-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, WYmwWHadtqaYEvO0iIKTrv4F59HrPXqApS+w+bNoFd+pwKTf/I3FUCaIRzfndc2E Fsnt/Ep6bWWic2Z9VoGgxA== 0000912057-95-004989.txt : 199506300000912057-95-004989.hdr.sgml : 19950630 ACCESSION NUMBER: 0000912057-95-004989 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950629 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELPHI INFORMATION SYSTEMS INC /DE/ CENTRAL INDEX KEY: 0000814549 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 770021975 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15946 FILM NUMBER: 95550636 BUSINESS ADDRESS: STREET 1: 3501 ALGONQUIN RD STREET 2: STE 500 CITY: ROLLING MEADOWS STATE: IL ZIP: 60008 BUSINESS PHONE: 7085063100 MAIL ADDRESS: STREET 1: 3501ALGOUQUIN ROAD CITY: ROLLING MEADOWS STATE: IL ZIP: 60008 10-K 1 FORM 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K /x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended March 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _______________ to _______________ Commission file number 0-15946 DELPHI INFORMATION SYSTEMS, INC. (Exact name of registrant as specified in its charter) Delaware 77-0021975 (State or other jurisdiction of incorporation)(I.R.S. Employer Identification Number) 3501 Algonquin Road Rolling Meadows, Illinois 60008 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (708) 506-3100 Securities registered pursuant to Section 12 (b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act:
Title of each class Name of each exchange of which registered ------------------- ----------------------------------------- Common Stock, par value $0.10 per share NASDAQ SmallCap Market
Indicate by check mark whether the registrant (a) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [ ] As of June 1, 1995, the number of shares of Common Stock outstanding was 8,318,453. As of such date, the aggregate market value of Common Stock held by nonaffiliates, based upon the last sale price of the shares as reported on the NASDAQ National Market System on such date, was approximately $10,398,066. Documents Incorporated by Reference: Portions of the registrant's definitive proxy statement relating to its 1995 Annual Meeting of Stockholders are incorporated by reference into Part III. DELPHI INFORMATION SYSTEMS, INC. INDEX TO ANNUAL REPORT ON FORM 10-K
Page Reference -------------- PART I Caption ------- Item 1. Business 3 Item 2. Properties 7 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 7 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 8 Item 6. Selected Financial Data 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 8. Financial Statements and Supplementary Data 14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 33 PART III Item 10. Directors and Executive Officers of the Registrant 33 Item 11. Executive Compensation 34 Item 12. Security Ownership of Certain Beneficial Owners and Management 34 Item 13. Certain Relationships and Related Transactions 34 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 35
2 PART I ITEM 1. BUSINESS INTRODUCTION Delphi Information Systems, Inc. (the "Company") is a leading provider of automation systems and services for independent property and casualty insurance agencies and brokerages ("independent agencies") in North America. The Company develops, markets and supports computer applications software systems which automate independent agencies including the areas of sales management, policy and claims administration, accounting, financial reporting, rating and electronic interface with the computers of insurance carriers. The Company also provides proprietary software and services which help insurance carriers rate and quote insurance products and distribute such rating data to agencies with which the Company has a relationship. In addition, the Company markets and supports the hardware necessary to operate its proprietary software systems. The Company's customer list includes over 90% of the largest 100 brokerages in North America. The Company's software operates on approximately 75,000 workstations and terminals at more than 4,500 customer sites representing approximately two-thirds of all workstations and terminals installed in independent agencies. The Company also provides insurance rating to more than 8,000 customers. The Company is an IBM Industry Remarketer (IR) and markets systems that operate on the UNIX-based IBM RISC System/6000, IBM AS/400, and SCO UNIX-based microcomputer hardware platforms. The Company also supports earlier versions of its software which operate on Wang and other IBM hardware platforms. Delphi Information Systems, Inc. was founded in 1976 as Delphi Systems, Inc., a California corporation. In 1983, Delphi Information Systems, Inc., a Delaware corporation, was formed and acquired all of the outstanding shares of Delphi Systems, Inc. in an exchange offer. In June, 1987, Delphi Systems, Inc. was merged into and with Delphi Information Systems, Inc. The Company's executive offices are located at 3501 Algonquin Road, Rolling Meadows, Illinois 60008. Its telephone number is (708) 506-3100. PRODUCTS. The Company's proprietary applications software packages, The Delphi SMART System, Vista, INfinity, INSIGHT, PC-ELITE and Insurnet, are designed to enhance the efficiency and profitability of agencies, brokerages, and insurance carriers. The software is designed to support various independent agencies' business functions in an integrated manner. The systems are designed to provide independent agencies with the following capabilities: - Management Information - Carrier Interface - Sales and Prospecting - Policy and Claims Administration - Marketing - Office Administration - Finance and Accounting - Rating - Client Service 3 SYSTEM DESIGN AND ARCHITECTURE. The Company has developed the Delphi SMART System, a client/server-based system, which