JACK HENRY & ASSOCIATES, INC.
663 Highway 60, P. O. Box 807
Monett, Missouri 65708
NOTICE OF 1996 ANNUAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS OF JACK HENRY & ASSOCIATES, INC.:
PLEASE TAKE NOTICE that the 1996 Annual Meeting of the Stockholders of Jack
Henry & Associates, Inc., a Delaware corporation, will be held at the Monett
City Park Casino, Monett, Missouri, on Tuesday, October 29, 1996, 11:00 a.m.,
local time, for the following purposes:
(1) To elect seven (7) directors to serve until the 1997 Annual Meeting of
Stockholders;
(2) To approve the adoption of the 1996 Stock Option Plan;
(3) To amend the Certificate of Incorporation to require two-thirds
stockholder vote for stockholder amendment of By-Laws;
(4) To amend the Certificate of Incorporation to prohibit stockholder
action by written consent;
(5) To amend the Certificate of Incorporation regarding consideration of
relevant factors in certain business combinations; and
(6) To transact such other business as may properly come before the Annual
Meeting and any adjournments thereof.
The close of business on September 24, 1996, has been fixed as the record date
for the Annual Meeting. Only stockholders of record as of that date will be
entitled to notice of and to vote at said meeting and any adjournment or
postponement thereof.
The accompanying form of Proxy is solicited by the Board of Directors of the
Company. Reference is made to the attached Proxy Statement for further informa-
tion with respect to the business to be transacted at the Meeting.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
EXPECT TO ATTEND, PLEASE DATE AND SIGN THE ENCLOSED PROXY. IF YOU DECIDE TO
ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
By Order of the Board of Directors
Janet E. Gray
Secretary
Monett, Missouri
September 20, 1996
JACK HENRY & ASSOCIATES, INC.
663 Highway 60
P.O. Box 807
Monett, Missouri 65708
PROXY STATEMENT
FOR THE 1996 ANNUAL MEETING OF STOCKHOLDERS
To Be Held Tuesday, October 29, 1996
This Proxy Statement and the enclosed proxy card (the Proxy) are furnished to
the stockholders of Jack Henry & Associates, Inc., a Delaware corporation (the
Company), in connection with the solicitation of Proxies by the Companys Board
of Directors for use at the Companys 1996 Annual Meeting of Stockholders, and
any adjournment or postponement thereof (the Annual Meeting), to be held at the
Monett City Park Casino, Monett, Missouri, at 11:00 a.m., local time, on
Tuesday, October 29, 1996. The mailing of this Proxy Statement, the Proxy, the
Notice of Annual Meeting and the accompanying 1996 Annual Report to Stockholders
is expected to commence on or about September 24, 1996.
The Board of Directors does not intend to bring any matters before the Annual
Meeting except those indicated in the Notice and does not know of any matter
which anyone else proposes to present for action at the Annual Meeting. If any
other matters properly come before the Annual Meeting, however, the persons
named in the accompanying form of Proxy, or their duly constituted substitutes,
acting at the Meeting, will be deemed authorized to vote or otherwise to act
thereon in accordance with their judgment on such matters.
If the enclosed Proxy is properly executed and returned prior to voting at the
Annual Meeting of the Stockholders, the shares represented thereby will be voted
in accordance with the instructions marked thereon. All of the proposals,
including the election of directors, will require the affirmative vote of a
majority of the shares of common stock voting in person or by Proxy at the
Annual Meeting.
Any stockholder executing a Proxy retains the power to revoke it at any time
prior to the voting of the Proxy. It may be revoked by a stockholder personally
appearing at the Annual Meeting and casting a contrary vote, by filing an
instrument of revocation with the Secretary of the Company, or by the
presentation at the Annual Meeting of a duly executed later dated Proxy.
VOTING
At the 1996 Annual Meeting, Stockholders will consider and vote upon:
(1) The election of seven (7) directors;
(2) Approval of the adoption of the 1996 Stock Option Plan;
(3) Amendment of the Certificate of Incorporation to require a two-thirds
stockholder vote for stockholder proposed amendment of the By-Laws;
(4) Amendment of the Certificate of Incorporation to prohibit stockholder
action by written consent;
(5) Amendment of the Certificate of Incorporation regarding consideration of
relevant factors in certain business combinations; and
(6) Such other matters as may properly come before the Annual Meeting.
Only stockholders of record at the close of business on September 24, 1996, the
record date for the 1996 Annual Meeting, are entitled to notice of and to vote
at such meeting. Stockholders are entitled to one vote for each share of Common
Stock on each matter to be considered at the Annual Meeting.
The Companys authorized capital stock currently consists of 30,000,000 shares of
common stock, par value $.01 per share (the Common Stock), and 500,000 shares of
preferred stock, par value $1.00 per share (the Preferred Stock). As of August
19, 1996, there were 11,868,571 shares of Common Stock outstanding and no shares
of Preferred Stock outstanding. At such date, the Companys executive officers
and directors were entitled to vote, or to direct the voting of 5,241,345 shares
of Common Stock, representing 41.46% of the shares entitled to vote at the 1996
Annual Meeting. Unless otherwise specified, all share numbers and other share
data have been adjusted to reflect 3 for 2 stock splits in March 1992 and again
in March 1993 and the 4 for 3 stock split in March 1994, each effected as stock
dividends.
All shares represented by Proxy and all Proxies solicited hereunder will be
voted in accordance with the specifications made by the stockholders executing
such Proxies. If a stockholder does not specify how a Proxy is to be voted, the
shares represented thereby will be voted: (1) FOR the election as directors of
the seven (7) persons nominated by management; (2) FOR approval of the adoption
of the 1996 Stock Option Plan; (3) FOR amendment of the Certificate of
Incorporation to require a two-thirds stockholder vote for stockholder-proposed
amendment of the By-Laws; (4) FOR amendment of the Certificate of Incorporation
to prohibit stockholder action by written consent; (5) FOR amendment of the
Certificate of Incorporation regarding consideration of relevant factors in
certain business combinations; and (6) FOR and in accordance with the discretion
of the persons to whom the Proxy is granted upon other matters that may properly
come before the Annual Meeting.
STOCK OWNERSHIP OF CERTAIN STOCKHOLDERS
The following table sets forth information as of August 19, 1996, concerning the
equity ownership of those individuals who are known to be the beneficial owners,
as defined in Rule 13d-3 of the Securities Exchange Act of 1934, of 5% or more
of the Companys Common Stock, and by all of the Companys directors and executive
officers as a group:
Number of Percentage
Shares of Shares
Name and Address of Beneficially Outstanding
Title of Class Beneficial Owner Owned (1)
(1)
$.01 par value John W. Henry, 3,298,866 26.09%
Common Stock Michael E. Henry, (2)
Vicki Jo Henry
and JKHY Partners
663 Highway 60
Monett, MO
Jerry D. Hall 1,340,686 10.60%
663 Highway 60 (3)
Monett, MO
Eddina F. Henry 950,000 7.51%
411 Lincoln Road South (4)
Monett, MO
All directors and executive 5,241,345 41.46%
officers as a group (9 persons) (5)
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
except as noted below. With respect to shares held in the Companys 401(k)
Employee Stock Ownership Plan (the 401(k) ESOP), a participant has the right to
direct the voting and disposition of shares allocated to his account.
(2) Reflects information in a Schedule 13D, as amended, filed jointly by
members of the Henry family reporting for JKHY Partners (the Partnership), a
family partnership of which the listed individuals are partners. John W. Henry
separately may be deemed to beneficially own 894,114 shares, including 687,083
shares held individually, 27,031 shares allocated to his 401(k) ESOP account,
and 180,000 shares currently acquirable by exercise of outstanding stock
options. Michael E. Henry separately may be deemed to beneficially own 2,404,752
shares, including 24,806 shares held individually, 9,946 shares allocated to his
401(k) ESOP account, 170,000 shares currently acquirable by exercise of
outstanding stock options, 1,250,000 shares held by the Partnership and 950,000
shares held in a living trust established by his mother, Eddina F. Henry.
Michael E. Henry may be deemed to share beneficial ownership in the shares held
by the Partnership and by the Eddina F. Henry Trust because he has been granted
proxies to vote such shares. Vicki Jo Henry does not beneficially own any shares
of common stock in her individual capacity and her business address is 6851
South Holly Circle, Suite 270, Englewood, Colorado, 80112. The business address
of John W. Henry, Michael E. Henry and the Partnership is reflected in the
table.
(3) Includes 31,133 shares held in the Companys 401(k) ESOP for Mr. Halls
account and 180,000 shares currently acquirable by exercise of outstanding stock
options.
(4) Reflects information in a Schedule 13D filed by Eddina F. Henry to report
shares held in a revocable trust for her benefit. As described above in Footnote
(2), beneficial ownership of these shares is shared with Michael E. Henry.
(5) Includes 579,999 shares which are or will be acquirable within 60 days
under outstanding stock options, and 100,478 shares held in the Companys 401(k)
ESOP for the accounts of all officers and directors as a group.
PROPOSAL 1
ELECTION OF DIRECTORS
Procedure
At the meeting, the stockholders will elect seven (7) directors to hold office
for one-year terms ending at the Companys 1997 Annual Meeting of Stockholders or
until their successors are elected and qualified. The number of seats on the
Companys Board of Directors has previously been fixed at eight (8), but the
recent unexpected death of director William Caraway left one seat open. The
Companys Board of Directors has amended the By-Laws to reduce the size of the
Board to seven (7) directors and has nominated the Companys remaining seven (7)
current directors for reelection at the Annual Meeting.
The stockholders are entitled to one vote per share on each matter submitted to
vote at any meeting of the Stockholders. Unless contrary instructions are given,
the persons named in the enclosed Proxy or their substitutes will vote FOR the
election of the nominees named below.
The Board of Directors believes that all of the nominees are willing to serve as
directors. However, if any nominee at the time of election is unable to serve
or is otherwise unavailable for election, and as a result other nominees are
designated by the Board of Directors, the persons named in the enclosed Proxy or
their substitutes intend to vote for the election of such designated nominees.
Nominees For Election
The directors and nominees for election as directors of the Company, as well as
certain information about them, are as follows:
Number of Percentage of
Position with Shares Benefi- Shares Outstanding
Name Company Director Since cially Owned (1) (1)
Michael E. Henry Chairman, Chief 1986 2,404,752 19.02%
Executive Officer (2)
and Director
Michael R. Wallace President, Chief 1991 222,247 1.76%
Operating Officer (3)
and Director
John W. Henry Vice Chairman, Se- 1977 894,114 7.07%
nior Vice Presi- (2)
dent and Director
Jerry D. Hall Executive Vice 1977 1,340,686 10.60%
President and (4)
Director
James J. Ellis Director 1985 76,863 *
(5)
Burton O. George Director 1987 44,199 *
(5)
George R. Curry Director 1989 100,540 *
(6)
_____________________
* Less than 1%
(1) Information is set forth as of August 19, 1996. The persons named in the
table have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them, except as noted below. With respect
to shares held in the Companys 401(k) Employee Stock Ownership Plan (the 401(k)
ESOP), a participant has the right to direct the voting and disposition of
shares allocated to his account.
(2) See Stock Ownership of Certain Stockholders - Footnote (2), above. The
number of shares beneficially owned by John W. Henry and Michael E. Henry are
separately listed in the table.
(3) Includes 175,000 shares currently acquirable by exercise of an outstanding
option and 13,955 shares held in the Companys 401(k) ESOP for Mr. Wallaces
account.
(4) See Stock Ownership of Certain Stockholders - Footnote (3), above.
(5) Includes 11,666 shares that are currently acquirable and 3,333 that are
acquirable beginning October 27, 1996, by exercise of outstanding options.
(6) Includes 85,541 shares held as trustee for self, shares held as trustee for
family members, shares held in trust with spouse as co-trustee for her benefit,
and 11,666 shares that are currently acquirable and 3,333 shares that are
acquirable beginning October 27, 1996, by exercise of outstanding options.
The following information relating to the Companys directors and nominees for
director, all of whom are United States citizens, is with respect to their
principal occupations and positions during the past five years:
Michael E. Henry, age 35, Chairman of the Board, Chief Executive Officer and
Director. Mr. Henry, the son of John W. Henry and a director of the Company
since 1986, has served as the Companys Chairman of the Board and Chief Executive
Officer since October, 1994. He previously served as Vice Chairman and Senior
Vice President since 1993. Previous to that he served as Manager of Research and
Development since 1983. He joined the Company in 1979.
Michael R. Wallace, age 34, President, Chief Operating Officer and Director. Mr.
Wallace, a director of the Company since 1991, has served as President since
1993 and as the Chief Operating Officer since October, 1994. He previously
served as Manager of Installation Services since 1986. He joined the Company in
1981.
John W. Henry, age 61, Vice Chairman, Senior Vice President and Director. Mr.
Henry, a founder and principal stockholder of the Company, has served as Vice
Chairman since October, 1994. He previously served as Chairman of the Board from
1977 through 1994. He also has been a director since the Companys inception in
1977. He previously served as Chief Executive Officer from 1977 through 1988 and
as President until 1989.
Jerry D. Hall, age 53, Executive Vice President and Director. Mr. Hall, a
principal stockholder of the Company, has served as Executive Vice President
since October, 1994. He previously served as Chief Executive Officer from 1990
through 1994. He also has been a director since the Companys inception in 1977.
He previously served as President from 1989 through 1993 and as Vice President-
Operations from 1977 through 1988.
James J. Ellis, age 62, Director. Mr. Ellis, a director of the Company since
1985, has been Managing Partner of Ellis/Rosier Financial Services since 1992.
Mr. Ellis served as general manager of MONY Financial Services, Dallas, Texas,
from 1979 until his retirement in 1992. Mr. Ellis also serves as a director of
Merit Medical Systems, Inc.
