with the acquisition, CTI issued
75,000 shares of restricted common stock (valued at $262,500) in
exchange for all of the outstanding stock of PHS. PHS is the owner and
developer of a fourth generation language software application for
managed healthcare organizations. Results of operations of PHS are
included in the financial statements of the Company since October 1,
1995. The acquisition has been accounted for using the purchase method
and the excess of purchase price over fair value of net tangible
assets acquired was allocated to software development and acquisition
costs and is being amortized over five to fifteen years.
Workgroup Design, Inc.
On December 22, 1995, CTI acquired 100 percent of the equity interest
in Workgroup Design, Inc. (WGD), a Lotus Notes application development
company. In connection with the acquisition, CTI issued 25,000 shares
of restricted common stock (valued at $100,000) and a note payable in
the amount of $42,000. The financial statements of the Company include
the results of operations of WGD since the effective date of the
acquisition. The acquisition has been accounted for using the purchase
method and the excess of purchase price over fair value of net
tangible assets acquired was amortized over five years.
Medfo Systems of America, Inc.
Effective January 1, 1996, CTI acquired 100 percent of the equity
interest in Medfo Systems of America, Inc. (Medfo). Medfo is a
business engaged in the distribution and support of software,
principally in the healthcare industry. In connection with the
acquisition of Medfo, CTI issued 40,267 shares of its restricted
common stock (valued at $134,089) and agreed to issue options to the
former owner and the employees of Medfo to acquire 150,000 shares of
its common stock at fair market value as of the closing date. Results
of operations of Medfo are included in the financial statements of the
Company since January 1, 1996. The acquisition has been accounted for
using the purchase method and the excess of purchase price over fair
value of net tangible assets acquired was being amortized over fifteen
years.
The former owner of Medfo is a shareholder of CTI and was an officer
until September 1996. Prior to the acquisition, Medfo and the medical
division of CTI jointly conducted business pursuant to a subcontract
and assignment agreement under which CTI provided software, hardware,
and other resources to customers of Medfo, for which CTI earned
revenues. CTI had also advanced Medfo $256,312 for its business
operations prior to the acquisition.
D-24
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(3) Business Acquisitions (continued)
Automated Solutions, Inc.
Effective February 1, 1996, CTI acquired 100 percent of the equity
interest in Automated Solutions, Inc. and Automated Systems of Arizona,
Inc., and 40 percent of the equity interest in Automated Solutions of
California, Inc. (collectively, ASI). ASI is a business engaged in
hardware and software distribution and related support services,
principally to the healthcare and certain commercial industries. In
connection with the acquisition of ASI, CTI issued 50,000 shares of its
restricted common stock (valued at $200,000) to the former owners of ASI
and agreed to settle certain liabilities of a former owner of ASI in the
approximate amount of $114,000 related to his prior purchase of stock in
ASI. CTI also agreed to issue options to a former owner and the employees
of ASI to acquire 70,000 shares of its common stock at fair market value
as of the closing date. Results of operations of ASI are included in the
financial statements of the Company since February 1, 1996. The
acquisition has been accounted for using the purchase method and the
excess of purchase price over fair value of net tangible assets acquired
was being amortized over fifteen years.
Source Computing, Inc.
Effective February 1, 1996, CTI acquired 100 percent of the equity
interest in Source Computing, Inc., Medical Clearing Corporation, and
certain assets of a proprietorship, all of which were under common
ownership (collectively, Source). Source is a business engaged in the
development, distribution, and support of software, principally in the
area of practice management and electronic claims processing for the
healthcare industry. In connection with the acquisition of Source, CTI
issued an aggregate of 160,000 shares of its restricted common stock
(valued at $640,000) and agreed to pay an aggregate of $300,000 in cash.
CTI also agreed to issue options to the former owners and the employees of
Source to acquire 25,000 shares of its common stock at fair market value
as of the date of closing. Results of operations of Source are included in
the financial statements of the Company since February 1, 1996. The
acquisition has been accounted for using the purchase method and the
excess of purchase price over fair value of net tangible assets acquired
was being amortized over fifteen years.
(b) Fiscal 1995
VERSYSS Data Systems
Effective September 1, 1994, CTI acquired 100 percent of the stock of RK &
DR Concepts, Inc. dba VERSYSS Data Systems (VDS) in exchange for 1,500,000
shares of restricted common stock (valued at $1,800,000) and a cash
payment of $700,000. VDS markets software, hardware and support services
to the credit union, healthcare, and rental industries. Results of
operations of VDS are included in the financial statements of the Company
since September 1, 1994. The acquisition has been accounted for as a
purchase and the excess purchase price over fair value of net tangible
assets acquired was being amortized over fifteen years.
D-25
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(3) Business Acquisitions (continued)
Outside Force
Effective November 15, 1994, CTI acquired 100 percent of the stock of
Outside Force, Inc. (Outside Force) in exchange for 200,000 shares of
restricted common stock (valued at $333,333) and a cash payment of
$250,000. Outside Force is the developer of a credit union management
software system written in a fourth generation software language. Results
of operations of Outside Force are included in the financial statements of
the Company since November 15, 1994. The acquisition has been accounted
for as a purchase and the excess purchase price over fair value of net
tangible assets acquired was allocated to software acquisition costs and
is being amortized over five years.
Benchmark Computer Systems of Nebraska and Iowa, Inc.
Effective February 1, 1995, CTI acquired 100 percent of the stock of
Benchmark Computer Systems, of Nebraska and Iowa, Inc., (Benchmark of
Omaha) in exchange for 205,000 shares of restricted common stock (valued
at $410,000) and a cash payment of $200,000. Benchmark of Omaha markets
software, hardware and support services to the credit union and healthcare
industries. Results of operations of Benchmark of Omaha are included in
the financial statements of the Company since February 1, 1995. The
acquisition has been accounted for as a purchase and the excess purchase
price over fair value of net tangible assets acquired was being amortized
over fifteen years.
Computer Ease, Inc.