supports relational database software technology, Structured Query Language (SQL), windowing and graphical user interfaces, among other features. This product development is part of a continuing strategy of the Company to deliver products to prospective and current customers that utilize the latest software and hardware technologies. In fiscal 1995, the Company released several new modules and enhancements to its products which utilize these newer technologies including SaleSource, a sales prospecting and management module, along with enhancements to the networking capabilities of its systems. The Company implements AIX (IBM's UNIX version) and SCO UNIX as the basic operating systems for its INfinity and PC-ELITE software, respectively. UNIX-based systems provide portability of applications software from one vendor's hardware to that of another, or among various models of a single manufacturer's hardware, without a costly rewrite as long as the models and makes of hardware are compatible with UNIX. The Company believes it is the only major company in its field to utilize the UNIX operating system, which makes the Delphi system portable to a wide range of computer hardware. The Company markets its INfinity software and Insurnet software on the IBM RISC System/6000 computer and its PC-ELITE product on SCO UNIX-compatible microcomputer hardware platforms. The Company's INSIGHT product is marketed primarily on the IBM AS/400 computer. The Company's products operate in a LAN environment with the RS/6000, AS/400 or microcomputer hardware acting as a host server platform. INSURANCE CARRIERS. The Company's software also electronically links the computers of insurance carriers to independent agencies. The Company's electronic interface products enable the independent agencies and the participating insurance carriers to decrease the cost of entering information concerning new policies, renewals, endorsements and inquiries. This also reduces errors and enhances response time. The software replaces transfers of information between independent agencies and insurance carriers by mail, by telephone, or by dedicated terminals supplied by carriers. Sixty-two insurance carriers interface with the Company's agency management systems, including the following major property and casualty companies: American States, Atlantic Mutual, Chubb & Sons, CIGNA, The Cincinnati Companies, Commercial Union, General Accident, Hanover, Hartford, Heritage Mutual, Island (Hawaii), ISI Systems, Kemper, Keystone, Maryland Casualty, Northbrook, Reliance, Royal, Safeco, Safety, St. Paul, Transamerica, Travelers and The Westfield Companies. While arrangements differ from one insurance carrier to another, in general an insurance carrier will advise independent agencies that the Company's electronic interface products are among the products which are compatible with the carrier's systems. The insurance carriers mentioned above generally make similar arrangements with one or more of the Company's competitors. The Company also provides proprietary software and services to insurance carriers which help the carriers rate and quote insurance products and distribute such rating data to agencies with which the carriers have a relationship. 4 The Company has in the past implemented programs with the objective of establishing various alliances with specific insurance carriers including CIGNA and Allied whereby the insurance carriers recommend and support the Company as an agency automation solution to their preferred agents. While the Company will continue to pursue sales strategy related to carrier-sponsored programs, carriers are limiting their participation in these marketing arrangements. IBM INDUSTRY REMARKETER. The Company currently purchases a significant portion of its hardware from IBM, one of its primary hardware suppliers, under an Industry Remarketer Business Partner Program (IR). The IR, among other features, provides that IBM marketing and technical representatives may participate in meetings with prospective customers of the Company to support sales and marketing efforts for IBM-based products. The Company purchases computer hardware and maintenance from IBM and other vendors at a discount from list prices and markets this hardware and maintenance to its customers. MARKETING, SALES AND SERVICES. The Company markets its software systems exclusively through its own sales organization primarily from its eight major operating locations in Rolling Meadows, Illinois; Scottsdale, Arizona; Pittsburgh, Pennsylvania; Walnut Creek, California; Westlake Village, California; Burlington, Massachusetts; East Lansing, Michigan and Toronto, Ontario, Canada. The Company has divided its sales personnel into groups focusing on global brokerages, regional and local brokerages and agents, rating customers and insurance carriers. The systems offered by the Company range in price from $35,000 to over $1,000,000 for multiple site global brokers. While the largest systems offered by the Company support in excess of 320 terminals, smaller systems can accommodate below 10 users. No individual customer represented more than 10% of total revenues in fiscal 1995, 1994 or 1993. In addition to systems sales to new customers, the Company provides upgrades of software and hardware to its existing customers as well as additional computer products. These products consist of various software, terminals, processor memory, storage devices, and central processing units. A significant portion of the Company's business comes from the maintenance of the Company's proprietary software. In addition, hardware maintenance is purchased by the Company for its customers from third parties. The Company's customers enter into maintenance contracts under which the Company agrees to service the software and hardware for varying periods of time after the expiration of the warranty period. Consulting services, customized programming and training, which are billed separately, are also provided to customers who desire specific assistance or enhancement of their systems. PRODUCT DEVELOPMENT. At the end of fiscal 1995, the Company employed 104 full-time employees engaged in product development and maintenance activities. These activities consist of researching and developing enhancements to the software such as adding new functionality, improving usefulness, adapting the software to newer software and hardware technologies and increasing systems responsiveness. 