Burton O. George, age 69, Director. Mr. George, a director of the Company since
1987, is retired. He previously had been in the banking business since 1958, and
most recently served as Chairman of the Board and Chief Executive Officer of
First National Bank of Berryville, Berryville, Arkansas from 1985 through 1989.
George R. Curry, age 71, Director. Mr. Curry, a director of the Company since
1989, is Chairman of Central Bank, Lebanon, Missouri, with which he has been
affiliated since 1949, as well as President of Central Shares, Inc., a bank
holding company.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Companys Board of Directors held four (4) meetings during the last fiscal
year. The Company maintains an Audit Committee and a Compensation Committee of
which Messrs. Curry, George and Ellis are members. The Company does not maintain
a standing Nominating Committee. The functions of the Audit Committee are to
provide direct communication between the Board of Directors and the Companys
auditors and to recommend the selection of the Companys auditors to the Board of
Directors. The functions of the Compensation Committee are to recommend salaries
for executives and key employees to the Board of Directors for approval and to
review and make recommendations to the Board of Directors on compensation plans
for the other employees. The Compensation Committee also administers the
Companys 1987 Stock Option Plan. The Audit Committee met once and the
Compensation Committee met twice during the last fiscal year and each director
attended at least 75% of the total of all meetings of the Board of Directors and
all committees on which they served.
Directors Compensation
The Companys directors who are employed by the Company do not receive any
separate compensation for service on the Board of Directors. The Companys
directors who are not otherwise employed by the Company no longer receive cash
compensation for attendance at meetings of the Board of Directors that they
attend, but are reimbursed for out-of-pocket expenses incurred in attending such
meetings. With the adoption of the 1995 Non-Qualified Stock Option Plan last
year, the non-employee directors of the Company are now compensated for their
service by the annual grant of non-statutory stock options to purchase 5,000
shares of common stock of the Company, subject to an overall grant limitation
under the plan of 50,000 shares to any individual director.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The executive officers and significant employees of the Company, as well as
certain biographical information about them, are as follows:
Offic
er/Si
gnifi
cant
Name Position with Company Employee Since
Michael E. Henry Chairman of the Board and 1983
Chief Executive Officer
Michael R. Wallace President and 1991
Chief Operating Officer
John W. Henry Vice Chairman and Senior 1977
Vice President
Jerry D. Hall Executive Vice President 1977
Terry W. Thompson Vice President, 1990
Chief Financial Officer
and Treasurer
Marguerite P. Butterworth Vice President 1993
The following information relating to the Companys executive officers and
significant employees, all of whom are United States citizens, not already
described herein, is with respect to their principal occupations and positions
during the past five years:
Terry W. Thompson, Age 46, Vice President, Chief Financial Officer and
Treasurer. Mr. Thompson has served as
Vice President, Chief Financial Officer and Treasurer of the Company since 1990.
Marguerite P. Butterworth, Age 48, Vice President. Ms. Butterworth has served as
Vice President since February of 1993.
Ms. Butterworth joined the Company in 1983 and has been Hardware Manager since
1984.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company is required to identify any director or officer who failed to timely
file with the Securities and Exchange Commission a report required under Section
16(a) of the Securities Exchange Act of 1934 relating to ownership and changes
in ownership of the Companys common stock. The required reports consist of
initial statements on Form 3, statements of changes on Form 4 and annual
statements on Form 5. During the fiscal year ended June 30, 1996, there were no
delinquent filings by any director or officer.
EXECUTIVE COMPENSATION
The following table sets forth certain information with regard to the
compensation paid by the Company to the Chief Executive Officer and to the
Company's other four most highly compensated executive officers for the year
ended June 30, 1996.
SUMMARY COMPENSATION TABLE
Name and Prin- Year Salary Bonus Oth- Long-Term All Other Com-
cipal Position $ $ er Compensa- pensation
An- tion Shares
nual underlying
Com- Options (2)
pen-
sa-
tion
($)
(1)
Michael E. 1996 $175,000 $ 700 - 100,000 -
Henry 1995 $133,333 $37,500 - 40,000 -
Chairman and 1994 $100,000 $ 700 - - -
Chief Executive
Officer
Michael R. 1996 $175,000 $ 700 - 100,000 -
Wallace 1995 $150,000 $ - - 40,000 -
President and 1994 $120,833 $ 700 - - -
Chief operating
Officer
John W. Henry 1996 $152,400 $ 700 - - -
Vice Chairman 1995 $152,400 $ 700 - - -
and Senior Vice 1994 $181,567 $ 700 - - -
President
Jerry D. Hall 1996 $152,400 $ 700 - - -
Executive Vice 1995 $160,733 $ 700 - - $2,991 (3)
President 1994 $202,400 $ 700 - - $2,766 (3)
William W. 1996 $102,400 $136,842(4) - - -
Caraway 1995 $101,600 $142,732(4) - - -
Senior Vice 1994 $100,000 $ 70,110(4) - - -
President
(1) For each listed officer, less than amount required to be reported.
(2) Adjusted for subsequent splits.
(3) Premium on key man split-dollar insurance.
(4) Primarily comprised of commissions earned.
The following tables set forth information with respect to stock options granted
to and exercised by the executive officers named in the Summary Compensation
Table during the fiscal year ended June 30, 1994, together with the number of
options outstanding as of such date. All data has been adjusted for the 4 for 3
stock split in fiscal year 1994 and for the 3 for 2 stock splits effected in
fiscal years 1993 and 1992.
Option Grants in Last Fiscal Year
Number of Percent of Potential
Shares Total Op- Realizable
underlying tions Value at As-
Options Granted to sumed Annual
Name Granted (#) Employees Rates of Stock
in Fiscal Exercise or price Appre-
Year base Price ciation for
($/Sh) Expiration Option Term
Date (1)
5% ($) 10% ($)
Michael E. 100,000 23% $18.875 9/18/05 $1,187,500 $2,375,000
Henry
Michael R. 100,000 23% $18.875 9/18/05 $1,187,500 $2,375,000
Wallace
_____________________________
(1) The amounts in these columns are required to be disclosed by the SEC at
rates set by regulation and are not intended to forecast possible future
appreciation of Company stock or amounts that may ultimately be realized upon
exercise. The Company chose not to use an alternative formula for grant date
valuation.
Aggregated Option Exercises in Last Fiscal Year and June 30, 1995, Option Values
Shares Number of Shares Value of
Acquired Underlying Unexercised Unexercised In-the-Money
on Value Options at 6/30/95 Options at 6/30/95
Name Exercise Realized ($) Exercisable Unexercisable Exercisable Unexercisable
Jerry D. Hall -- -- 180,000 -- $5,080,500 --
John W. Henry -- -- 180,000 -- $5,080,500 --
Michael E. Henry 20,000 $469,996 170,000 -- $3,335,000 --
Michael R. Wallace 15,000 $352,496 175,000 -- $3,478,750 --
William W. Caraway 12,000 $74,840 - -- - --
COMPENSATION COMMITTEE REPORT
The Companys executive officer compensation program is administered and reviewed
by the Compensation Committee. The Compensation Committee consists of three
independent, non-employee Directors of the Company. There was no insider
participation on the Compensation Committee.
The objectives of the Companys executive officer compensation program are to:
Encourage continuation of JHAs entrepreneurial spirit
Attract and retain highly qualified and motivated executives
Encourage esprit de corps and reward outstanding performance
In meeting the foregoing objectives, the Compensation Committee strives for the
interests of management and shareholders to be the same - the maximization of
shareholder values. The components of the executive compensation program which
are employed by the Committee to meet these goals include base salary,
discretionary bonuses, and stock options.
Salaries are established at levels to compensate for the position held and
contributions made by each executive. Recommendations regarding increases in
salary are based upon subjective evaluation of each individuals performance and
contribution.
The management team was included with all employees in the discretionary
Christmas bonus. A longer term incentive is provided by the award of stock
options because the ultimate value of options granted will be determined by
long-term growth in the Company stock price. Awards of options are believed to
help focus executives attention on managing the Company from the perspective of
an owner with an equity stake in the business. This component of executive
compensation is provided through the Companys 1987 Stock Option Plan (the Plan),
under which the executive officers, and all other employees of the Company and
its subsidiaries, are eligible to receive options. The Committee has discretion
to designate optionees and to determine the terms of the options granted,
however option prices shall be fixed and not less than 100% of fair market value
of the stock at the date of grant, and options may not be exercisable more than
ten years after the date of grant. Stock options were granted to the management
team for the same reasons noted above regarding discretionary bonuses.
In employing the foregoing three elements of compensation, the Compensation
Committee considers the experience, prior compensation levels, personal
performance, number and value of previously granted options, and other
subjective factors relating to each individual and seeks to optimize the balance
between base salary, short-term and long-term incentives. Compensation is
generally weighted in favor of base salary.
The salary of Chief Executive Officer, Michael E. Henry, was not changed this
year. The Chief Executive Officer received the same Christmas bonus as noted
above for the entire management team. Stock options on 100,000 shares were
granted to Mr. Michael E. Henry this fiscal year due to excellent performance up
to the date of grant.
Recent changes in U.S. income tax law have imposed a $1,000,000 cap on the
deduction which may be taken with respect to any individual officers
compensation. While current cash compensation paid to the Companys executive
officers is substantially less than the cap, the ultimate value of stock options
is not now known, and thus the cap may be important in some future year. The
deduction cap has been considered by the Compensation Committee and we intend to
take the steps necessary to conform the Companys compensation structure to
comply with the cap if the issue arises in a future period.
George R. Curry
Burton O. George
James J. Ellis
Members of the Compensation Committee
COMPANY PERFORMANCE
The following graph presents a comparison for the five-year period ended June
30, 1996 of the market performance of the Company's common stock with the S&P
500 Index and an index of peer companies selected by the Company:
The following information depicts a line graph with the following values:
Description 1992 1993 1994 1995 1996
Jack Henry &
Associates,
Inc. $303.47 $531.39 $ 439.56 $ 820.83 $1,928.24
Peer Group Only $114.55 $179.05 $174.96 $ 254.11 $ 345.24
S & P Only $113.41 $128.87 $130.68 $ 164.75 $ 207.59
*The above comparison assumes $100 was invested on July 1, 1991 and assumes
reinvestment of dividends. Total returns are calculated according to market
capitalization of peer group members at the beginning of each period. Peer
companies selected are in the business of providing specialized computer
software, hardware and related services to financial institutions and other
businesses. Companies in the peer group are Banctec, Bisys Group, Broadway &
Seymour, Cerner Corp., Continuum, Crawford & Co., Electronic Arts, First Data,
Fiserv, Keane, National Data, PC Quote, Primark, Rainbow Technology, SEI Corp.,
Sterling Software and Verifone.
PROPOSAL 2
APPROVAL OF ADOPTION OF
1996 STOCK OPTION PLAN
Introduction
The Board of Directors believes that the Company and its stockholders have
benefitted substantially over the years from the use of stock options as an
effective means to secure, motivate and retain qualified and competent employees
of the Company and its subsidiaries. In 1987, the Company adopted its first
Qualified Stock Option Plan (the 1987 Plan) for employees who are primarily
responsible for the management, growth and financial success of the Company and
its subsidiaries. The 1987 Plan was originally authorized to issue options for
300,000 shares, which amount was increased to 600,000 in 1991, and 1,500,000 in
1992. Options may only be granted under the 1987 Plan until April 20, 1997.
Because of the imminent expiration of the 1987 Stock Option Plan, and believing
that a new plan is both necessary and appropriate for the Company to continue
offering stock incentives in the form of stock options to current and future
employees, the Board of Directors adopted the 1996 Stock Option Plan (the Plan)
on August 27, 1996, subject to approval by the stockholders. If stockholder
approval at the Annual Meeting is obtained, the Plan will become effective on
November 1, 1996.
The Board of Directors recommends that the stockholders vote FOR approval of
adoption of the Plan. Unless otherwise directed therein, the proxies solicited
hereby will be voted for approval of adoption of the Plan.
The principal features of the Plan are summarized below. The Plan is similar to
the existing 1987 Plan in many respects. The summary is qualified in its
entirety by the full text of the Plan, which is set forth as Exhibit A to this
Proxy Statement.
General
The purposes of the Plan are to obtain for the Company the benefits of the
incentive inherent in the ownership of the Companys Common Stock by employees of
the Company and its subsidiaries who are important to the success and the growth
of the business of the Company, to help the Company retain the services of such
persons, and to compensate such persons for their service to the Company (or the
Companys subsidiaries, as the case may be). The number of employees of the
Company and its subsidiaries which are eligible to participate in the Plan is
330.
The aggregate number of shares which may be issued, and as to which stock
options may be granted under the Plan, is 1,500,000 shares of the Companys
Common Stock par value $.01 (Common Stock), subject to proportionate adjustment
by reason of merger, consolidation, reorganization, recapitalization, or
exchange of shares or by stock dividend, stock split, combination of shares, or
other changes in capital structure effected without receipt of consideration. If
any stock option granted under the Plan expires, is surrendered in whole or in
part, or terminates for any reason without being exercised in full, then the
number of shares subject to the stock option will again be available for
purposes of the Plan. The shares of the Companys Common Stock which may be
issued under the Plan may be either authorized but unissued shares or treasury
shares, or both.
An option holder shall have none of the rights of a stockholder with respect to
any shares covered by the option until such individual shall have exercised the
option, paid the option price and been issued a stock certificate for the
purchased shares. Upon exercise of the option, payment of the option price and
issuance of the stock certificate, the option holder shall have all of the
rights of a stockholder with respect to such shares including voting and
dividend rights, subject only to the provisions of this Plan and other
instruments implementing the provisions hereof.
Administration
The Plan is to be administered by the Companys Board of Directors (the Board).