Effective February 1, 1995, CTI acquired 100 percent of the stock of
Computer Ease for cash of $350,000. Computer Ease is the developer of a
rental center management software system. Results of operations of
Computer Ease are included in the financial statements of the Company
since February 1, 1995. The acquisition has been accounted for as a
purchase and the excess purchase price over fair value of net tangible
assets acquired was allocated to software acquisition costs and is being
amortized over three years.
Benchmark Computer Systems of Va., Inc.
Effective May 1, 1995, CTI acquired 100 percent of the stock of Benchmark
Computer Systems of Va., Inc., (Benchmark of Virginia) in exchange for
380,000 shares of restricted common stock (valued at $950,000) and a cash
payment of $1,000,000. Benchmark of Virginia markets software, hardware
and support services to the credit union and healthcare industries.
Results of operations of Benchmark of Virginia are included in the
financial statements of the Company since May 1, 1995. The acquisition has
been accounted for as a purchase and the excess purchase price over fair
value of net tangible assets acquired was being amortized over fifteen
years.
D-26
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(3) Business Acquisitions (continued)
Benchmark Computer Systems of Wisconsin
Effective June 1, 1995, CTI acquired 100 percent of the stock of Benchmark
Computer Systems, Inc. (Benchmark of Wisconsin) in exchange for 192,667
shares of restricted common stock (valued at $481,668). Benchmark of
Wisconsin markets software, hardware and support services to the credit
union and healthcare industries. Results of operations of Benchmark of
Wisconsin are included in the financial statements of the Company since
June 1, 1995. The acquisition has been accounted for as a purchase and the
excess purchase price over fair value of net tangible assets acquired was
being amortized over fifteen years.
Medical Computer Management, Inc.
On May 18, 1995 CTI acquired 100 percent of the stock of Medical Computer
Management, Inc. and its 90 percent-owned subsidiary, Healthcare Business
Solutions of Arizona, Inc. (collectively, MCMI) in exchange for 300,000
shares of restricted common stock. MCMI develops, sells, and supports a
medical management software system written in a fourth generation software
language. The acquisition has been accounted for as a pooling of interests
and, accordingly, all prior period financial statements presented have
been restated as if the acquisition took place at the beginning of the
earliest period presented.
Sierra Surgery Center
Pursuant to an amended agreement in principle dated March 31, 1993, and
effective November 1, 1994, CTI acquired 100 percent of the stock of the
Sierra Surgery Center (Sierra) in exchange for 415,000 shares of
restricted common stock. Sierra operates a surgery center in Nevada.
Sierra and CTI were entities under common control and accordingly the
transaction has been accounted for on an as if pooled basis. However, the
financial statements of the Company prior to the acquisition have not been
restated due to the insignificance of the historical results of operations
of Sierra.
Pro forma Results of Operations
Assuming all of the acquisitions described above had occurred at the
beginning of each period presented below, the Company's unaudited pro
forma condensed consolidated results of continuing operations, exclusive
of nonrecurring charges, would have been approximately as follows:
Year ended June 30,
------------------------
1996 1995
----------- -----------
Revenues $26,822,759 23,889,001
=========== ===========
Earnings (loss) from continuing operations $(9,554,400) 792,809
=========== ===========
Earnings (loss) per share $ (1.10) 0.10
=========== ===========
D-27
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(3) Business Acquisitions (continued)
The unaudited pro forma condensed consolidated results of operations are
not necessarily indicative of the actual results that would have been
achieved had the aforementioned acquisitions taken place at the dates set
forth above and are not necessarily indicative of future results.
(4) Discontinued Operations
As part of an overall business plan, the Board of Directors and management
have decided to concentrate the Company's business activities on its core
operations in the credit union business. The following discontinued
operations are a result of that plan.
In June 1997, the Company sold the office rental complex to an officer and
major stockholder of the Company for $2,925,000. The Company received cash
of $1,258,425 and the officer assumed long-term debt secured by the complex
of $1,658,565. The Company recognized a gain on the sale before income
taxes of approximately $479,000 which has been included in the loss from
disposal of discontinued operations in 1997.
In June 1997, the Board of Directors of CTI committed to dispose of the
business and assets of the surgery centers. The surgery centers have been
operating at a small profit and the Company believes that a loss will not
be incurred in the disposal of the division, therefore no anticipated loss
on final disposition has been recorded. The net assets of the surgery
centers of approximately $435,000 have been included in the net liabilities
of discontinued operations as of June 30, 1997. The Company expects the
disposal to be completed before the end of calendar year 1997.
Effective March 31, 1997, the Company sold its rental software division to
JFJ Corporation (JFJ) which is owned by a CTI stockholder for $400,000
represented by a $200,000, eight percent note receivable due in monthly
installments of $6,453 and a $200,000, six percent note receivable due
March 31, 1999. The notes are secured by 500,000 shares of CTI common
stock. According to the asset purchase agreement, JFJ 1) assumed deferred
software support and hardware maintenance obligations, accrued liabilities,
and customer deposits associated with the rental software division, and 2)
assumed liability for certain real and personal property leases of the
Company with terms through December of 1997. The Company recognized a gain
on the sale of approximately $294,000 which has been included in the loss
from disposal of discontinued operations in 1997.
In June 1996, the Board of Directors of CTI committed to dispose of the
business and assets of the medical and commercial divisions. On July 2,
1996, CTI entered into an asset purchase agreement with Physician Computer
Network, Inc. (PCN) whereby PCN agreed to acquire substantially all of the
assets and assume certain liabilities of the medical and commercial
divisions. Terms of the purchase agreement, as subsequently modified in
October 1996 and again in September 1997, provided for the purchase of
certain specified assets for $8,950,000, payable as follows: 1) $4,500,000
at closing, 2) cancellation of $1,500,000 note payable to PCN incurred on
June 13, 1996, 3) $3,150,000 within five business days of receipt of the
June 1996 audited financial statements, 4) $50,000 due upon the signed
amendment in October 1996 and 5) a repayment of $250,000 to PCN by the
Company in September 1997.