5 Product development expenditures prior to capitalization of software were $6,550,000, $6,251,000 and $5,643,000 in fiscal 1995, 1994 and 1993, respectively. The Company strongly believes in the importance of maintaining and enhancing its technology and expects to continue to invest substantial amounts in research and development in the future. COMPETITION. The Company believes its principal competition is presented by three companies which provide software systems that are comparable to those offered by the Company. The Company believes that most insurance carriers are in the process of reducing or eliminating their agency and brokerage automation strategies. Nevertheless, some insurance carriers continue to operate subsidiaries which actively compete with the Company. These carriers have much greater financial resources than the Company and have in the past subsidized the automation of independent agencies through various incentives offered to promote the sale of the carriers' insurance products. Accordingly, there can be no assurances that insurance carriers will continue to withdraw from competition with the Company. The Company is not aware of any large hardware company that has a set of software explicitly addressing the independent agencies marketplace. However, the larger hardware suppliers, such as IBM, do sell systems and components of systems to the independent agencies. The Company, to a much lesser extent, also experiences competition in the form of smaller, independent or freelance developers and suppliers of software who sometimes work in concert with hardware companies to supply systems to independent agencies. The Company believes that the key competitive factors in the Company's market are product features and functions, ease of use, price, reputation, reliability, and quality of customer support and training. The Company believes that overall it competes favorably with respect to these factors. The Company regards its applications software as proprietary and attempts to protect it with copyrights, trade secret laws and restrictions on disclosure and transferring title. Despite these precautions, it may be possible for third parties to copy aspects of the Company's products or, without authorization, to obtain and use information which the Company regards as trade secrets. Existing copyright law affords only limited practical protection and the Company's software is unpatented. EMPLOYEES. At March 31, 1995, the Company employed 419 persons, including 54 in sales and marketing, 104 in product development, 177 in customer service and operations, and 84 in general management, administration and finance. None of the Company's employees is presently covered by a collective bargaining agreement. The Company believes that its employee relations are good. 6 ITEM 2. PROPERTIES The Company's corporate headquarters is in Rolling Meadows (Chicago), Illinois, where it occupies approximately 15,000 square feet of office space. Substantially all corporate executive and administrative functions are located in Rolling Meadows. The Company also has operational facilities in Burlington, Massachusetts of 23,400 square feet, Pittsburgh, Pennsylvania, of 17,500 square feet, East Lansing Michigan of 11,000 square feet, Scarborough, Ontario Canada of 6,012 square feet, Walnut Creek, California of 15,241 square feet, and Scottsdale, Arizona of 10,000 square feet. In addition, the Company has 32,600 square feet of office space in Westlake Village, California which it is attempting to sublet and relocate to a smaller, more cost-effective facility. The Company believes its facilities are adequate for its current needs and that suitable additional or substitute space will be available as needed. See Note 8 of Notes to Consolidated Financial Statements for information regarding the Company's obligations under leases. ITEM 3. LEGAL PROCEEDINGS The Company is not a party, and none of its property is subject to, any material pending legal proceeding. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A special meeting of the stockholders of the Company was held on Friday, March 17, 1995, for the following purposes: 1) To amend the Company's certificate of incorporation to increase the company's authorized Common Stock from 12,000,000 shares to 50,000,000 shares. This matter was approved by a vote of 8,750,553 for, 690,704 against, and 18,831 abstaining. 2) To authorize conversion of the Company's 6% promissory note due June 30, 1996, into shares of the Company's convertible preferred stock. This matter was approved by a vote of 5,881,359 for, 552,671 against, 10,681 abstaining and 3,759,587 broker non-votes. 7 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The principal market for the Company's common stock (NASDAQ Symbol DLPH) is the SmallCap Market of the National Association of Securities Dealers Automated Quotation System (NASDAQ). As of June 1, 1995, there were 184 shareholders of record. The Company has not paid dividends on its common stock to date. There are no plans in the near future to do so. The following tables sets forth the high and low bid prices for common stock for each calendar quarter in the two year period ending March 31, 1995.