The Board, however, may at any time appoint a committee (the Committee) of two
(2) or more non-employee directors and delegate to such Committee one or more of
the administrative powers allocated to the Board under the provisions of the
Plan, including (without limitation) the power to determine the person or
persons to be granted options under the Plan, the number of shares to be covered
by such options, whether such options are to be incentive stock options
(Incentive Options) under Section 422A of the Internal Revenue Code of 1986, as
amended (the Code) or non-qualified options (Non-qualified Options) not intended
to meet the requirements of Section 422A, and the time or times at which options
are to be exercisable. The Board or the Committee, as the case may be, has the
power to interpret and amend the Plan, subject to further approval by the
stockholders for certain amendments relating to option shares, grants, pricing,
term and eligibility. All questions of interpretation and application of the
Plan, or as to stock options granted under the Plan are subject to the
determination of the Board or the Committee, which will be final and binding.
Eligibility and Grant of Stock Options
The persons who shall be eligible to receive options pursuant to the Plan are
such employees of the Company, and subsidiary corporations of the Company
(Subsidiary Corporation) or any affiliated company of the Company (Affiliated
Company), as defined in the Plan, including employees who are also members of
the Board, as the Board or the Committee shall from time to time select.
The Board or the Committee shall have the full and absolute authority to
determine the number of shares to be covered by granted options, whether options
are to be Incentive Options or Non-qualified Options, as well as the time or
times at which options are to be exercisable and such other terms and conditions
as may be applicable to such options. However, no option granted under the Plan
shall have a term in excess of ten (10) years from the grant date. Provided,
further, that the aggregate fair market value of the Common Stock with respect
to which Incentive Options granted under the Plan are exercisable shall not
exceed $100,000 per grantee or such greater amount as may be permitted by later
amendments to Section 422A of the Code.
The option price per share shall be fixed by the Board or the Committee, but in
no event shall the option price per share be less than one hundred percent
(100%) of the fair market value of a share of Common Stock on the date of the
option grant. The Plan has specific provisions for determining the Fair Market
Value of Common Stock for the purpose of determining the option price. On August
30, 1996, the fair market value of a share of Common Stock, as so computed, was
$29.50.
For the first six (6) months after the date of grant, no option granted under
the Plan shall be transferable by the optionee other than by will or by the laws
of descent and distribution. Thereafter, options may be transferred during the
lifetime of an optionee to any Permitted Transferee, as defined under the Plan.
Permitted Transferees include members of the immediate family of the optionee
and any trust established for the benefit of the optionee or the optionees
immediate family members. Immediate family member means the optionees spouse,
children and grandchildren and any partnership, corporation, limited liability
company or other entity, all the beneficial interest in which are held by the
optionee or immediate family members. Permitted Transferees may only transfer
options to other Permitted Transferees of the optionee. Notwithstanding any of
the foregoing, Incentive Options shall be exercisable only by the optionees and
shall not be assignable or transferrable by the optionee otherwise than by will
or by the laws of decent and distribution.
Adjustment of Shares
If any changes made in the shares subject to the Plan or subject to any option
granted under the Plan (through merger, consolidation, reorganization,
recapitalization, stock dividend, split-up, combination of shares, exchange of
shares, issuance of rights to subscribe, or change in capital structure),
appropriate adjustments or substitutions shall be made by the Board or the
Committee in or for such shares (including adjustments in the maximum number of
shares subject to the Plan and the number of such shares and price per share
subject to the Plan and the number of such shares and price per share subject
outstanding options granted under the Plan) as the Board or the Committee, in
its sole discretion shall deem equitable to prevent dilution or enlargement of
option rights.
Surrender and Termination of Options
In the event of a sale of all or substantially all of the assets of the Company
or fifty percent (50%) or more of the outstanding voting stock of the Company by
means of a sale, merger, reorganization or liquidation, the Board shall have
discretionary authority to authorize the surrender of all unexercised options in
exchange for a cash distribution equal in amount to the difference between (i)
the fair market value of the authorized surrender date of the shares for which
the surrender option or portion thereof is at the time excisable, and (ii) the
aggregate option price payable for such shares.
Further, if, in connection with any such sale, merger, reorganization or
liquidation, a provision is made for each outstanding option to either be
assumed by the successor corporation (or parent thereof) or be replaced with a
comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof), each person holding unexercised options shall
be entitled to have such options assumed by the successor corporation (or parent
thereof) or replaced with a comparable option, as the case may be. The
determination of option comparability will be made by the Board, and its
determination shall be final, binding and conclusive.
Amendment and Termination of the Plan
The Board shall have the exclusive power and authority to amend or modify the
Plan in any or all respects, whatsoever; provided, however, that no such
amendment or modification shall, without the consent of the option holders,
adversely affect rights and obligations with respect to options at the time
outstanding under the Plan; and provided, further, that the Board shall not,
without the approval of the stockholders of the Company, (i) increase the
maximum number of shares issuable under the Plan, except for permissible
adjustments; (ii) materially modify the eligibility requirements for the grant
of options under the Plan; or (iii) make any other changes in the Plan which
require stockholder approval pursuant to Section 422A of the Code.
The Plan, unless sooner terminated, shall terminate at the close of business on
November 1, 2006. The Board shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, the cancellation
of any or all outstanding options under the Plan and to grant in substitution
therefor new options under the Plan covering the same or different numbers of
shares of Common Stock but having an option price per share not less than one
hundred percent (100%) of fair market value on the new grant date.
Federal Income Tax Consequences
The following is a brief summary of the principal Federal income tax
consequences of the grant and exercise of non-statutory and statutory stock
options under present law.
Tax Treatment - Non-Statutory Stock Options
An optionee will not recognize any taxable income for Federal income tax
purposes upon receipt of a non-statutory stock option.
Upon the exercise of a non-statutory stock option with cash, the amount by which
the fair market value of the shares received, determined as of the date of
exercise, exceeds the option price is generally treated as compensation received
in the year of exercise. If the option price is paid in whole or in part with
shares of the Companys Common Stock, no income, gain or loss is recognized on
the receipt of shares equal in value on the date of exercise to the shares
delivered in payment of the option price. The fair market value of the remainder
of the shares received upon exercise, determined as of the date of exercise,
less the amount of cash, if any, paid upon exercise, is generally treated as
compensation received on the date of exercise. Individuals are subject to
special Federal income tax rules upon the exercise of a non-statutory stock
option (i) if the exercise is within six months of the date of grant, or (ii) in
the event the fair market value of the shares acquired is less than the option
price on the date of exercise.
In each instance that an amount is treated as compensation received, the Company
generally is entitled to a corresponding deduction in the same amount for
compensation paid to the optionee in such taxable year was reasonable.
Tax Treatment - Statutory Stock Options
The grant of a statutory stock option pursuant to Section 422A of the Code has
no tax consequences to the optionee. Thus, optionees have no income from the
receipt of statutory stock options, and the Company will have no business
expense deductions from the grant of the statutory stock option.
When the statutory stock option is exercised, no income is attributed to the
optionee to whom stock is transferred. However, to obtain this tax deferred
treatment, the individual must maintain the shares he or she acquires through
the exercise of the statutory stock option for the required holding period. In
short, there must be no disposition of the stock: (i) within two (2) years after
the option is granted, or (ii) within one (1) year after the stock is
transferred to the optionee. These holding period requirements do not apply to
statutory options that are exercised after the employees death. If an individual
fails to hold the stock for the requisite holding period, the tax will be
deferred only until the tax year in which the stock is disposed of, and the gain
will be treated as ordinary income. On the other hand, when the requisite
holding periods are met, an individual will be taxed at capital gains rate when
stock obtained pursuant to the exercise of the statutory stock option is sold.
Vote Required
Under Delaware law, the affirmative vote of the holders of a majority of the
shares of the Companys Common Stock present in person or represented by proxy
and entitled to vote at the annual meeting, a quorum being present, is necessary
for the approval of the adoption of the Plan. The aggregate number of shares for
which a vote FOR, or AGAINST or ABSTAIN is made is counted for the purpose of
determining the minimum number of affirmative votes required for approval, and
the total number of votes cast FOR approval is counted for the purpose of
determining whether sufficient votes are received. An abstention from voting on
a matter by a stockholder present in person or represented by proxy and entitled
to vote has the same legal effect as a vote AGAINST the matter.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE 1996 STOCK
OPTION PLAN. PROXIES RECEIVED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR THE
APPROVAL OF THE ADOPTION OF THE PLAN UNLESS STOCKHOLDERS SPECIFY IN THEIR PROXY
A VOTE OF AGAINST OR ABSTAIN.
Proposal 3
AMEND CERTIFICATE OF INCORPORATION
TO REQUIRE TWO-THIRDS STOCKHOLDER VOTE
FOR STOCKHOLDER AMENDMENT OF BYLAWS
The Board of Directors unanimously recommends that the stockholders approve the
proposed amendment to ARTICLE TENTH of the Certificate of Incorporation, to
specify that the stockholders have the power to adopt, alter, amend or repeal
the bylaws of the Company upon the affirmative vote of the holders of two-thirds
of the Companys stock entitled to vote. It is proposed that this provision be
added to the current ARTICLE TENTH of the Certificate of Incorporation, which
now merely provides that the Board of Directors may make, alter or repeal the
Bylaws of the Company.
The proposed amendment, which amends ARTICLE TENTH in its entirety, is as
follows:
TENTH: The board of directors of the corporation is expressly authorized to
make, alter or repeal the bylaws of the corporation. The bylaws of the
corporation may also be adopted, altered, amended or repealed by the affirmative
vote of the holders of two-thirds of the corporations stock entitled to vote.
The Companys Certificate of Incorporation and, until recently, its Bylaws, have
both been silent with regard to the stockholders power to make, alter and repeal
the Companys Bylaws. Prevailing legal and other authorities, including 109(a) of
the Delaware General Corporation Law, support the notion that the stockholders
retain the right to adopt, amend or repeal Bylaws, whether or not the
certificate of incorporation or bylaws specify such rights, and no particular
voting majority is specified. The Board of Directors believes that it is
important to specify that stockholder votes with respect to bylaws should
require a two-thirds majority. The Bylaws have recently been amended by Board
action to require a two-thirds majority vote of the stockholders to approve any
adoption, amendment or repeal of a bylaw and the proposed amendment to the
Certificate of Incorporation will give full effect to this bylaw change.
The Board of Directors believes that requiring a two-thirds vote of the
stockholders with respect to any bylaw change proposed by the stockholders is
consistent with long-standing provisions in the Certificate of Incorporation and
with the independent philosophy and tradition of the Company. Since its
incorporation, the Certificate of Incorporation has contained Sections 6.1 and
6.2, which require a two-thirds stockholder vote for amendment or repeal of
specific articles and to approve a merger or sale of all or substantially all of
the assets of the business. It is felt that these provisions have been useful,
in conjunction with the significant holdings of the largest stockholders, in
helping to preserve the independence and stability of the Company and its
management. In particular, these supermajority provisions are believed to
encourage persons who might in the future attempt to acquire control of the
Company to initiate such an acquisition through arms-length negotiations with
the Companys Board. It is believed that the Board, with its intimate knowledge
of the Company, will be in the best position to evaluate on behalf of all of the
stockholders any such acquisition proposal which might be received in the
future. The two-thirds vote requirements enable the Board to fully perform this
function, unhampered by the threat of removal or other coercive action which
might be taken by a party who gains the bare majority control of the shares. If
the proposal is not adopted, then some of the protections afforded by the above-
mentioned two-thirds vote requirements for amending the Certificate of
Incorporation and approval of merger and sale transactions could be circumvented
through bylaw amendments adopted by a bare majority of the stockholders. Long-
standing and recently adopted bylaws could be changed to the detriment of the
remaining minority stockholders.
This proposal should be considered in the context of a number of amendments to
the Companys By-Laws which were adopted by the Board of Directors in connection
with the Restatement of the By-Laws effective May 1, 1986. In addition to the
aforementioned requirement of a two-thirds majority vote for stockholder
approval of amendments to the By-Laws, the following amendments were adopted by
the Board:
Special meetings of the stockholders may now only be called by the Chairman of
the Board, the President or the Board as a whole. The previous by-law allowed a
special meeting to also be called by the majority of stockholders.
Provisions pertaining to stockholder action by written consent have been
eliminated. See Proposal 4.
New provisions specify that stockholder meetings shall be presided over by the
Chairman of the Board or the President, and specify the power of the presiding
officer with respect to conduct of the meeting.
New provisions detail procedures and advance notice requirements for stockholder
proposals and nominations.
Vacancies on the Board may now only be filled by a vote of the majority of the
directors.
Directors may now be removed by a two-thirds vote of the stockholders for cause
or by a majority of the Board.
Adoption of the proposed amendment to the Certificate of Incorporation will have
the effect of making it more difficult for the stockholders to change the Bylaws
without the support of the Board of Directors. The amendment may deter certain
acquisitions and future takeover attempts which holders of some or even a bare
majority of the outstanding stock believe to be in their best interest and may
make removal of management more difficult. However, the Board believes that the
benefits of protecting its ability to negotiate with the proponent of a bylaw
change or of an unfriendly or unsolicited proposal to acquire or restructure the
Company outweighs the disadvantages of discouraging such stockholder bylaw
proposals.
It should be noted that this proposal has been made to continue and strengthen
long-standing organizational principles and philosophies of the Company. To
date, the Company has never been confronted with a stockholder proposal for
bylaw change and has not been the subject of any hostile takeover proposals or
threats. The Board of Directors has recently eliminated a provision from the By-
Laws which allowed stockholder action by written consent.