D-28
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(4) Discontinued Operations (continued)
Also, according to the asset purchase agreement, PCN 1) assumed the
balances of the Company's liabilities related to accounts and notes payable
to Versyss, Inc., a subsidiary of PCN, deferred software support and
hardware maintenance obligations, accrued liabilities, and customer
deposits associated with the medical and commercial divisions, and 2)
assumed liability for certain real and personal property leases of the
Company with terms through October 1999.
Under the asset purchase agreement, CTI agreed to purchase from PCN not
less than $2,000,000 of hardware and software products during each of the
five twelve-month periods commencing July 1, 1996, for an aggregate
commitment of $10,000,000. The Company is in compliance with the agreement
at June 30, 1997.
The medical, commercial, and rental software divisions along with the
office rental complex and surgery centers divisions have been accounted for
as discontinued operations, and accordingly, the results of their
operations are segregated from continuing operations in the accompanying
statements of operations. Revenue, operating costs and expenses, other
income and expense, and income taxes of these divisions for the fiscal
years ended June 30, 1997, 1996, and 1995, have also been reclassified as
discontinued operations. No allocation of general corporate overhead has
been made to discontinued operations related to these divisions.
In June 1996, upon adoption of the plan to dispose of the medical and
commercial divisions, the Company recorded a provision for the estimated
loss on the disposal of the divisions in the amount of $2,494,451 (net of
income tax benefit of $-0-). This provision relates to the expected gain on
the sale to PCN, net of disposal costs, severance benefits to division
employees, certain occupancy costs under noncancelable leases, and
anticipated future losses related to assets and operations not sold to PCN
until their ultimate disposition is completed. Interest expense has been
allocated to discontinued operations in the same percentage as assets of
discontinued operations compared to total assets not specifically
identified to any division. During the year ending June 30, 1997, the
Company incurred $2,408,152 of additional medical and commercial division
expenses (including $475,000 for income taxes) not anticipated or provided
for at June 30, 1996. These expenses are recorded in the loss from disposal
of discontinued operations for the year ending June 30, 1997. A provision
for estimated future expenses of the medical and commercial divisions of
$1,177,620 is included in the net liabilities of discontinued operations at
June 30, 1997.
During the year ending June 30, 1997, as part of various agreements related
to the discontinuance of the medical division, the Company received 113,487
shares of CTI stock from former employees and business partners of the
Company.
The rental software, office rental complex, and the surgery centers are not
expected to generate additional net expenses from disposal after June 30,
1997. Thus no estimated loss on the disposal of these segments has been
provided in the accompanying statement of operations.
D-29
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(4) Discontinued Operations (continued)
Summary operating results of discontinued operations for the fiscal years
ended June 30, 1997, 1996, and 1995, excluding the above loss on disposal,
are as follows:
1997 1996 1995
----------- ---------- -----------
Revenues $ 1,898,853 16,590,998 10,931,575
=========== ========== ===========
Gross profit $ 862,903 5,544,364 4,818,130
=========== ========== ===========
Loss before income taxes $ (219,330) (5,401,641) (89,468)
Income tax expenses - - (59,440)
=========== ========== ===========
Loss from discontinued operations $ (219,330) (5,401,641) (148,908)
=========== ========== ===========
The assets and liabilities related to the discontinued operations have
been separately classified on the balance sheets as net assets
(liabilities) of discontinued operations. A summary of these assets and
liabilities as of June 30, 1997 and 1996, are as follows:
1997 1996
----------- -----------
Assets:
Trade accounts receivable, net $ 84,012 2,584,180
Other current assets 272,644 283,301
Property and equipment, net 60,878 2,954,398
Software development and acquisition costs,
net - 1,409,241
Excess of purchase price over fair value of
net tangible assets acquired, net - 8,827,260
Other noncurrent assets 480,214 479,811
---------- -----------
Total assets 897,748 16,538,191
---------- -----------
Liabilities:
Accounts payable, accrued liabilities, and
customer deposits 24,592 2,351,932
Deferred revenue - 2,170,844
Notes payable - 3,393,711
Liability for estimated loss on disposal 1,177,620 2,494,451
---------- -----------
Total liabilities 1,202,212 10,410,938
========== ===========
Net assets/(liabilities) of
discontinued operations $ (304,464) 6,127,253
========== ===========
D-30
(5) Line Of Credit With Banks
Line of credit with banks are as follows:
1997 1996
========== ==========
Line of credit, interest at prime plus 1.5% (9.75%
at June 30, 1996), secured by accounts receivable,
inventories, general intangible assets, and trust
deed on real estate, personally guaranteed by an
officer and director of the Company, the line of
credit was paid and closed in February of 1997.
The weighted-average interest rate on the line of
credit was 9.75 percent in 1997, 10.15 percent in
1996, and 11.00 percent in 1995. $ - 891,022
========== ==========
(6) Long-term Debt With Related Parties
The Company was indebted to a company affiliated with an officer and
director of the Company for a long-term line of credit in the amount of
$995,000, all of which was drawn at June 30, 1996. The line of credit
accrued interest at 5.86 percent. The line of credit including all accrued
interest was paid in full in February 1997. The line was secured by
accounts receivable and was subordinated to the line of credit and long-
term debt with a bank which were also paid in full in February 1997 (notes
5 and 7). In connection with this line, the Company issued warrants in
exchange for $5,000 to purchase 100,000 shares of the Company's restricted
common stock at $2.50 per share. The warrants expire on or before December
31, 1997.
At June 30, 1996, the Company was indebted under debentures to an entity
controlled by an officer and director of the Company in the principal
amount of $1,450,000 with interest at eight percent, payable quarterly,
and convertible into common stock of the Company at $3.00 per share
through June 30, 1996, $3.50 per share through June 30, 1997. The
debentures were paid in full in February 1997.
Interest expense accrued on the note was $116,205, $174,307, and $174,307
for 1997, 1996 and 1995, respectively.
D-31
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(7) Long-term Debt
Long-term debt is summarized as follows:
1997 1996
---------- ----------
Prime plus 1.5% (9.75% at June 30, 1996) note to a bank,
payable in monthly installments of $90,427 including
interest, due October 1997, secured by inventories,
accounts receivable, equipment, and general intangible
assets of the Company. The note was paid in full in
February 1997. $ - 1,320,148
9% note to a hardware maintenance company, payable
in quarterly installments of $41,667 plus interest, due
in October 1999, secured by hardware maintenance
agreements, and related accounts receivable, paid in
July 1996. - 500,000
Other notes and obligations 29,367 72,990
---------- ----------
Total long-term debt 29,367 1,893,138
Less current installments 29,367 1,462,244
---------- ----------
Long-term debt, less current installments $ - 430,894
========== ==========
(8) Common and Convertible Preferred Stock
Significant operating losses in fiscal 1996 and the first quarter of
fiscal 1997 resulted in violations of loan covenants with the Company's
primary lender and raised concerns among employees, stockholders, and
customers. In order to address these circumstances the Board of Directors
decided to seek equity financing and on January 24, 1997, the Company
entered into a Stock Purchase and Sale Agreement (the "Agreement") whereby
it agreed to sell approximately 8,648,649 shares of its common stock,
representing 49 percent of the common stock to be outstanding after the
completion of the sale, to its Chairman and Chief Executive Officer (the
"Investor), for $8.0 million in cash. In February of 1997, the Company
received $6.0 million of the purchase price for which 6,486,486 shares of
common stock were issued. Upon the completion of the transaction, the
Investor increased his ownership interest to over 50 percent and obtained
a controlling interest in the common stock of the Company. The proceeds
were used to retire long-term debt and certain current liabilities. The
Company anticipates that the remaining $2.0 million will be received in
fiscal 1998. The transaction was negotiated between the Investor and an
independent committee of the Board of Directors. Also pursuant to the
agreement, the Investor surrendered 1,208,400 five year options to
purchase shares of the Company's common stock at prices from $1.50 to
$5.00 per share in exchange for the grant of 1,000,000 five year options
to purchase the Company's common stock at $1.00 per share for the first
year, with the option price increasing by $0.25 per year.
In addition to the common stock, the articles of incorporation of the
Company authorize the issuance of 5,000,000 shares of Preferred Stock, of
which 1,500,000 shares are authorized as the 1994 Series A Convertible
Preferred Stock (the "Series A Preferred Stock").
D-32
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(8) Convertible Preferred Stock (continued)
The Series A Preferred Stock has a preferential liquidation rate of $2.00
per share plus unpaid dividends and may be redeemed at the Company's
option at $2.00 per share. The Series A Preferred Stock pays dividends at
the rate of $.12 per share per annum and dividends are cumulative. The
Series A Preferred Stock is convertible into common stock of the Company
(subject to certain adjustments) at the rate of three shares of the Series
A Preferred Stock for two shares of common stock. The Series A Preferred
Stock is convertible into common stock at the option of the preferred
stockholder or automatically upon the occurrence of either of the
following:
- The filing of a public offering of the securities of the Company for a
minimum of at least $2,000,000 in cash, or
- The listing of the Company's common stock on the NASDAQ market at a
price of not less than $3.00 per share for at least 20 days prior to
the conversion date.
The Series A Preferred Stock has voting rights based on the number of
shares of common stock that would be outstanding if the Preferred Stock
were converted.
The Company plans to redeem the preferred stock for $2.00 per share in
fiscal 1998 upon the receipt of the remaining $2,000,000 from the January
24, 1997 stock purchase and sale agreement.
(9) Employee Stock Option and Purchase Plans
(a) Stock-Based Compensation
On November 5, 1993 the Company adopted the "1993 Employee Stock
Option Plan" and reserved 200,000 shares of common stock for issuance
upon the exercise of options. In July 1994, the Board increased the
number of options under the 1993 Employee Stock Option Plan to
500,000 shares of common stock. Also in November 1993, the Company
adopted the "1993 Director Stock Option Plan" and reserved 62,500
shares of common stock for issuance to members of the Board of
Directors upon the exercise of options. In 1996, the Board increased
the number of options under the "1993 Director Stock Option Plan" to
82,500 shares of common stock for issuance upon the exercise of
options.
In February 1995 the Company adopted the "1995 Employee Stock Option
Plan" and reserved 300,000 shares of common stock for issuance upon
the exercise of options that the Company plans to grant from time to
time under this plan. The exercise price of options under the various
plans maintained by the Company is equivalent to the estimated fair
market value of the stock at the date of grant. The number of shares,
terms, and exercise period are determined by the Board of Directors
on an option-by-option basis. Options generally vest ratably over
five years and expire no longer than ten years from date of grant.
D-33
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(9) Employee Stock Option and Purchase Plans (continued)
Options as of June 30, 1997 for the "1993 Employee Stock Option Plan"
have been granted in the amount of 551,669 and the options canceled
are 310,912. As of June 30, 1997, options to acquire 163,034 shares
have vested and may be exercised at any time. Options as of June 30,
1997 for the "1995 Employee Stock Option Plan" have been granted in
the amount of 513,246 and the options canceled are 411,754. As of
June 30, 1997, options to acquire 60,920 shares have vested and may
be exercised at any time. Options as of June 30, 1997 for the "1993
Director Stock Option Plan" have been granted in the amount of 49,500
and the options canceled are 16,000. As of June 30, 1997, options to
acquire 33,500 shares have vested and may be exercised at any time.
In addition to the options authorized under the plans described
above, the Board of Directors has also authorized the issuance of
3,265,000 shares of common stock to be granted as nonstatutory
options to certain individuals, including certain officers,
directors, and stockholders, in conjunction with their employment,
equity and debt financing or personnel guarantees since 1993. As of
June 30, 1997, options of 250,000 have been exercised and 1,383,000
have been canceled for the nonstatutory stock options.