Vote Required
Pursuant to Section 6.1 of the Companys Certificate of Incorporation, a vote of
the holders of two-thirds of the Companys stock entitled to vote is required to
amend the Certificate of Incorporation unless the amendment is recommended to
the stockholders by at least two-thirds of the members of the Companys Board of
Directors, in which case only the vote of a simple majority of the Companys
stock entitled to vote is required. The directors have unanimously recommended
that all of the amendments to the Certificate of Incorporation proposed herein
pursuant to this Proposal 3, and the following Proposals 4 and 5, be approved by
the stockholders. Therefore, the affirmative vote of the holders of a majority
of the shares of the Companys common stock present in person or represented by
proxy and entitled to vote at the Annual Meeting, a quorum being present, is
necessary for the approval of the amendments to the Certificate of Incorporation
set forth in Proposals 3, 4 and 5. The aggregate number of shares for which a
FOR or AGAINST or ABSTAIN is counted for the purpose of determining the minimum
number of affirmative votes required for approval, and the total number of votes
cast FOR approval is counted for the purpose of determining whether sufficient
votes are received. An abstention from voting on a matter by a stockholder
present in person or represented by proxy and entitled to vote has the same
legal effect as a vote AGAINST the matter.
The Board of Directors recommends that you vote For Proposal 3. Proxies received
by the Board of Directors will be voted for approval of the amendment to the
Certificate of Incorporation unless stockholders specify in their proxy a vote
of Against or Abstain.
Proposal 4
AMEND CERTIFICATE OF INCORPORATION TO PROHIBIT
STOCKHOLDER ACTION BY WRITTEN CONSENT
The Board of Directors unanimously recommends that a new ARTICLE SIXTEENTH be
added to the Certificate of Incorporation requiring that stockholder action be
taken only at an annual meeting of the stockholders or at a special meeting of
the stockholders and prohibiting all stockholder action by written consent.
Pursuant to the Delaware General Corporation Law, unless otherwise provided in
the Certificate of Incorporation, any action required or permitted to be taken
by stockholders of the Company may be taken without a meeting and without a
stockholder vote if a written consent setting forth the action is signed by the
holders of shares of outstanding stock having the number of votes that would be
necessary to authorize such action at a meeting of the stockholders. The
Companys Certificate of Incorporation does not currently contain any
restrictions on stockholder voting by written consent.
The proposed amendment, which is a new ARTICLE SIXTEENTH, is as follows:
SIXTEENTH: Any action required or permitted to be taken by the stockholders of
the corporation must be taken at an annual or special meeting of the
stockholders and may not be taken by any consent in writing in lieu of a meeting
of such stockholders.
The prohibition of stockholder action by written consent would give all the
stockholders of the Company the opportunity to participate in proposed
stockholder action and would prevent the holders of a majority of the voting
stock from using the written consent procedure to take stockholder action
without affording all stockholders an opportunity to participate. The Board of
Directors believes in the value of the Companys stockholder meetings and the
communication which is fostered at such gatherings. The Board does not consider
the stockholder written consent procedure to be useful with respect to the
governance of the Company. No vote of the stockholders of the Company has ever
been taken by written consent, and none is threatened at this time.
This amendment will prevent stockholders from attempting to take action outside
of a duly called and held annual or special meeting of the stockholders. A
recent amendment to the Bylaws of the Company adopted by the Board of Directors
has eliminated provisions allowing stockholders to call a special meeting of the
stockholders, thus the proposed amendment may limit stockholder consideration of
stockholder proposals to those which are timely and appropriately put into
consideration at an annual meeting or unless the Chairman, President or a
majority of the Board of Directors agrees to put the matter to a vote at a
special meeting of the stockholders. On balance, the Board of Directors supports
the proposal on the principle that stockholder action should be taken at
meetings open to all stockholders and only after appropriate dialogue and
debate.
The Board of Directors recommends that you vote For approval of Proposal 4.
Proxies received by the Board of Directors will be voted for approval of the
amendment to the Certificate of Incorporation unless stockholders specify in
their proxy a vote of Against or Abstain.
Proposal 5
AMEND CERTIFICATE OF INCORPORATION
REGARDING CONSIDERATION OF RELEVANT
FACTORS IN CERTAIN BUSINESS COMBINATIONS
The Board of Directors unanimously recommends that a new ARTICLE SEVENTEENTH be
added to the Companys Certificate of Incorporation which would explicitly direct
the Board of Directors to take into account all relevant factors in exercising
its business judgment as to what is in the best interests of the Company and its
stockholders in evaluating certain tender officers and business combination
proposals. Neither the relative weight to be given each factor nor the method of
determining how each factor is to be ascertained is specified in the amendment.
These are to be determined by the Board of Directors at the time of the exercise
of its business judgment.
The proposed amendment, which is a new ARTICLE SEVENTEENTH, is as follows:
SEVENTEENTH: The Board of Directors of the corporation, when evaluating any
offer of another party to (i) purchase or exchange any securities or property
for any outstanding equity securities of the corporation, (ii) merge or
consolidate the corporation with another corporation, or (iii) purchase or
otherwise acquire all or substantially all of the properties and assets of the
corporation, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the corporation and its
stockholders, give due consideration to all relevant factors, including without
limitation: (a) not only the price or other consideration being offered in
relation to the then current market price of the corporations outstanding shares
of capital stock, but also the Board of Directors estimate of the future value
of the corporation as an independent going concern and the unrealized value of
its property and assets; (b) the financial and managerial resources and future
prospects of the other party; and (c) the possible social, legal, environmental
and economic effects of the transaction on the business of the corporation and
its subsidiaries and on the employees, customers and creditors of the
corporation and its subsidiaries and the effects on the communities in which the
corporations offices are located. In evaluating any such offer on the basis of
the foregoing factors, the directors shall be deemed to be performing their duly
authorized duties and acting in good faith and in the best interests of the
corporation within the meaning of Section 145 of the General Corporation Law of
Delaware, as it may be amended from time to time.
This proposal, if approved, is intended to give comfort to the Companys
employees, customers and other constituencies that the Board of Directors would
consider their interests in deciding whether to recommend a tender or exchange
offer or to authorize a merger. The Board believes that this would have a
positive impact on the communities in which the Company and its subsidiaries
operate. This proposal also reflects the Boards concern that the value of the
Company at any one time may not be adequately reflected in the market price of
its stock. Therefore, this proposal would explicitly permit the Board of
Directors to compare the consideration to be offered in a proposed acquisition
of the Company with other measures of the Companys worth.
While the value of the consideration offered to the stockholders is a very
important factor when weighing the benefits of an acquisition or business
combination proposal, the Board of Directors believes it is also appropriate to
consider other relevant factors. For example, the proposed amendment directs the
Board to evaluate the consideration being offered in relation to both the then-
current value of the Company in a freely negotiated transaction and in relation
to the Board of Directors estimate of the future value of the Company as an
independent concern. A takeover bid often places the target virtually in the
position of making a forced sale, often at a time when the market price of its
stock may be temporarily depressed. In a friendly, negotiated transaction,
however, management would have the opportunity to seek a suitable partner at a
time of its choosing and to negotiate for the most favorable price and terms
which would reflect not only the current but also the future value of the
Company.
Under present Delaware law, absent a charter provision such as Proposal 5, the
Board of Directors may be limited in its ability to consider any interests other
than the short-term maximization of value to the stockholders. Other states have
enacted corporation laws which allow the directors to consider the interests of
constituencies other than the stockholders, but Delaware has yet to adopt a so-
called constituency statute.
Adoption of Proposal 5 will strengthen the hand of the Board of Directors in
dealing with anyone attempting to take over the Company, but may also discourage
potential purchasers. The Board believes that the advantages of being able to
take the long-term and broad-constituency view will maximize stockholder values
in the long run.
The Board of Directors recommends that you vote For approval of Proposal 5.
Proxies received by the Board of Directors will be voted for approval of the
amendment to the Certificate of Incorporation unless stockholders specify in
their proxy a vote of Against or Abstain.
INDEPENDENT AUDITORS
Baird, Kurtz and Dobson, certified public accountants, served as independent
auditors for the Company for the year ended June 30, 1996. The Company has not
selected its auditors for the current year, because the Company does not select
its auditors until after the final Audit Committee meeting on the prior years
examination is held. Representatives of Baird, Kurtz and Dobson are expected to
be present at the Annual Meeting with the opportunity to make a statement if
they desire to do so and to be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Stockholders who intend to present proposals at the Companys 1997 Annual Meeting
of Stockholders must submit their proposals to the Companys Secretary on or
before June 2, 1997.
COST OF SOLICITATION AND PROXIES
Proxy solicitation is being made by mail, although it may also be made by
telephone, telegraph or in person by officers, directors and employees of the
Company not specifically engaged or compensated for that purpose. The Company
will bear the entire cost of the Annual Meeting, including the cost of
preparing, assembling, printing and mailing the Proxy Statement, the Proxy and
any additional materials furnished to stockholders. Copies of the solicitation
materials will be furnished to brokerage houses, fiduciaries and custodians for
forwarding to the beneficial owners of shares held of record by them and, upon
their request, such persons will be reimbursed for their reasonable expenses
incurred in completing the mailing to such beneficial owners.
FINANCIAL STATEMENTS
Financial statements of the Company are contained in the 1996 Form 10-K which
accompanies this Proxy Statement. Incorporated herein by reference are the
financial statements contained in such Form 10-K.
OTHER MATTERS
The Board of Directors knows of no matters that are expected to be presented for
consideration at the 1996 Annual Meeting which are not described herein.
However, if other matters properly come before the meeting, it is intended that
the persons named in the accompanying Proxy will vote thereon in accordance with
their best judgment.
By Order of the Board of Directors
/s/ Michael E. Henry
Michael E. Henry
Chairman of the Board
Monett, Missouri
September 23, 1996
A copy of the Companys Annual Report on Form 10-K is attached hereto. Exhibits
to Form 10-K, listed on pages and thereof, have been omitted. The Company will
furnish a copy of any exhibit subject to charge upon written request directed to
Terry W. Thompson, Chief Financial Officer, Jack Henry & Associates, Inc., 663
Highway 60, Post Office Box 807, Monett, Missouri, 65708.
Exhibit A
JACK HENRY & ASSOCIATES, INC.
1996 STOCK OPTION PLAN
PURPOSES OF THE PLAN
This 1996 Stock Option Plan (the Plan) is intended to promote the interests of
JACK HENRY & ASSOCIATES, INC. (JHA) by providing a method whereby those
employees of JHA or its subsidiaries who are primarily responsible for the
management, growth and financial success of JHA and its subsidiaries may be
offered incentives and rewards which will encourage them to acquire a
proprietary interest, or otherwise increase their proprietary interest in JHA
and remain in the service and employ of JHA or its subsidiaries.
ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors (the Board) of JHA. The
Board, however, may at any time appoint a committee (Committee) of two (2) or
more non-employee directors and delegate to such Committee one or more of the
administrative powers allocated to the Board under the provisions of the Plan,
including (without limitation) the power to determine the person or persons to
be granted options under the Plan, the number of shares to be covered by such
options, whether such options are to be incentive stock options (Incentive
Option) under Section 422A of the Internal Revenue Code of 1986, as amended (the
Code) or non-qualified options not intended to meet the requirements of Section
422A, and the time or times at which options are to be exercisable. Members of
the Committee shall serve for such period of time as the Board may determine and
shall be subject to removal by the Board at any time. The Board may also at any
time terminate the functions of the Committee and reassume all powers and
authority previously delegated to the Committee.
References to the Committee in various sections of the Plan shall be of no force
or effect unless the Committee is at the time responsible for the administration
of the section of the Plan which includes the reference to the Committee. The
Board is authorized (subject to the provisions of the Plan) to establish such
rules and regulations as it may deem appropriate for the proper administration
of the Plan and to make such determinations under, and issue such
interpretations of, the Plan and any outstanding options as it may deem
necessary or advisable. Decisions of the Board or the Committee, as the case may
be, shall be final and binding on all parties who have an interest in the Plan
or any outstanding option.
All determinations made and other actions taken by the Board or Committee shall
be made by the affirmative vote of a majority of the members of the Board or
Committee, but any determination or action reduced to writing and signed by a
majority of the members of the Board or Committee shall be fully as effective as
if it had been made or taken by a majority vote at a meeting duly called and
held.
ELIGIBILITY FOR OPTION GRANTS
The persons who shall be eligible to receive options pursuant to the Plan are
such employees of JHA, any Subsidiary Corporation of JHA (Subsidiary
Corporation) or any Affiliated Company of JHA, as hereinafter defined, including
employees who are members of the Board of JHA, as the Board or Committee shall
from time to time select. As used herein, the term Subsidiary Corporation shall
be defined as set forth in Section 425(f) of the Code.
The Board or Committee shall have full authority to determine the number of
shares to be covered by granted options, whether options are to be Incentive
Options under Section 422A of the Code or non-qualified options not intended to
meet the requirements of Section 422A, the time or times at which options are to
be exercisable, and such other terms and conditions as may be applicable to such
options.
STOCK SUBJECT TO THE PLAN
The stock issuable under the Plan shall be shares of JHA authorized but unissued
or reacquired Common Stock par value $.01 (Common Stock). The aggregate number
of shares which may be issued under the Plan shall not exceed One Million Five
Hundred Thousand (1,500,000) shares. The total number of shares issuable under
the Plan shall be subject to adjustment from time to time in accordance with
subsection (c) below.
Should an option expire, be surrendered in whole or in part or terminate for any
reason without being exercised, then the shares subject to the portion of the
option expired, surrendered or not so exercised shall be available for
subsequent option grants under the Plan; provided, however, shares subject to
any option or portion thereof surrendered in accordance with Section 7 of the
Plan shall not be available for subsequent option grants under the Plan.
In the event any change is made to the Common Stock issuable under the Plan
(whether by reason of merger, consolidation, reorganization, recapitalization,
or exchange of shares or by stock dividend, stock split, combination of shares,
or other change in capital structure effected without receipt of consideration),
then unless such change results in the termination of all outstanding options
pursuant to the provisions of Section 7 of the Plan, such adjustments shall be
made in the maximum number and/or class of shares issuable under the Plan and in
the number, class of shares and/or the option price per share of the stock
subject to each outstanding option as may be determined by the Board to be
appropriate in order to prevent the dilution of benefits hereunder or under
outstanding options.