A summary of activity is as follows:
1997 1996 1995
------------------- -------------------- ------------------
Weighted- Weighted-
average average Price
Number of exercise Number of exercise Number of per
shares price shares price shares share
-------- -------- -------- --------- -------- -------
Options outstanding
at beginning
of year 2,849,306 $2.63 2,575,240 $2.24 1,043,200 $1.30 - 2.00
Options granted 1,042,500 1.04 553,256 4.65 1,538,800 1.80 - 3.57
--------- --------- ---------
3,891,806 3,128,496 2,582,000
--------- --------- ---------
Options exercised - - (20,905) 2.25 (1,360) 1.30 - 1.80
Options canceled (1,888,812) 2.72 (258,285) 2.48 (5,400) 1.30 - 1.80
--------- --------- ---------
(1,888,812) (279,190) (6,760)
--------- --------- ---------
Options outstanding
at end of year 2,002,994 $1.72 2,849,306 $2.63 2,575,240 $1.30 - 3.57
========= ========= =========
Weighted-average
fair value of
options granted
during the year $ .28 $4.15
D-34
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(9) Employee Stock Option and Purchase Plans (continued)
The following table summarizes information about fixed stock options
outstanding at June 30, 1997:
Options outstanding Options exercisable
-------------------------------------- -----------------------
Weighted-
Number average Weighted- Number Weighted-
Range of outstanding remaining average exercisable average
exercise at June 30, contractual exercise at June 30, exercise
prices 1997 life price 1997 price
- ---------- ------------ ----------- --------- ----------- ---------
$1.00-1.00 1,000,000 4.57 $1.00 1,000,000 $1.00
1.30-2.75 866,810 2.37 2.21 683,566 2.16
2.97-5.37 136,184 3.24 3.84 81,958 3.94
========= =========
2,002,994 1,765,524
========= =========
The Company accounts for these plans under APB 25, under which no
compensation cost has been recognized. Had compensation cost for these
plans been determined consistent with SFAS 123, the Company's net loss per
share would have been reduced or, increased, respectively, to the following
pro forma amounts:
1997 1996
----------- -----------
Net loss:
As reported $(1,417,413) (17,450,492)
Pro Forma (1,944,062) (18,066,551)
Loss per share:
As reported $ (.13) (2.01)
Pro Forma (.18) (2.08)
Pro forma net loss reflects only options granted in 1997 and 1996.
Therefore, the effect that calculating compensation cost for stock-based
compensation under SFAS 123 has on the pro forma net loss as shown above
may not be representative of the effects on reported net earnings (loss)
for future years.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted-
average assumptions used for grants in 1997 and 1996, respectively: risk-
free interest rate of 5.8 percent; expected dividend yields of 0 percent;
expected lives of 0.6 and 4.3 years; and expected volatility of 146
percent.
(b) Employee Stock Purchase Plan
During the year ended June 30, 1995, the Company sponsored the 1994
Employee Stock Purchase Plan, under which the Company reserved 400,000
shares of common stock. Under the terms of the plan, any employee who was
customarily employed for more than twenty hours per week and more than five
months in a calendar year was eligible to participate. Eligible employees
could purchase up to 12,500 shares of the Company's common stock at 85
percent of fair market value. The Company paid one-third of the purchase
price for the first 1,000 shares purchased. The stock purchase plan
terminated on June 30, 1995. Under the plan, 125 employees purchased
254,635 shares of common stock for an aggregate purchase price of $434,985
(including $66,684 paid by the Company).
D-35
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(10) Retirement Plan
The Company sponsors a retirement plan under Section 401(k) of the Internal
Revenue Code. To participate an employee must meet certain minimum age and
length of service requirements. Company contributions to the 401(k) plan
are at the discretion of the Board of Directors. The Company made no
contribution to the 401(k) plan during 1997, 1996, or 1995.
(11) Income Taxes
Income (loss) from continuing operations before income taxes and the
related income tax expense consists of the following:
1997 1996 1995
---------- ---------- ----------
Income (loss) from continuing
operations before income $ 436,641 (9,554,400) 1,652,366
taxes
========== ========== ==========
Current:
Federal $ - - -
State - - -
Deferred:
Federal - - 670,002
State - - 57,430
---------- ---------- ----------
Total $ - - 727,432
========== ========== ==========
Differences between income taxes attributable to continuing operations at
the statutory federal income tax rate and the Company's effective tax rate
of 34 percent are as follows:
1997 1996 1995
---------- ----------- ----------
Tax at federal statutory rate $ 148,458 (3,248,496) 561,804
State income taxes, net of federal
tax benefit - - 37,585
Amortization and impairment of
certain intangible assets - 1,218,422 82,832
Change in valuation allowance (187,617) 1,994,606 -
Other, net 39,159 35,468 45,211
---------- ----------- ----------
$ - - 727,432
========== =========== ==========
Effective income tax rate 00.0% 00.0% 43.7%
D-36
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(11) Income Taxes (continued)
Components of deferred income tax assets and liabilities at June 30, 1997
and 1996, are as follows:
1997 1996
----------- ----------
Deferred tax assets:
Net operating losses $ 1,819,558 3,874,398
Certain accrued liabilities 562,482 1,588,166
Allowance for uncollectible accounts 86,105 616,853
Differences in deductible goodwill 780,196 844,960
Alternative minimum tax credit 118,349 -
Other, net - 4,839
----------- ----------
3,366,690 6,929,216
Less valuation allowance (2,781,937) (5,754,884)
----------- ----------
584,753 1,174,332
----------- ----------
Deferred tax liabilities:
Capitalized software costs (339,710) (902,312)
Depreciation of property and equipment (133,441) (272,020)
Other, net (111,602) -
----------- ----------
(584,753) (1,174,332)
----------- ----------
Net deferred tax asset (liability) $ - -
=========== ==========
The Company has net operating loss carryforwards of approximately
$4,500,000 for income tax purposes which expire in years through 2011.