TERMS AND CONDITIONS OF OPTIONS
Option Agreements. The granting of an option hereunder shall occur at the time
the Board or Committee adopts a resolution granting an option pursuant to this
Plan or at such later date as may be specified by the Board or the Committee in
such resolution (the Grant Date). Options granted pursuant to the Plan shall be
evidenced by instruments in such form and containing such terms and conditions
as the Board shall from time to time authorize; provided, however, that each
such instrument shall comply with and incorporate the terms and conditions
specified in this Section 5.
Option Price
The option price per share shall be fixed by the Board or Committee, but in no
event shall the option price per share be less than one hundred percent (100%)
of the fair market value of a share of Common Stock on the date of the option
grant.
The option price shall become immediately due upon exercise of the option and
shall be payable in one of the alternative forms specified below:
full payment by certified check payable to JHA;
full payment in shares of Common Stock having a fair market value on the
Exercise Date (as such term is defined below) equal to the option price;
or
any combination of certified check payable to JHA and/or shares of Common
Stock valued at fair market value on the Exercise Date, equal in the
aggregate to the option price.
For purposes of this subsection (2), the Exercise Date shall be the date on
which written notice of the exercise of the option is delivered to JHA, together
with payment of the option price for the purchased shares.
The fair market value of a share of Common Stock on any relevant date under
subsections (1) and (2) above (and for all other valuation purposes under the
Plan) shall be determined in accordance with the following provisions:
If the Common Stock is not at the time listed or admitted to trading on any
stock exchange, but is traded in the over-the-counter market, the fair market
value shall be the mean between the last reported bid price and the last
reported asked price (or, if such information is available, the mean between the
last reported high and low sales prices) of one share of Common Stock on the
valuation date in the over-the-counter market, as such prices are reported by
the National Association of Securities Dealers, Inc. through its NASDAQ system
or any successor system. If there are no reported bid and asked prices or high
and low sales prices reported on the valuation date, then the mean between the
last reported bid price and last reported asked price (or, if such information
is available, the mean between the last reported high and low sales prices) on
the last date preceding the valuation date for which such quotations or prices
existed shall be determinative of fair market value.
If the Common Stock is at the time listed or admitted to trading on any stock
exchange, then the fair market value shall be the mean between the last reported
high and low sales prices of one share of Common Stock on the valuation date on
the stock exchange determined by the Board or Committee to be the primary market
for the Common Stock, as such price is officially quoted on the composite tape
of transactions on such exchange. If there is no reported sale of Common Stock
on such exchange on the valuation date, then the fair market value shall be the
mean between the last reported high and low sales prices on the exchange on the
last date preceding the valuation date for which such quotations exist.
If the Common Stock at the time is neither listed nor admitted to trading on any
stock exchange nor traded in the over-the-counter market, then the fair market
value shall be determined by the Board after taking into account such factors as
the Board shall deem appropriate, including valuations of the stock performed by
independent appraisers selected by the Board.
Term and Exercise of Options. Each option granted under the Plan shall become
exercisable at such time or times and upon fulfillment of such conditions as are
determined by the Board and for such period of time thereafter and for such
number of shares as shall be determined by the Board or Committee and set forth
in the instrument evidencing such option. However, no option granted under the
Plan shall have a term in excess of ten (10) years from the grant date.
Assignability. For the first six (6) months after the date of grant, no option
granted under the Plan shall be transferable by the optionee other than by will
or by the laws of descent and distribution. Following the first six (6) months
after the date of grant, options may be transferred during the lifetime of an
optionee, to any Permitted Transferee. Permitted Transferees shall include
members of the immediate family of the optionee, any charity qualified under 501
(c) (3) of the Internal Revenue Code and any trust established for the benefit
of the optionee or the optionees immediate family members. For this purpose,
immediate family member shall mean the optionees spouse, children, step-
children, grandchildren and step-grandchildren and any partnership, corporation,
limited liability company or other entity, all the beneficial interests in which
are held by the optionee or immediate family members. Permitted Transferees may
only transfer options to other Permitted Transferees of the optionee. JHA may
disregard any transfer of an option which has not been properly registered with
JHA or its agents. In the event of a death of a Permitted Transferee who held
options at death, such options shall thereafter be exercisable, as provided in
subsection (f)(3), by such person(s) entitled to do so under the will of the
Permitted Transferee, or by the legal representative of the Permitted
Transferee.
Employment Status. For purposes of Section (f) of this Section 5, an optionee
shall be deemed to be an employee of JHA if such optionee is employed by i) JHA;
ii) a Parent Corporation (as that term is defined in Section 425(e) of the Code)
of JHA (Parent Corporation); iii) a Subsidiary Corporation of JHA; or iv) any
corporation in which JHA directly or indirectly owns stock possessing at least
twenty percent (20%) of the total combined voting power of all classes of
stock:, or any partnership in which JHA directly or indirectly owns at least
twenty percent (20%) of the capital interest or profits interest (Affiliated
Company) (JHA and all such other companies are sometimes hereinafter referred to
as the employer corporation); provided, however, that if an optionee is employed
by an Affiliated Company, no shares of stock acquired by such optionee upon
exercise of an Incentive Option will be eligible to qualify for tax treatment
under Section 422A of the Code unless such optionee was employed by JHA, a
Subsidiary Corporation or a Parent Corporation of JHA on the date such Incentive
Option was granted and such optionee acquires such stock by exercising such
Incentive Option not later than three (3) months from the date such optionee is
last employed by JHA, a Subsidiary Corporation or a Parent Corporation of JHA.
Effect of Termination of Employment
In the event the employment of an employee to whom an option has been granted
under the Plan shall be terminated other than by reason of permanent disability
within the meaning of Section 22 (e) (3) of the Code, retirement pursuant to any
retirement plan of any employer corporation, or by death, then any outstanding
options granted to such employee under the Plan shall terminate and cease to be
exercisable by the employee or any Permitted Transferee immediately upon the
date of such termination of employment (but in any event not later than the
termination date of the option). Options granted under the Plan shall not be
affected by any change of duties or position so long as the optionee continues
to be in the employ of JHA. The option agreements may contain such provisions as
the Board shall approve with reference to the effect of approved leaves of
absence.
If an employee holding an option which has not expired or terminated shall
become permanently disabled within the meaning of Section 22(e) (3) of the Code,
then the employee shall have a period of one (1) year from the date of cessation
of employee status during which to exercise such option or options for the
number of shares for which such option or options are exercisable on the date of
cessation of employee status, but in no event shall such options be exercisable
after the specified expiration date of the option term. Upon the expiration of
such limited period of exercisability, or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be exercisable.
If an employee holding an option which has not expired or terminated shall
retire pursuant to any retirement plan of any employer corporation, then the
employee shall have a period of three (3) months from the date of cessation of
employee status during which to exercise such option or options for the number
of shares for which such option or options are exercisable on the date of
cessation of employment status, but in no event shall such options be
exercisable after the specified expiration date of the option. Upon the
expiration of such limited period of exercisability, or (if earlier) upon the
expiration of the option term, the option shall terminate and cease to be
exercisable.
If a person holding an option which has not expired or terminated shall die,
then the estate of the decedent or the person or persons to whom his or her
rights under the option were transferred by will or by the laws of descent and
distribution shall have a period of one (1) year from the date of death during
which to exercise such option or options for the number of shares as to which
the decedent could have exercised such option at the time of his or her death,
but in no event shall such options be exercisable after the specified expiration
date of the option term. Any such exercise shall be effected by written notice
to the Board from the persons entitled to exercise the option and the person or
persons giving the same shall furnish to the Board such other documents or
papers as the Board may reasonably require, including, without limitation,
evidence of the authority of such person or persons to exercise the option and
evidence satisfactory to the Board that any death taxes payable with respect to
such shares have been paid or provided for. Upon the expiration of such limited
period of exercisability, or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be exercisable.
Stockholder Rights. An option holder shall have none of the rights of a
stockholder with respect to any shares covered by the option until such
individual shall have exercised the option, paid the option price and been
issued a stock certificate for the purchased shares. Upon exercise of the
option, payment of the option price and issuance of the stock certificate, the
option holder shall have all of the rights of a stockholder with respect to such
shares including voting and dividend rights, subject only to the provisions of
this Plan and other instruments implementing the provisions hereof.
INCENTIVE OPTIONS.
The additional terms and conditions specified below shall be applicable to all
Incentive Options granted under the Plan. Options which are specifically
designated as non-qualified options when issued under the Plan shall not be
subject to such additional terms and conditions.
Dollar Limitation. The aggregate fair market value (determined as of the
respective date or dates of grant) of the Common Stock with respect to which
Incentive Options granted under the Plan (or any other plan of JHA or its parent
or subsidiary corporations) are exercisable for the first time by any optionee
during any calendar year shall not exceed One Hundred Thousand Dollars
($100,000) or such greater amount as may be permitted under subsequent
amendments to Section 422A of the Code.
Ten Percent (10%) Shareholder. If any employee to whom an Incentive Option is to
be granted pursuant to the provisions of the Plan is on the date of grant the
owner of stock (as determined under Section 425(d) of the Code) possessing more
than 10% of the total combined voting power of all classes of stock of JHA or
any one of its Parent or Subsidiary Corporations, then the following special
provisions shall be applicable to the Incentive Option granted to such
individual:
The option price per share of the Common Stock subject to such Incentive Option
shall not be less than one hundred ten percent (110%) of the fair market value
of one share of Common Stock on the date of grant; and
No such Incentive Option shall have a term in excess of five (5) years from the
date of grant.
Assignability. During the lifetime of the optionee, the Incentive Option shall
be exercisable only by the optionee and shall not be assignable or transferable
by the optionee otherwise than by will or by the laws of descent and
distribution.
Except as modified by the preceding provisions of this Section 6, all the
provisions of the Plan shall be applicable to Incentive Options granted
hereunder.
SURRENDER AND TERMINATION OF OPTIONS.
If either JHA or its stockholders enter into an agreement to dispose of all or
substantially all of the assets of JHA or fifty percent (50%) or more of the
outstanding voting stock of JHA by means of a sale, merger, reorganization or
liquidation, then the Board shall have the discretionary authority, exercisable
upon such terms and conditions as it deems appropriate, to authorize the
surrender of all unexercised options in exchange for a cash distribution equal
in amount to the difference between i) the fair market value at the authorized
surrender date of the shares for which the surrendered option or portion thereof
is at the time exercisable, and ii) the aggregate option price payable for such
shares.
If, in connection with any such sale, merger, reorganization or liquidation,
provision is made for each outstanding option to either be assumed by the
successor corporation (or parent thereof) or be replaced with a comparable
option to purchase shares of the capital stock of the successor corporation (or
parent thereof), each person holding unexercised options shall be entitled to
have such options assumed by the successor corporation (or parent thereof) or
replaced with a comparable option, as the case may be. The determination of
option comparability will be made by the Board, and its determination shall be
final, binding and conclusive.
Upon consummation of such sale, merger, reorganization or liquidation, all
outstanding options under the Plan shall terminate and cease to be exercisable,
unless assumed by the successor corporation (or parent thereof).
The grant of options under the Plan shall in no way restrict or affect the right
of JHA or its stockholders to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
CANCELLATION AND NEW GRANT OF OPTIONS.
The Board shall have the authority to effect, at any time and from time to time,
with the consent of the affected option holders, the cancellation of any or all
outstanding options under the Plan and to grant in substitution therefor new
options under the Plan covering the same or different numbers of shares of
Common Stock but having an option price per share not less than one hundred
percent (100%) of fair market value on the new grant date.
AMENDMENT OF THE PLAN.
The Board shall have the exclusive power and authority to amend or modify the
Plan in any or all respects whatsoever; provided, however, that no such
amendment or modification shall, without the consent of the option holders,
adversely affect rights and obligations with respect to options at the time
outstanding under the Plan; and provided, further, that the Board shall not,
without the approval of the stockholders of JHA, i) increase the maximum number
of shares issuable under the Plan, except for permissible adjustments under
Section 4(c); ii) materially modify the eligibility requirements for the grant
of options under the Plan; or iii) make any other changes in the Plan which
require stockholder approval pursuant to Section 422A of the Internal Revenue
Code.
EFFECTIVE DATE AND TERM OF PLAN.
The Plan shall become effective upon the later of i) November 1, 1996 or ii)
the date the Plan shall have been approved by the JHA stockholders. The Board or
Committee may grant options under the Plan at any time after the effective date
and before the date fixed herein for termination of the Plan. The JHA 1987 Stock
Option Plan shall terminate upon the effective date of this Plan, provided that
all options then outstanding under the 1987 Stock Option Plan shall thereafter
continue to have force and effect in accordance with the provisions of the
instruments evidencing such options.
Unless sooner terminated by the Board or otherwise, the Plan shall terminate
upon the earlier of i) the tenth (10th) anniversary of the effective date of the
Plan, or ii) the date on which all shares available for issuance under the Plan
shall have been issued pursuant to the exercise or surrender of options granted
hereunder. If the date of termination is determined under clause (i) above, then
options outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the instruments evidencing such
options.
Options may be granted under this Plan to purchase shares of Common Stock in
excess of the number of shares then available for issuance under the Plan,
provided i) an amendment to increase the maximum number of shares issuable under
the Plan is adopted by the Board prior to the initial grant of any such option
and is thereafter approved by the stockholders of JHA, and ii) each option so
granted is not to become exercisable, in whole or in part, at any time prior to
the obtaining of such stockholder approval.
USE OF PROCEEDS.
The proceeds received by JHA from the sale of shares pursuant to options granted
under the Plan shall be used for general corporate purposes.
STOCK RESERVE.