The utilization of approximately $260,000 of these net operating losses
were obtained from the acquisition of businesses and is subject to
limitation under the Internal Revenue Code Section 382, although
management believes that these net operating losses will become available
for utilization prior to their expiration.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. In order to fully realize the deferred tax assets, CTI will
need to generate future taxable income of approximately $5,000,000 prior
to the expiration of the net operating loss carryforwards in 2011. Due to
the uncertainty of the ultimate realization of the deferred tax assets,
the Company has recorded a valuation allowance against these assets of
$2,781,937 at June 30, 1997, a decrease of $2,972,947 from the $5,754,884
valuation allowance at June 30, 1996. At June 30, 1996, the valuation
allowance was increased $5,658,270 over the prior year.
D-37
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(12) Leasing Arrangements
The Company leases substantially all of its office facilities under
noncancelable operating leases. One of these leases is with a company
controlled by an officer and director of the Company. The Company also
leases certain of its property and equipment under both capital and
noncancelable operating leases.
Future minimum lease payments under capital and noncancelable operating
leases as of June 30, 1997, are as follows:
Operating leases
----------------------------------------------------
Discontinued
Continuing operations operations
------------------------------ -------------------
Capital Third Related Third Related
leases parties party parties party
--------- -------- --------- -------- ---------
Year ending June 30:
1998 $ 191,117 102,190 258,020 125,488 19,025
1999 89,862 53,345 270,921 185,500 -
2000 39,061 53,580 284,467 - -
2001 - 53,580 298,690 - -
2002 - 8,930 313,625 - -
Thereafter - - 913,149 - -
--------- -------- --------- -------- ---------
Total minimum lease payments 320,040 $271,625 2,338,872 310,988 19,025
========= ======== ========= ======== =========
Less amount representing interest 38,651
---------
Present value of net minimum
capital lease payments 281,389
Less current installments
of obligations under
capital leases 163,148
=========
$ 118,241
=========
Total rent expense under operating leases from continuing operations was
$611,135 in 1997, $1,174,000 in 1996, and $1,047,000 in 1995, including
rent expense of $332,225 in 1997, $324,000 in 1996, and $364,000 in 1995
under the lease with a company controlled by an officer and director of
the Company.
(13) Related Party Transactions
(a) Receivables from related parties consist of the following:
1997 1996
-------- ---------
8.5% note with a stockholder and employee
of the Company, interest payable annually,
principal due upon termination of employment,
secured by 10,000 shares of CTI stock $52,440 $49,315
Noninterest bearing advances to a stockholder
of the Company, repaid in August 1996 - 44,386
-------- ---------
$52,440 $93,701
======== =========
D-38
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(13) Related Party Transactions (continued)
(b) Payables to related parties
At June 30, 1996, payables to related parties principally consist of
amounts remaining to be paid on the acquisitions of Versyss Data
Systems ($540,384), Benchmark of Virginia ($424,014), Source
Computing ($175,000), and Workgroup Designs ($28,000). All of these
amounts were paid during the fiscal year ending to June 30, 1997.
(c) Relocation agreement
In conjunction with the acquisition of VDS, the Company entered into
a relocation agreement with a then current officer, director and
stockholder under which the Company 1) agreed to advance $6,000 per
month to be repaid on September 30, 1997, 2) agreed to pay additional
compensation of $100,000 and, 3) agreed to issue him options to
purchase 200,000 shares of common stock at an exercise price of $2.50
per share. During the fiscal year ending June 30, 1997, the Company
entered into a termination agreement, which amended the relocation
agreement. Under the terms of the termination agreement, the Company
is to 1) pay the former officer $300,000 in monthly installments of
$12,500 per month beginning in January of 1997 as severance pay and
compensation for a noncompetition agreement, 2) forgive debts owed to
the Company of approximately $140,000, and 3) pay the former officer
$12,000 for moving expenses. In return the former officer, 1)
returned 25,000 shares of CTI stock, 2) returned the option to
purchase 200,000 shares of CTI for $2.50 per share, 3) returned an
option to purchase 100,000 shares of CTI stock for $1.80, and 4)
agreed to waive all rights related to the relocation agreement.
(14) Commitments and Contingent Liabilities
(a) Employment contracts
The Company has employment agreements with certain of its management
personnel. These agreements generally continue until terminated by
the employee or by the Company, and generally provide for salary
continuation for a limited period of time after termination. In the
case of three executives, their employment agreements provide
remaining employment terms of three to eight years, although the
Company may terminate the agreements for payments ranging from
$200,000 to $500,000. Additionally, in the event of termination of
one employment agreement, the Company would be required to 1) cause
all loans guaranteed by the employee to be repaid or to obtain
releases of the guarantees (note 5), and 2) to redeem 500,000 shares
of common stock held by the employee at the bid price of the stock.
As of June 30, 1996, the Company has agreed to the termination of two
of the executives. Related severance compensation of $200,000 for one
executive is accrued in loss on disposal of discontinued operations
(notes 4 and 13) and $500,000 has been recorded as a nonrecurring
charge for the other executive (note 16). During 1997, the Company
paid $575,000 of the severance compensation, leaving a balance of
$150,000 which is recorded in the net liabilities of discounted
operations at June 30, 1997.
D-39
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(14) Commitments and Contingent Liabilities (continued)
(b) Legal matters
The Company is involved in certain legal matters in the ordinary
course of business. In the opinion of management and legal counsel,
such matters will not have a material effect on the financial
position or results of operations of the Company.
(15) Supplemental Cash Flow Information
The Company has completed several business acquisitions during the years
ended June 30, 1996 and 1995. For all acquisitions described in note 3
accounted for using the purchase method, a summary of the purchase prices
paid, fair value of assets acquired, and liabilities assumed related to
all acquisitions is as follows:
1996 1995
---------- -----------
Fair value of assets acquired $ 2,988,610 15,051,322
Less cash acquired (133,293) (633,081)
Liabilities assumed and minority interest (1,470,494) (10,370,022)
Issuance of common and preferred stock (1,336,589) (3,968,853)
========== ===========
Cash paid for business acquisitions,
including acquisition costs, less cash $ 48,234 79,366
acquired
========== ===========
1997 1996 1995
---------- ----------- -----------
Cash paid during the year for:
Interest $ 276,900 419,410 348,663
Income taxes 7,424 70,450 -
The Company entered into additional noncash financing activities from
obligations under capital lease in the amount of $112,252 and $214,425
during the years ended June 30, 1997 and 1996, respectively.
D-40
CUSA TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
(16) Nonrecurring Charges
As a result of operating losses incurred during the fiscal year ending June
30, 1996, the Company completed an evaluation of impairment of its software
development and acquisition costs, and the excess of purchase price over
fair value of net tangible and identifiable intangible assets acquired in
business combinations. In this evaluation, the carrying value of these
assets were compared to the specific future estimated discounted cash flows
net of expenses to which these assets relate. Based on this analysis, the
following nonrecurring charges, principally related to the credit union
segment, have been provided in the accompanying consolidated statement of
operations for the year ended June 30, 1996:
Impairment of excess of purchase price over fair
value of assets acquired $5,447,810
Impairment of software development and acquisition
costs 846,533
----------
$6,294,343
==========
Prior to June 30, 1996, the Board of Directors committed the Company to
terminate the employment contract of an employee/director (note 14(a)). The
Company has agreed to pay the required severance and salary of the employee
until the planned severance date. At June 30, 1996, the Company has accrued
$611,000 as a nonrecurring charge, representing the severance, one half of
his annual salary, plus related payroll taxes and benefits. The accrued
expenses were paid in the fiscal year ended June 30, 1997.
D-41
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
CUSA Technologies, Inc.:
Under date of October 9, 1997, we reported on the consolidated balance sheets of
CUSA Technologies, Inc. (the Company) and subsidiaries as of June 30, 1997 and
1996, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for the years then ended. In connection with our audits
of the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule. The financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Salt Lake City, Utah
October 9, 1997
D-42
Schedule II
CUSA TECHNOLOGIES, INC.
Valuation and Qualifying Accounts(1)
Year ended June 30, 1997
----------------------------------------------------------------------------
Additions
Balance at charged to Charges Balance at
beginning cost and against end of
of year expenses allowance year
---------- ---------- --------- ----------
Allowance for doubtful accounts receivables $495,000 (274,000) - 221,000
========== ========== ========= ==========
Accumulated amortization of software
development and acquisition costs $411,142 408,132 - 819,274
========== ========= ========= ==========
Year ended June 30, 1996
----------------------------------------------------------------------------
Additions
Balance at charged to Charges Balance at
beginning cost and against end of
of year expenses allowance year
---------- ---------- --------- ----------
Allowance for doubtful accounts receivables $ 83,894 451,249 40,143 495,000
========== ========== ========= ==========
Accumulated amortization of software
development and acquisition costs $367,429 684,232 640,519 411,142
========== ========= ========= ==========
Accumulated amortization of excess purchase
price over fair value of net tangible and
identifiable intangible assets acquired(2) $364,146 360,209 724,355 -
========== ========= ========= ==========
(1) Disclosures included in this Schedule II relate to assets and operations of
continuing operations as described in the footnotes to the financial
statements.
(2) As discussed in note 16 to the financial statements, the Company wrote off
excess of purchase price over fair value of net tangible and identifiable
intangible assets acquired and certain software development and acquisition
costs.
(3) Disclosures are presented for the years ended June 30, 1997 and 1996. For
the year ended June 30, 1995, the Company reported pursuant to Regulation
SB and was not required to include Schedule II in its filings.
D-43
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In general, the Wisconsin Business Corporation Law provides that a
corporation shall indemnify directors and officers for all reasonable expenses
incurred in connection with the successful defense of actions arising in
connection with their service as directors and officers of the corporation. In
other cases, the Wisconsin statute provides that the corporation shall indemnify
a director or officer against liability unless the director or officer breached
or failed to perform a duty owed to the corporation and such breach or failure
meets certain specified criteria constituting, in general, some act of
misconduct. In addition, the corporation may reimburse a director or officer
for his expenses in defending against actions as they are incurred upon the
director's or officer's written request accompanied by a written affirmation of
his good faith belief that he has not breached or failed to perform his duties
to the corporation and a written undertaking to repay amounts advanced if it is
ultimately determined that indemnification is not required under the Wisconsin
Business Corporation Law. A court of law may order that the corporation
provide indemnification to a director or officer if it finds that the director
or officer is entitled thereto under the applicable statutory provision or is
fairly and reasonably entitled thereto in view of all the relevant
circumstances, whether or not such indemnification is required under the
applicable statutory provision.
The Wisconsin Business Corporation Law specifies various procedures
pursuant to which a director or officer may establish his right to
indemnification.
Provided that it is not determined by or on behalf of the corporation that
the director or officer breached or failed to perform a duty owed to the
corporation and such breach or failure meets certain specified criteria
constituting, in general, some act of misconduct, its articles of incorporation
or bylaws, by written agreement, by resolution of its board of directors or by a
vote of the holders of a majority of its outstanding shares.
The Registrant's Bylaws provide for indemnification and advancement of
expenses of directors and officers to the fullest extent provided by the
Wisconsin Business Corporation Law. This provision is not exclusive of any
other rights to indemnification or the advancement of expenses to which a
director or officer may be entitled to under any written agreement, resolution
of directors, vote of stockholders, by law or otherwise.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit Description
- ------- -----------
2. Agreement and Plan of Merger dated as of November 4, 1997 among Fiserv,
Inc, Fiserv Solutions, Inc. and CUSA Technologies, Inc. (Attached as
Appendix A to the Proxy Statement/Prospectus included in this
Registration Statement.)(Schedules to such agreement are not being
filed herewith, but will be provided to the Commission upon its
request, pursuant to Item 604(b)(2) of Regulation S-X.)
3.1 Restated Articles of Incorporation (filed as Exhibit 3.1 to Fiserv's
Registration Statement on Form S-4, File No. 333-23349, and
incorporated herein by reference).