JHA shall, at all times during the term of this Plan, reserve and keep available
such number of shares of stock as will be sufficient to satisfy the requirements
of this Plan. Such obligation to reserve shares of stock shall apply only with
respect to options actually outstanding under this Plan and not with respect to
the total number of shares available under this Plan for which options have not
been granted.
LISTING, REGISTRATION AND COMPLIANCE WITH LAWS AND REGULATIONS.
Each option shall be subject to the requirement that if at any time the Board
shall determine, in its discretion, that the listing of the shares subject to
the option upon any securities exchange or the registration or qualification of
such shares under any state or federal securities or other law or regulation, or
the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of such option
or the issue or purchase of the shares thereunder, no such option may be
exercised in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Board, and the option holder will supply JHA with such
certificates, representations and information as JHA shall request and shall
otherwise cooperate with JHA in obtaining such listing, registration,
qualification, consent or approval. In the case of officers and other persons
subject to Section 16(b) of the Securities Exchange Act of 1934, the Board may
at any time impose any limitations upon the exercise of an option which, in the
Boards discretion, are necessary or desirable to permit transactions hereunder
by such persons to comply with Section 16(b) and the rules and regulations
thereunder. If JHA, as part of an offering of securities or otherwise, finds it
desirable because of federal or state regulatory requirements to reduce the
period during which any options may be exercised, the Board may, in its
discretion and without the option holders consent, so reduce such period on not
less than fifteen (15) days written notice to the option holders.
PROXY
JACK HENRY & ASSOCIATES, INC. THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS
663 HIGHWAY 60
P.O. BOX 807 The undersigned hereby appoints
MONETT, MISSOURI 65708 Michael E. Henry and Michael R.
Wallace as Proxies, each with
the power to appoint his or her
substitute, and hereby
authorizes them to represent
and to vote, as designated
below, all the shares of common
stock of Jack Henry &
Associates, Inc. held of record
by the undersigned on September
24, 1996, at the annual meeting
of shareholders to be held on
October 29, 1996 or any
adjournment thereof.
1. ELECTION OF DIRECTORS FOR ALL NOMINEES LISTED BELOW
WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all
nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list below)
J. Henry, J. Hall, M. Henry, J. Ellis, B. George, G. Curry, M. Wallace
2. PROPOSAL TO APPROVE THE ADOPTION OF THE 1996 NON-QUALIFIED STOCK OPTION
PLAN.
FOR
AGAINST ABSTAIN
3. PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO REQUIRE TWO-THIRDS
STOCKHOLDER VOTE FOR STOCKHOLDER AMENDMENT OF BY-LAWS.
FOR
AGAINST ABSTAIN
(IMPORTANT - SEE OTHER SIDE)
4. PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO PROHIBIT STOCKHOLDER
ACTION BY WRITTEN CONSENT.
FOR
AGAINST ABSTAIN
5. PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION REGARDING CONSIDERATION
OF RELEVANT FACTORS IN CERTAIN BUSINESS COMBINATIONS.
FOR
AGAINST ABSTAIN
6. IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this
proxy will be voted FOR Proposals 1, 2, 3, 4 and 5.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership please sign in partnership name by
authorized person.
DATED 1996
Signature
Signature if held jointly
PLEASE MARK SIGN DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE
JACK HENRY & ASSOCIATES, INC. FISCAL 1996 ANNUAL REPORT (YEAR ENDED 6/30/96)
On the cover and inside the front cover: Bank Interiors - Early 1900's.
Technology provided by Jack Henry & Associates. Original Photos property of
Bettmann Archive.
JACK HENRY MISSION
Our mission, briefly, is to protect and to increase the value of our
stockholders' investment by providing quality products and services to our
customers. To accomplish this, we intend to:
* Concentrate on what we know and do best information systems
and services for banks and financial institutions.
* Provide outstanding commitment and service to our customers, so
that the perceived value of our products and services is always
consistent with their real value.
* Maintain a work environment that is personally and financially
rewarding to our employees.
(SIDEBAR FOR CORPORATE PROFILE)
Jack Henry & Associates, Inc., was No. 46 on "Forbes" magazine's 1995 list of
"The World's Best Small Companies." It rose from No. 58 in 1994 and No. 109 in
1993.
Picture of CRT.
CORPORATE PROFILE
Jack Henry & Associates, Inc. (JHA), is a leading provider of integrated
computer systems and services for banks and other financial institutions. It
provides data processing solutions through proprietary applications software,
which operates on IBM computers. JHA offers two core systems: CIF 20/20 ,
typically for customers with less than $300 million in assets, and the
Silverlake System , for customers with assets up to $10 billion. JHA also
frequently sells the hardware with its software products, and it also provides
customer support and related services. Banks can purchase JHA systems for in-
house data processing or they can use the company's resources through service
bureau and facilities management operations. JHA also sells automatic teller
machine (ATM) software and processes ATM network transactions through its
CommLink Corp. subsidiary. JHA serves more than 1,240 customers in the United
States and several foreign countries.
(Sidebars for letter to our shareholders):
Page 2 - Photograph of Jack Henry & Associates, Inc. corporate headquarter sign.
Photograph of Jack Henry & Associates, Inc. grounds around the corporate
offices.
Pie Chart depicting Revenue Sources for FY '92:
Maintenance/Support 20%
Software & Installation 32%
Hardware 48%
Pie Chart depicting Revenue Sources for FY '96:
Maintenance/Support 33%
Software & Installation 27%
Hardware 40%
Bar Graph depicting "REVENUES" from continuing operations:
For FYE 96 - 67,558,000
For FYE 95 - 46,124,000
For FYE 94 - 38,390,000
For FYE 93 - 32,589,000
For FYE 92 - 23,896,000
Page 3
Bar Graph depicting "GROSS PROFIT" from continuing operations:
For FYE 96 - 33,965,000
For FYE 95 - 23,178,000
For FYE 94 - 17,877,000
For FYE 93 - 14,009,000
For FYE 92 - 11,129,000
Bar Graph depicting "GROSS MARGIN" percentages:
For FYE 96 - 50.30%
For FYE 95 - 50.30%
For FYE 94 - 46.60%
For FYE 93 - 43.30%
For FYE 92 - 46.60%
Bar Graph depicting "INCOME FROM CONTINUING OPERATIONS":
For FYE 96 - 12,268,000
For FYE 95 - 7,978,000
For FYE 94 - 6,259,000
For FYE 93 - 5,272,000
For FYE 92 - 3,892,000
Photograph of Jack Henry & Associates, Inc. corporate headquarters.
Bar Graph depicting "EARNINGS PER SHARE" from continuing operations:
For FYE 96 - $.98
For FYE 95 - $.66
For FYE 94 - $.52
For FYE 93 - $.46
For FYE 92 - $.35
Photograph of Jack Henry & Associates, Inc. corporate offices during the winter.
page 4
Photograph of keyboard.
JHA check imaging systems should make significant contributions to revenue
growth in upcoming years.
page 5
Photograph of new construction at JHA Headquarters providing facilities for
expanded growth.
Photograph of Jack Henry & Associates, Inc. corporate office.
page 6
Bar Graph depicting "NUMBER OF ASSOCIATES":
For FYE 96 - 330
For FYE 95 - 215
For FYE 94 - 164
For FYE 93 - 154
For FYE 92 - 117
Photograph of Michael E. Henry, Chairman and Chief Executive Officer.
Photograph of Michael R. Wallace, President and Chief Operating Officer.
TO OUR SHAREHOLDERS
In fiscal 1996, Jack Henry's revenues and earnings again reached record levels.
We integrated our two recently acquired bank software companies, Liberty and
SECTOR, into the JHA organization. Multiple benefits resulted: additional
revenue and earnings streams, new products and services, and increased people
resources. We were also able to establish some efficiencies by eliminating
duplications.
Both of our core systems - the CIF 20/20 and Silverlake System, showed excellent
growth. We began generating revenue from the alliance with Integrated Systems
Solutions Corporation (ISSC), a wholly owned International Business Machines
Corporation (IBM) subsidiary. We introduced our check imaging and platform
products, and we recently began aggressively selling these products in the
marketplace. We also entered into an agreement with Block Financial (Block) to
develop a home banking product. Our ATM business grew steadily, bolstered by
two acquisitions. Finally, we reduced the operating loss in our BankVision
Software, Ltd., international unit.
Today, JHA is a much different company than it was just a few years ago. Our
revenues at the end of fiscal 1996 were almost triple the level of fiscal 1992.
Additionally, our maintenance/support and service component - which provides a
predictive base of continuing income - accounted for 33% of total revenues in
fiscal 1996, versus 20% in fiscal 1992. the growth in this area reflects both
increases in recurring maintenance fees and important additions in complementary
services, such as ATM networking, service bureau and disaster recovery areas.
We believe these revenue sources will continue to be important contributors as
we move forward.
RESULTS
Fiscal 1996 was JHA's sixth consecutive year of record revenues and
profitability from continuing operations. Since fiscal 1990 we have seen
compounded annual growth rates of 28% in revenues and 52% in net earnings per
share from continuing operations. The fourth quarter of fiscal 1996 marked the
26th consecutive period that year-to-year quarterly comparisons have shown
increased earnings results.
Total revenues for fiscal 1996 increased to $67.6 million, compared with $46.1
million in fiscal 1995 - a gain of 46%. The Liberty and Sector bank software
acquisitions in June 1995 were an important part of this growth.
Records were set in all three of our revenue areas: software, hardware, and
maintenance/support and service. Software and installation revenue increased by
20% over the previous year's software results. We continued to add new
accounts, converted a significant number of acquired customers to our CIF 20/20
and Silverlake systems, upgraded systems for many of our existing customers, and
expanded our ATM business. Hardware sales increased by 30%. This area
benefited from substantial upgrades by many of our newly acquired customers.
Our forms and supplies business, most of which was acquired in the Liberty
transaction, is considered part of the hardware category. Maintenance/support
and service had an exceptionally strong year: revenue increased by 116%. The
Liberty and Sector acquisitions account for a significant portion of this
increase. Acquired revenue sources in this area include maintenance and
support, service bureau, and disaster recovery services.
Our gross profit increased by 47% in fiscal 1996. Our gross profit margin
equaled last year's 50.3% level. By exercising strict control over operating
expenses, we were able to increase our operating margin from 25.6% to 28.4%.
Net income from continuing operations totaled $12.3 million, or $.98 per share,
an increase of 54% from the $8.0 million, or $.66 per share, earned in fiscal
1995. The per-share results increased by 48%, reflecting an additional 4%
shares outstanding. At fiscal year-end 1996, JHA made the decision to record
its BankVision unit at its net realizable value. The resultant loss of $2.62
million, or $.21 per share, from discontinued operations primarily consisted of
goodwill, and capitalized software write-down.
Our record revenues and earnings reflect the excellent demand for both our
Silverlake and CIF 20/20 systems. We completed fiscal 1996 with a record order
backlog - $21.0 million. This figure, 28% above the $16.4 million backlog on
June 30, 1995, reflects strong orders in our core systems, new ISSC contracts,
service bureau contracts, and an initial demand for our recently introduced
check imaging and platform products. We expect orders for new products to
become an increasing portion of our backlog.
AGREEMENT WITH BLOCK FINANCIAL FOR HOME BANKING PRODUCT
In May 1996, JHA signed an agreement with Block Financial, a wholly owned
subsidiary of H&R Block, Inc., to offer a home banking product to JHA's
customers. This state-of-the-art online service gives a bank's customers access
to a wide range of products and services on the Internet, through Block
Financial's site on the World Wide Web (http://www.conductor.com). The customer
can request account information, bill payment, credit cards, and discount
brokerage as well as nonbank services such as news, weather forecasts, stock
quotes, and Block's TaxCut, Small Business Attorney and Home Legal Advisor
software, The Web site is accessible through CompuServe, Prodigy, America
Online and any other secure Internet connection. This home banking solution is
tightly coupled with JHA's core application software to provide accurate, up-to-
the-minute information.
We expect to complete the testing phase and to begin marketing this solution
during the second half of fiscal 1997. Thomas J. Walsh, who joined JHA through
the ATM acquisition of Central Interchange, Inc., is responsible for our home
banking project and related Internet services, which are based in the Kansas
City area.
Recently Introduced Products and Services/Progress with ISSC
In fiscal 1996, we installed our check imaging system at customer sites and
began offering the product for general availability. We expect our check
imaging product to be a significant contributor to revenue and profitability
growth over the next several years. We ended the year with a solid imaging
backlog.
We also introduced our new platform product last year and had a greater-than-
expected demand from our customers. We will continue to add resources to meet
increasing demand. We expect that many of our clients will buy this product
over the next few years.
Under the ISSC agreement, we have signed three contracts: two facilities
management contracts and one service bureau contract. We built many new
relationships during the year with larger banks. We expect to be awarded an
increasing number of contracts under the ISSC agreement in the future.
MANAGEMENT
In May 1996, JHA mourned the loss of William W. Caraway. Bill, a JHA senior
vice president and director, and the president of our BankVision unit, died as a
result of injuries sustained in a fall at his home. He will be sadly missed.
Bill joined Jack Henry in 1990. He provided us with outstanding sales and
marketing leadership, thus helping to fuel our growth and profitability during a
crucial period. His valuable contributions included building a strong and well-
structured sales organization.
Edward W. Rhea assumed the role of JHA national sales manager on July 1, 1996.
He has been a member of the JHA team for eight years. Most recently, he served
as our manager of installation services. He has a good understanding of our
products and services, our customers' needs, and our corporate goals. His
excellent management skills, strong motivation, and work ethic will be important
factors in continuing our aggressive revenue growth.
FINANCIAL
JHA acquisitions over the past several years have all been financed from
internally generated funds. In addition to last year's cash outlays we paid
another $6.8 million relating to acquisitions this year. On June 30, 1996,
JHA's cash and short-term investments totaled $8.1 million, basically unchanged
from last year. We continue to be debt-free. Our strong financial base allows
us to make timely acquisitions, to spend appropriately on development, to
maintain superior customer service, and to attract the quality personnel we need
to expand our industry leadership.
OUTLOOK
We believe that our prospects for achieving consistent and aggressive growth in
earnings are excellent. We have a broad range of offerings and an increasingly
diversified earnings base. We are one of the few companies in the bank
technology industry with multiple product lines and multiple distribution
capabilities.
The growth potential for our core software and related support and service is
also excellent. New business prospects from the acquired operations and new-
product introductions have given us many more avenues of growth. Income from
the ISSC alliance is already making a significant contribution, and we believe
that it will soon become a larger and more consistent source of income. Forms
and supplies, service bureau operations and bank recovery services will be
important elements of our growing revenue and profit stream over the next
several years. We expect that the higher-margin software and services
components will provide an increasingly larger percentage of total revenues in
future years.
We continue to look for ways to increase our market share further, both
internally and through acquisitions. With the advanced-series IBM AS/400, the
ISSC alliance, and our service bureau offering, we are now selling our products
and services to a much broader spectrum of banks than in the past years. We
will continue to consider acquisitions that will increase our customer base,
expand our marketplace, and add needed products.
We appreciate the valuable contributions of our more than 330 employee
associates - the Jack Henry team - over the past year. Their talent,
creativity, dedication and enthusiasm are the driving forces behind our success.
August 23, 1996
/s/ Michael E. Henry /s/ Michael R. Wallace
Michael E. Henry Michael R. Wallace
Chairman and President and
Chief Executive Officer Chief Operating Officer
page 7
Photograph of IBM AS/400 computer.
WHERE TRADITION MEETS TECHNOLOGY
The banking industry has been criticized for not being more aggressive in
implementing technology. Bank managements tend to be conservative.
Additionally, meaningful wealth is typically not accumulated by individuals
until they reach middle age, so a substantial portion of bank assets is owned by
an older population. These customers are usually not as receptive to high-tech
tools as younger account holders.
Banks provide a safe haven for people's money. Their profitability is derived
from making loans and gathering deposits. Although banks typically do not rush
to embrace new technology, bankers know that they must offer competitive
services. Once they see that a technology is proven and there is a business
reason to have it, they become interested in newly introduced products.
Jack Henry brings technology to the banking industry. It provides an array of
reliable products and services to assist this traditional industry as it moves
towards the 21st century. JHA waits until a technology is proven and stable
before committing to a new product. Even then, we introduce a product only
after we have concluded that many of our customers are interested in it. We
want to be the full-service technology partner for an increasing number of
banks.
Bank deregulation, mergers and acquisitions, and new technology are forcing
rapid changes in the industry, which results in greater competition. Studies
indicate that there will be an increasing shift to electronic delivery of
services. To increase efficiency, banks are encouraging their customers to use
ATMs and other electronic banking services that are more economical than large
branch bank systems. Bank technology budgets, which are dedicated to reduce
operating costs and improved customer service, have been growing faster than
inflation. These trends are all positive for JHA.
JHA'S COMPETITIVE POSITION
JHA's software programs can accommodate all but about the hundred largest U.S.
banks. There are more than 12,000 commercial banks and thrift institutions in
the United States. An estimated 55% have in-house data processing systems;
about 45% use service bureaus. These figures have changed little in the past
few years. JHA offers both options.
Through the successful AS/400, JHA is the largest provider of IBM mid-range
computers to the banking industry. We have been awarded the designation of
"Premier Business Partner" by IBM for the past four years. In the financial
marketplace, IBM holds the largest share of the hardware business.
JHA has an established position in its market, high-quality integrated software,
and excellent service and support. JHA's core software provides a strong
foundation: it is feature-rich and flexible and among the most popular in the
industry. It performs consistently and accurately. We provide regular software
upgrades, national user meetings, and timely response to customer calls - all of
which give JHA a reputation for superior customer service.
Our market share is up significantly over the past three years, both through
acquisitions and through internal growth. Additionally, we expanded our market,
primarily through our service bureau entry (from the Liberty acquisition and the
ISSC alliance), the advanced capability of the AS/400, and new-product
introductions.
The integration of JHA's systems is a major competitive advantage. New
complementary products enhance our integration and give us greater opportunity
to increase our market share. Banks typically prefer to deal with a limited
number of technology vendors.
JHA built its success by staying focused on the banking industry and finding the
best technology solutions for its customers. We have earned our customers'
respect by paying close attention to their business.
page 8
Photograph of service bureau computer room. The flexibility of JHA's CIF 20/20
software efficiently suits the needs of service bureau systems.
Photographs of JHA operations in Angola, IN; Charlotte, NC; Danbury, CT; St.
Paul, MN; and Houston, TX.
COMMUNICATIONS WITHIN JHA
In a rapidly expanding organization, good communication is critical. Our growth
has brought us more employees, more locations, and more complexity. With the
1995 acquisitions, we have become increasingly decentralized. We now have
operations in Angola, Indiana; Charlotte, North Carolina; Danbury, Connecticut;
St. Paul, Minnesota; Kansas City, Kansas; and Houston, Texas. These are in
addition to our headquarters in Monett, Missouri. The multiple locations gives
us broader geographic coverage. We are working to improve communication among
these locations to operate more effectively as a cohesive company with
centralized goals. To that end, we have installed a network that links all JHA
locations via voice and data communications systems.
In May, our management team gathered for a meeting that focused on JHA's overall
corporate objectives -the strategies, the goals, and the needs of the company.
This group communicated about resources and the areas of responsibility within
JHA. While the managers stay focused on their own jobs, they also must
understand how they relate to the whole organization. We believe that this
understanding and approach will bring even greater success to JHA.
SERVICE BUREAU
Selling in-house data processing systems has always been the heart of JHA's
activities, but the Liberty acquisition and the ISSC alliance now allows us to
offer a service bureau alternative. Customers who choose the service bureau
option pay monthly usage fees on a multi-year service contract. An in-house
systems requires a relatively high capital outlay and other up-front costs, so
some banks prefer the service bureau alternative. In the past, it was difficult
for JHA to compete for this business. But, our new service bureau capability
has opened this market to us. There are approximately 5,500 banks that use
service bureaus rather than in-house systems. JHA can now deliver its services
through either means. Our service bureau offering certainly makes JHA more
competitive in the small-bank market.
The majority of the service bureau revenue is not recognized up front, as occurs
with JHA's sales of in-house systems. Rather, service bureau customers are
charged monthly usage fees, generating a steady stream of income over the life
of the multi-year contract. With service bureaus, no revenue is booked until
the system is installed.
Thirty-eight of our bank customers currently use our service bureau solution.
We have successfully implemented our first service bureau system with our CIF
20/20 software. We also converted two existing service bureau customers from
the Liberty software to the JHA package. All new service bureau customers will
use the CIF 20/20 software.
page 9
Photographs of JHA's user meetings. JHA customers attend user's meeting
providing input needed to begin the process of designing products which meet
their needs.
FORMS AND SUPPLIES
Although the Liberty acquisition brought us most of this unit's revenue, this
business area is not new to JHA. We acquired a smaller forms and supplies
operation with the 1992 Fremont acquisition. Our knowledge, capability,
handling, and customer service in this area has been enhanced by Liberty's
experience. The Liberty acquisition added more than $2 million in annualized
revenue in forms and supplies.
JHA supplies all the processing forms that a bank needs. Our increased volumes
from the Liberty acquisition translated to substantially greater purchasing
power, so we now receive larger discounts from manufacturers. This gives us the
ability to provide better prices to customers and also to improve our profit
margins in this area.
Forms and supplies is one more service that our customers need and that JHA can
provide, so it reinforces our relationship with them. Because this is a
relatively new business for JHA, a large portion of our customers have not had
access to this JHA offering until recently. This business provides a
significant growth opportunity for us as we work aggressively to penetrate the
JHA customer base with additional products and services.
Bank Business Recovery Services
With the Liberty transaction, we increased our bank recovery sites to a total of
six. This has given us a much broader geographic coverage to service our bank
customers. Our bank recovery facilities and services help our customers survive
emergencies by giving them access to multiple JHA sites offering a wide range of
peripheral equipment. We also offer recovery planning services to help banks
rehearse the actions they must take both offsite and at the local facility in
the event of a disaster. We help them to identify the key crisis personnel and
also to test disaster plans.
NEW-PRODUCT DEVELOPMENT
Our sizable customer base provides a receptive market for any new product we
introduce. In fact, our customers play an important role in determining what
those products will be. Customers actually help JHA manage its development
activity by attending users' meetings, at which they make suggestions for
improved products and services. We design products that meet their needs from
the outset. We introduce a solution only when our customers indicate a high
level of interest. This tends to make our research and development efforts much
more efficient. Our customers' success with our products is the key to JHA's
success.
CHECK IMAGING
Check imaging is a complex solution, an we have been careful to ensure
dependable performance before moving forward aggressively. Check imaging
permits banks to use images of checks - photocopies stored in the computer -
rather than the checks themselves for customer statements, for research payment
verification, and ultimately for the clearing of payments between banks. JHA's
imaging system is integrated into our core application on the IBM AS/400. This
product eliminates repetitious paper handling and provides other operational
efficiencies and advanced capabilities. Imaged checks can be routed
electronically. JHA's imaging solution gives bank employees the convenience of
being able to access check images easily on their desktop computers in all
applications, rather than having to sort through check files.
Recent advances of imaging cameras and related devices have made check imaging
technology affordable for almost all banks. Our imaging solution typically cost
$300,000 to $600,000.
page 10
Photograph of CommLink Corp. office building located in Houston, TX CommLink
Corp. adds ATM services to JHA's product mix.
PLATFORM
JHA's platform product is a sophisticated front-end application that is
integrated into JHA's core applications. It allows bank employees to enter
customer data directly into the bank's host computer so that the information can
be used for all applications. As each new account is set up, it automatically
ties into all existing database information. The platform module also produces
information required for financial disclosure documents. Most of our
competitors' platform systems require a transfer of data from personal computers
to the main computer.
Demand for this platform product has been exceptionally strong. Our platform
system typically costs $30,000 to $50,000.
HOME BANKING
JHA provides its banking customers with Internet access through a home banking
alliance with Block Financial. Block has extensive knowledge, experience and
talent with the Internet. (H&R lock, the parent of Block Financial, owns 80% of
CompuServe.) The alliance between JHA and Block brought together two
complementary skill sets. Jha was familiar with the internal operations of
banks. Conversely, Block had the capability to develop this type of product
quickly and efficiently.
The home banking product is quite flexible. Each bank can customize the systems
in multiple ways. The product can be set up by the bank to identify the
specific services it wishes to offers its customers. It can further customize
how account information is presented to the customer.
Our customers have expressed a high level of interest for a home banking
product. The home use of personal computers will undoubtedly continue to
expand. The JHA home banking product is attractively priced, and it provides
the services that a bank's customers need. The cost to our customers is
expected to range from $30,000 to $50,000. We expect to begin selling this
product by the second half of fiscal 1997.
THE ISSC AGREEMENT
In 1995, JHA formed a technical services and marketing alliance with ISSC, an
IBM subsidiary that is a leading provider of information technology services.
ISSC uses JHA's Silverlake System, taking full advantage of the IBM AS/400 mid-
range computer to provide improved, cost-effective outsourcing of systems
integration services. Contracts typically include JHA software, as well as
extensive custom programming and training. ISSC can provide both service bureau
and facilities management capabilities.
The average contract negotiated under the ISSC arrangement is expected to have a
significantly higher dollar value than our average Silverlake contract. We are
pleased with the early success of the ISSC arrangement. We believe that this
will be a growing part of our business.
ATM SERVICES
Our ATM service is an important part of our comprehensive offering. JHA markets
this service through its CommLink Corp. unit, which provides ATM switching
services for 206 customers. CommLink offers cost-effective ATM service with
national network transaction capability to JHA banks, to banks not served by
JHA, and to non-financial operations (such as retail locations). In addition to
installation income, CommLink receives a continuing revenue stream from
customers who use its transaction switching services.
CommLink has a strong presence in Texas. Central Interchange, inc. (CII), which
proceeded ATM transactions in the Midwest, recently merged into CommLink. CII
was bought by JHA in September, 1995. During fiscal 1996, CommLink also
acquired the contracts of a small ATM company in Texas.
The ATM marketplace is substantial, and it is expected to continue to show
excellent growth. We are working to increase our market share further and to
expand our geographical reach.
Selected Financial Information
(In Thousands, Except Per Share Information)
Year Ended June 30,
INCOME STATEMENT DATA 1996 1995 1994 1993 1992
Gross revenue (1) $67,558 $46,124 $38,390 $32,589 $23,896
Income from continuing operations $12,268 $ 7,978 $ 6,259 $ 5,272 $ 3,892
Income(loss) from discontinued
operations (net of applicable income
taxes)(2) $(2,620) $ - $ - $ 101 $ 67
Extraordinary income from Unisys settle-
ment - - - 886 -
NET INCOME $ 9,648 $ 7,978 $ 6,259 $ 6,259 $ 3,959
INCOME(LOSS) PER SHARE(3):
CONTINUING OPERATIONS $ .98 $ .66 $ .52 $ .45 $ .35
DISCONTINUED OPERATIONS $ (.21) - - $ .01 $ .01
EXTRAORDINARY INCOME - - - .08 -
NET INCOME $ .77 $ .66 $ .52 $ .54 $ .36
DIVIDENDS DECLARED PER SHARE $ .26 $ .22 $ .19 $ .17 $ .14
JUNE 30,
BALANCE SHEET DATA 1996 1995 1994 1993 1992
Working capital $ 6,895 $ (666) $11,181 $ 7,394 $ 6,236
Total assets $60,401 $58,721 $38,347 $29,908 $22,078
Long-term debt - - - - -
Stockholders' equity $37,418 $29,484 $23,650 $17,639 $12,393
Notes:
(1) Gross revenue includes software licensing and installation revenues;
support revenues; and hardware sales and commissions; less all sales returns and
allowances.