3.2 Amended and Restated By-laws (filed as Exhibit 3.2 to Fiserv's
Registration Statement on Form S-4, File No. 333-47199, and
incorporated herein by reference).
4.1 Credit Agreement dated as of May 17, 1995 among Fiserv, Inc., the
Lenders Party Thereto, First Bank National Association, as Co-Agent,
and The Bank of New York, as Agent. (Not being filed herewith, but will
be provided to the Commission upon its request, pursuant to Item 601(b)
(4) (iii) (A) of Regulation S-K.)
4.2 Note Purchase Agreement dated as of March 15, 1991, as amended, among
Fiserv, Inc., Aid Association for Lutherans, Northwestern National Life
Insurance Company, Northern Life Insurance Company and the North
Atlantic Life Insurance Company of America. (Not being filed herewith,
but will be provided to the Commission upon its request, pursuant to
Item 601(b) (4) (iii) (A) of Regulation S-K.)
4.3 Note Purchase Agreement dated as of April 30, 1990, as amended, among
Fiserv, Inc. and Teachers Insurance and Annuity Association of America.
(Not being filed herewith, but will be provided to the Commission upon
its request, pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K.)
4.4 Note Purchase Agreement dated as of May 17, 1995 among Fiserv, Inc.,
Teachers Insurance Annuity Association of America, Massachusetts Mutual
Life Insurance Company and Aid Association for Lutherans. (Not being
filed herewith, but will be provided to the Commission upon its
request, pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K.)
4.5 Rights Agreement between Fiserv and Firstar Trust Co., as Rights Agent,
dated February 23, 1998 (incorporated by reference to Exhibit 1 to
Fiserv's Registration Statement on Form 8-A (0-14948) filed February
24, 1998).
5. Opinion of Charles W. Sprague (previously filed).
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Grant Thornton LLP.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of Charles W. Sprague (included in Exhibit 5 hereto).
24. Powers of Attorney (previously filed).
99. Proxy Card (previously filed).
ITEM 22. UNDERTAKINGS.
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 of 1933;
(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, represented 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;
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, 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 registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provision, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
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 Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration through the date of
responding to the request.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Brookfield, State of Wisconsin, on the 23rd day of March, 1998.
FISERV, INC.
By /s/ Kenneth R. Jensen
----------------------------------------
Kenneth R. Jensen,
Senior Executive Vice
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
* Chairman of the Board March 23, 1998
- ----------------------- and Director (Principal
(George D. Dalton) Executive Officer)
* Vice Chairman, President March 23, 1998
- ----------------------- and Director
(Leslie M. Muma)
* Senior Executive Vice President, March 23, 1998
- ----------------------- Treasurer and Director (Principal
(Kenneth R. Jensen) Financial and Accounting Officer)
* Vice Chairman, President - March 23, 1998
- ----------------------- Information Technology, Inc.
(Donald F. Dillon) and Director
* Director March 23, 1998
- -----------------------
(Gerald J. Levy)
* Director March 23, 1998
- -----------------------
(L. William Seidman)
* Director March 23, 1998
- -----------------------
(Thekla R. Shackelford)
* Director March 23, 1998
- -----------------------
(Roland D. Sullivan)
*By:/s/ Kenneth R. Jensen
-----------------------------
(Kenneth R. Jensen, individually
and as attorney-in-fact for the
persons indicated)
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
2. Agreement and Plan of Merger dated as of November 4, 1997 and amended as
of December 31, 1997, February 27, 1998 and March 19, 1998 among Fiserv,
Inc., Fiserv Solutions, Inc. and CUSA Technologies, Inc. (Attached as
Appendix A to the Proxy Statement/Prospectus included in this
Registration Statement.)(Schedules to such agreement are not being filed
herewith, but will be provided to the Commission upon its request,
pursuant to Item 604(b)(2) of Regulation S-X).
3.1 Restated Articles of Incorporation (filed as Exhibit 3.1 to Fiserv's
Registration Statement on Form S-4, File No. 333-23349, and incorporated
herein by reference).
3.2 Amended and Restated By-laws (filed as Exhibit 3.2 to Fiserv's
Registration Statement on Form S-4, File No. 333-47199, and incorporated
herein by reference).
4.1 Credit Agreement dated as of May 17, 1995 among Fiserv, Inc., the
Lenders Party Thereto, First Bank National Association, as Co-Agent, and
The Bank of New York, as Agent. (Not being filed herewith, but will be
provided to the Commission upon its request, pursuant to Item 601(b) (4)
(iii) (A) of Regulation S-K).
4.2 Note Purchase Agreement dated as of March 15, 1991, as amended, among
Fiserv, Inc., Aid Association for Lutherans, Northwestern National Life
Insurance Company, Northern Life Insurance Company and the North
Atlantic Life Insurance Company of America. (Not being filed herewith,
but will be provided to the Commission upon its request, pursuant to
Item 601(b) (4) (iii) (A) of Regulation S-K).
4.3 Note Purchase Agreement dated as of April 30, 1990, as amended, among
Fiserv, Inc. and Teachers Insurance and Annuity Association of America.
(Not being filed herewith, but will be provided to the Commission upon
its request, pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K).
4.4 Note Purchase Agreement dated as of May 17, 1995 among Fiserv, Inc.,
Teachers Insurance Annuity Association of America, Massachusetts Mutual
Life Insurance Company and Aid Association for Lutherans. (Not being
filed herewith, but will be provided to the Commission upon its request,
pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K).
4.5 Rights Agreement between Fiserv and Firstar Trust Co., as Rights Agent,
dated February 23, 1998 (incorporated by reference to Exhibit 1 to
Fiserv's Registration Statement on Form 8-A (0-14948) filed February 24,
1998).
5.1 Opinion of Charles W. Sprague (previously filed).
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Grant Thornton LLP.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Consent of Charles W. Sprague (included in Exhibit 5 hereto).
24. Powers of Attorney (previously filed).
99. Proxy Card (previously filed).