(2) Income and losses from any discontinued operations is reported as such
from the appropriate date in each respective case.
(3) Prior year numbers have been adjusted to reflect the 50% stock dividend
paid March 8, 1993 and the 33 1/3% stock dividend paid March 10, 1994.
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Jack Henry & Associates, Inc.
Monett, Missouri
We have audited in accordance with generally accepted auditing standards, the
consolidated balance sheets of JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES as
of June 30, 1996 and 1995, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three years
ending June 30, 1996, referred to in the proxy statement for the 1996 annual
meeting of the stockholders of JACK HENRY & ASSOCIATES, INC. (not presented
herein). In our report dated August 22, 1996, also referred to therein, we
expressed unqualified opinions on the aforementioned consolidated financial
statements.
In our opinion, the information set forth in the accompanying condensed
consolidated financial statements is fairly presented, in all material respects,
in relation to the consolidated financial statements from which it has been
derived.
BAIRD, KURTZ & DOBSON
August 22, 1996
Joplin, Missouri
Jack Henry & Associates, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
Year Ended June 30,
1996 1995 1994
Revenues $67,558 $46,124 $38,390
Cost of sales 33,593 22,946 20,513
GROSS PROFIT $33,965 $23,178 $17,877
OPERATING EXPENSES 14,759 11,375 9,035
OPERATING INCOME FROM CONTINUING OPERATIONS $19,206 $11,803 $ 8,842
OTHER INCOME, NET 667 839 962
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES $19,873 $12,642 $ 9,804
PROVISION FOR INCOME TAXES 7,605 4,664 3,545
INCOME FROM CONTINUING OPERATIONS $12,268 $ 7,978 $ 6,259
LOSS FROM DISCONTINUED OPERATIONS 2,620 - -
NET INCOME $ 9,648 $ 7,978 $ 6,259
INCOME FROM CONTINUING OPERATIONS PER SHARE $ .98 $ .66 $ .52
LOSS FROM DISCONTINUED OPERATIONS PER SHARE $ 21 $ - $ -
NET INCOME PER SHARE $ .77 $ .66 $ .52
WEIGHTED AVERAGE SHARES OUTSTANDING 12,484 12,049 12,007
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
JACK HENRY & ASSOCIATES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
JUNE 30,
ASSETS 1996 1995
Current assets:
CASH AND CASH EQUIVALENTS $ 4,952 $ 3,423
HELD-TO-MATURITY SECURITIES 3,128 4,650
RECEIVABLES 15,990 16,740
INCOME TAXES RECEIVABLE 889 -
PREPAID EXPENSES AND OTHER 3,187 2,661
TOTAL CURRENT ASSETS $28,146 $27,474
PROPERTY AND EQUIPMENT, NET 13,612 10,302
OTHER ASSETS 18,643 20,945
TOTAL ASSETS $60,401 $58,721
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 5,183 $ 7,592
ACCRUED ACQUISITION COSTS - 5,398
DEFERRED REVENUE 16,068 15,150
TOTAL CURRENT LIABILITIES $21,251 $28,140
DEFERRED INCOME TAXES 1,732 1,097
TOTAL LIABILITIES $22,983 $29,237
STOCKHOLDER'S EQUITY:
COMMON STOCK 119 117
ADDITIONAL PAID-IN CAPITAL 10,711 9,425
RETAINED EARNINGS 26,588 19,942
TOTAL STOCKHOLDER'S EQUITY $37,418 $29,484
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $60,401 $58,721
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
Jack Henry & Associates, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Year Ended June 30,
1996 1995 1994
Cash flows from continuing operating activities $14,671 $9,657 $6,841
Cash flows to discontinued operations 151 - -
Cash flows to investing activities 9,767 5,906 7,410
Cash flows to financing activities 3,224 2,270 2,332
Net increase (decrease) in cash $ 1,529 $ 1,481 $(2,901)
Cash and cash equivalents at beginning of year 3,423 1,942 4,843
Cash and cash equivalents at end of year $ 4,952 $3,423 $1,942
The accompanying notes are an integral part of these condensed consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These financial statements have been condensed from the audited consolidated
financial statements of Jack Henry & Associates, Inc. The footnotes to the
audited financial statements, and the Statement of Changes in Stockholders'
Equity, are not included in this presentation.
Management's Discussion and Analysis of the Financial Statements, which is
included in this summary annual report, describes the impact on these condensed
consolidated financial statements of the significant events and activities of
the Company. The discussion provides additional information to assist in
understanding the Company's results of operations and financial position,
although it is not a part of the condensed consolidated financial statements.
page 17
Bar Graph depicting "TOTAL ASSETS":
For FYE 96 - 60,841,000
For FYE 95 - 58,721,000
For FYE 94 - 38,347,000
For FYE 93 - 29,908,000
For FYE 92 - 22,078,000
Jack Henry & Associates, Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATION AND FINANCIAL CONDITION
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
RESULTS OF OPERATIONS
Introduction - All of the revenues (and costs and expenses) in the statement of
operations relate to JHA's continuing operations, i.e., the installation and
support of banking software systems that JHA developed and the marketing of the
JHA software along with computer hardware manufactured by others to provide a
complete data processing system for in-house operation in financial
institutions. The Company also provides its products and services to these same
financial institutions on an outsourced basis.
Total revenues, presented in the statement of operations, include software
licensing and installation revenues; maintenance/support and services revenues;
hardware sales and maintenance revenues; and revenues from the sale of forms and
supplies.
Business operations for FY '96 and '95 reflect the continued focus on JHA's IBM-
based software systems. Results of operations for JHA's banking system business
in each of the last two fiscal years are discussed separately below.
FY '96
REVENUE:
Total revenues which set another new record were $67,558,000, up 46% over last
year. Each major component of revenue increased significantly above the
previous year's mark. The Company has had six consecutive years of each revenue
component increasing and establishing new record levels.
Increased demand for the Company's application software was the driving force
for software and installation revenues. Acquisitions provided $10,900,000 of
the increase with additional demand and increased electronic transaction fees
the next most significant contributors to the maintenance/support and service
increase. Hardware revenues experienced increases primarily as a result of
increased forms and supply sales through acquisitions.
Each major component of revenue is expected to increase, but not necessarily at
the same rate as the past year. Also, over the longer term, the hardware
component of revenue could become a smaller and smaller portion.
COST OF SALES:
Cost of sales increased 46%, consistent with the revenue increase. Each major
component had an increase with the most significant increase occurring in cost
of services. Acquisitions during the last 13 months contributed $6,800,000 to
the cost of services increase.
GROSS PROFIT:
Overall gross profit increased 47%, in line with the increase in total
revenues. Further, the gross margin percentage was at 50%, unchanged from
last year's rate.
OPERATING EXPENSES:
The 30% increase in operating expenses was quite low compared to the 47%
increase in gross profit. This strongly supports the Company's ability to
leverage more profit to the bottom line as it continues growing. Selling and
marketing costs experienced the largest increase. This increase in spending is
directly related to the increase in revenues and the resulting gross profit.
page 18
Bar Graph depicting "AFTER TAX MARGIN" from continuing operations percentage:
For FYE 96 - 18.20%
For FYE 95 - 17.30%
For FYE 94 - 16.30%
For FYE 93 - 16.20%
For FYE 92 - 16.30%
Bar Graph depicting "RETURN ON BEGINNING EQUITY" percentages:
For FYE 96 - 34.20%
For FYE 95 - 33.70%
For FYE 94 - 35.50%
For FYE 93 - 50.50%
For FYE 92 - 43.20%
OTHER INCOME:
The overall level of other income is down from last year due primarily to lower
levels of invested funds during the current year caused by more cash outlays for
acquisitions.
The Financial Accounting Standards Board has recently adopted Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
which prescribes alternative acceptable methods for measuring and disclosing
compensation cost arising from employee stock compensation plans. As permitted
by the new Statement, which will be applied initially during the year ending
June 30, 1997, the Company will continue to measure the cost of stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25 and will disclose certain required pro-forma
amounts. Accordingly, the effects of applying the new Statement are not
expected to be material.
FY '95
REVENUE:
Revenues increased 20% to $46,124,000, establishing a new record for the fifth
straight year. Each of the major revenue components were higher than the
previous year's mark. JHA's domestic products and services continued their
strong growth fueled by continued strong demand for the Company's quality
offerings. The Company's size and reputation for quality products and services
continues to enhance its position in the marketplace.
All major revenue categories experienced gains as a result of growth in both the
Company's domestic products - CIF 20/20 and Silverlake System. CommLink's
revenues from its ATM transaction switching contributed significantly to the
growth in maintenance/support and service revenues.
Growth is expected in each category of revenues. The Company's new check
imaging product and the recent Sector and Liberty acquisitions plus continued
growth in domestic product sales are expected to enhance all categories.
CommLink is expected to enhance the software and installation and the
maintenance/support and service categories.
COST OF SALES:
The 12% increase in cost of sales was quite favorable relative to the 20%
increase in sales. Hardware costs increased approximately one and one-half
percent more than the related revenue increase. This was consistent with
expectations. The cost of services increase of 15% was significantly better
than the 28% increase in non-hardware revenues.
GROSS PROFIT:
Gross profit increased 30% above last year's level. The gross margin percentage
increased to 50%, up from 47% last year. This result is very consistent with
expectations considering the sales mix.
OPERATING EXPENSES:
Operating expenses increased 26% over last year's total. All the Company's
operating units contributed to this increase.
OTHER INCOME (EXPENSE):
The decrease was due to the Company returning to a more normal level of Other,
net because of a significant one-time gain last year as a result of collecting
amounts previously deemed uncollectible.
page 19
Bar Graph depicting "SHAREHOLDERS' EQUITY" in millions:
For FYE 96 - 37,858,000
For FYE 95 - 29,484,000
For FYE 94 - 23,650,000
For FYE 93 - 17,639,000
For FYE 92 - 12,393,000
Bar Graph depicting "DIVIDENDS DECLARED PER SHARE":
For FYE 96 - $.26
For FYE 95 - $.22
For FYE 94 - $.19
For FYE 93 - $.17
For FYE 92 - $.14
FINANCIAL CONDITION
Liquidity - JHA's liquidity position (cash plus short-term investments minus
working capital borrowings) at June 30, 1996, at $8,080,000 is basically
unchanged from last year. The Company generated significantly higher cash flows
from operations, but the additional outlays for acquisitions, capital
expenditures (some of which resulted from the acquisitions) and dividends caused
liquidity to remain static. Working capital, as expected, made a quick recovery
to $6,895,000 from last year's slight negative level.
The Company believes its liquid assets on hand and those generated from
operations are sufficient to meet its cash requirements for FY '97. Cash and
investments are expected to increase during the first quarter of FY '97 as the
annual software maintenance billings in trade receivables at June 30, 1996 are
collected. The Company expects to utilize its $2,215,000 credit lines
minimally, if at all, during the next fiscal year.
Capital Requirements and Resources - JHA generally uses existing resources and
funds generated from operations to meet its capital requirements. Capital
expenditures of $5,017,000 were made for expansion of facilities and additional
equipment to provide for the Company's current and future growth. The most
significant individual outlays were for upgrades and additions to the corporate
aircraft. Some of the additional purchases were to buy equipment which had been
leased by predecessor organizations. The Company has no long-term debt and
anticipates capital expenditures could approach $4,000,000 during the next
fiscal year. These will be funded from funds generated by operations.
Subsequent to June 30, 1996, the Company's Board of Directors declared a cash
dividend of $.07 per share on its common stock payable on September 24, 1996, to
stockholders of record as of September 9, 1996. Current funds from operations
should be adequate for this purpose. The Board has indicated that it plans to
continue paying dividends so long as the Company's financial picture continues
to be favorable.
CORPORATE DIRECTORY
BOARD OF DIRECTORS:
MICHAEL E. HENRY, Chairman and Chief Executive Officer
MICHAEL R. WALLACE, President and Chief Operating Officer
JOHN W. "JACK" HENRY, Vice Chairman and Senior Vice President
JERRY D. HALL, Executive Vice President
*JAMES J. ELLIS, Managing Partner Ellis/Rosier Financial Services
Dallas, TX
*BURTON O. GEORGE, Former Chairman
First National Bank of Berryville
Berryville, AR
*GEORGE R. CURRY, Chairman
Central Bank
Lebanon, MO
*Member of Audit & Compensation Committees
OTHER INFORMATION:
TRANSFER AGENT & REGISTRAR:
UMB Bank, N.A.
P.O. Box 419226
Kansas City, MO 64141-6226
816-860-7761
EXECUTIVE OFFICERS:
MICHAEL E. HENRY, Chairman and Chief Executive Officer
MICHAEL R. WALLACE, President and Chief Operating Officer
JOHN W. "JACK" HENRY, Senior Vice President
JERRY D. HALL, Executive Vice President
TERRY W. THOMPSON, Chief Financial Officer, Vice President and Treasurer
MARGUERITE P. BUTTERWORTH,
Vice President
COMPANIES:
PARENT COMPANY:
JACK HENRY & ASSOCIATES, INC.
663 Highway 60
P.O. Box 807
Monett, MO 65708
417-235-6652 (FAX) 417-235-8406
SUBSIDIARIES:
JACK HENRY INTERNATIONAL, LTD.
Monett, MO
BANKVISION SOFTWARE, LTD.
Monett, MO
COMMLINK CORP.
Houston, TX
FORM 10K
A copy of the Company's 10-K is available upon request to the Chief Financial
Officer at the address above.