Fiscal 1994 High Low ------------------------------------------ First quarter $ 7.25 $ 5.13 Second quarter 6.00 4.88 Third quarter 6.00 4.75 Fourth quarter 5.00 3.50 Fiscal 1995 High Low ------------------------------------------ First quarter $ 4.00 $ 3.13 Second quarter 3.50 0.88 Third quarter 1.63 0.53 Fourth quarter 1.88 0.69
8 ITEM 6. SELECTED FINANCIAL DATA CONSOLIDATED FINANCIAL HIGHLIGHTS (In thousands, except per share data)
1995 1994 1993 1992 1991 ------------------------------------------------ RESULTS OF OPERATIONS: Revenues $ 53,040 $ 53,605 $ 51,607 $ 44,605 $ 28,509 Operating (loss) income (597) (8,160) 947 (8,684) 1,107 Net (loss) income $ (1,681) $ (8,922) $ 531 $ (9,064) $ 855 EARNINGS PER SHARE: Net (loss) income $ (0.23) $ (1.34) $ 0.07 $ (1.53) $ 0.17 Shares used in computing per share data (1) 7,306 6,672 7,897 5,922 5,128 FINANCIAL POSITION: Assets $ 27,547 $ 31,947 $ 24,735 $ 24,232 $ 20,283 Short term debt 2,486 4,029 3,574 867 120 Long term debt 4,250 4,125 -- 2,454 2,945 Stockholders' equity $ 4,553 $ 6,231 $ 9,727 $ 3,718 $ 8,300 (1) Weighted average common and common equivalent shares, where applicable, were used to compute per share data in all periods.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Market - While the Company has increased its market share through acquisitions, fiscal years 1995 and 1994 were a difficult period in the market for the independent agencies as a down cycle in the property and casualty insurance has continued. The soft property and casualty insurance market is evidenced by minimal or no increases in property and casualty insurance premiums, which has eroded the profits and equity of the Company's insurance agency and brokerage customers who receive commissions on insurance premiums. Historically, the property and casualty industry, often independently of the general economy, goes through up cycles when insurance premiums are strong and down cycles when insurance premiums remain flat or decline. The cycle is a function of the insurance carriers' reserves for their insured customer losses, the related reserve portfolio performance, competitive strategies and other business issues. The most recent down cycle has been particularly long compared to historical soft markets. The Company cannot predict if or when the soft market conditions will change. In addition, the property and casualty insurance market has experienced consolidation through mergers. This consolidation is expected to continue and could negatively impact the Company. 9 Results of Operations - The table below sets forth, for the fiscal periods indicated, the percentage of revenues represented by each item reflected in the Company's consolidated statements of operations, and the percentage increase (decrease) in each item of revenue, cost and expense from the prior fiscal period. CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Year to Year Percentage Increase (Decrease) Percentage of Revenues --------------------------- Year Ended March 31, Fiscal 1995 Fiscal 1994 ------------------------ versus versus 1995 1994 1993 Fiscal 1994 Fiscal 1993 - ------------------------------------------------------------------------------------------ REVENUES: Systems 39.8% 49.4% 50.5% (20.3)% 1.6% Services 60.2% 50.6% 49.5% 17.8% 6.1% - ------------------------------------------------------------------------------------------ TOTAL REVENUES 100.0% 100.0% 100.0% (1.0)% 3.9% COSTS OF REVENUES: Systems 26.5% 35.2% 33.3% (25.6)% 9.7% Services 33.9% 31.5% 29.6% 6.4% 10.8% - ------------------------------------------------------------------------------------------ TOTAL COST OF REVENUES 60.4% 66.7% 62.9% 10.5% 10.2% - ------------------------------------------------------------------------------------------ GROSS MARGIN 39.6% 33.3% 37.1% 17.9% (6.8)% OPERATING EXPENSES: Product development 10.2% 7.4% 6.9% 36.4% 11.0% Sales and marketing 12.9% 14.7% 15.3% (12.6)% (0.5)% General and administrative 14.6% 11.7% 10.9% 23.0% 11.4% Amortization of goodwill, customer lists and non- compete agreements 3.1% 2.6% 2.2% 16.5% 28.8% Consolidation, repositioning and restructuring charges -- 12.1% -- (100.0)% * - ------------------------------------------------------------------------------------------ TOTAL OPERATING EXPENSES 40.8% 48.5% 35.3% (16.8)% 42.9% - ------------------------------------------------------------------------------------------ OPERATING (LOSS) INCOME (1.2)% (15.2)% 1.8% 92.7% * Interest expense 1.8% 1.2% 0.7% 47.3% 70.5% - ------------------------------------------------------------------------------------------ (LOSS) INCOME BEFORE INCOME TAXES (3.0)% (16.4)% 1.1% (82.5)% * Income tax provision (0.3)% 0.2% 0.1% 15.7% * NET (LOSS) INCOME (3.3)% (16.6)% 1.0% (81.2)% * - ------------------------------------------------------------------------------------------ * PERCENTAGES HAVE BEEN INTENTIONALLY OMITTED BECAUSE SUCH PERCENTAGES ARE NOT MEANINGFUL.
10 Revenues - The Company's revenues are derived from two sources, systems agreements and service fees. Systems agreements with the Company's customers include the delivery of the Company's proprietary software with the computer hardware and software of third parties. Service fees include fees for maintenance, training and consulting services related to the Company's proprietary software, as well as sales of the Company's proprietary software which is not bundled with hardware or software of third parties. The Company's revenue recognition policies comply with the provisions of the American Institute of Certified Public Accountants (AICPA) Statement of Position No. 91-1. Revenues decreased 1% in fiscal 1995, and increased 4% in fiscal 1994. The decrease in fiscal 1995 was due to a decreased emphasis on low margin hardware sales, an overall decline in both the cost and resale price of hardware which the Company resold to customers, a decrease in upgrade sales to existing customers, and a delay in the release of the Company's latest product enhancements. Substantially offsetting the decreases noted above was the inclusion in fiscal 1995 of the full year results of the December, 1993, acquisitions of Mountain States and Insurnet and an increase in sales of software which was not bundled with hardware. The increase in fiscal 1994 was due to the acquisitions of Insurnet and Mountain States. Costs of Systems Revenues - Costs of systems revenues include costs of computer hardware and third party software, along with costs associated with the purchase and installation of hardware and software products, and the amortization of capitalized software development costs. Costs of systems revenues, as a percentage of systems revenues, were 66.5%, 71.2% and 66% in fiscal 1995, 1994, and 1993, respectively. Changes in the percentage of costs of systems expressed as a percentage of revenues are primarily a result of a changing mix of products sold by the Company. In fiscal 1995, the Company placed less emphasis on the resale of low margin hardware which had the effect of decreasing revenues but improving gross margins on a percentage of revenue basis. Costs of Service Revenues - Costs of service revenues include costs associated with maintenance, consulting and training services, and payments made to third party hardware maintenance vendors. Costs of service revenues as a percentage of service revenues were 56.3%, 62.3% and 59.7% in fiscal 1995, 1994, and 1993, respectively. Changes in the percentage of costs of service revenues expressed as a percentage of revenues is the result of a change in the mix of services delivered. In fiscal 1995, an increase in sales of the Company's proprietary software which was not bundled with third party hardware increased service revenues and decreased costs of service revenues expressed as a percentage of service revenues. Sales and Marketing Expenses - Sales and marketing expenses expressed as a percentage of revenues declined to 12.9% of revenues in fiscal 1995, compared to 14.7% of revenues in fiscal 1994 and 15.3% of revenues in fiscal 1993. The reductions are the result of overall spending reductions in marketing and related activities, including reduced headcount, advertising and promotional spending, as well as decreased commission expense due to the decline of systems revenues as a percentage of total revenues. Product Development Expenses - Product development expenses, net of capitalized software costs, were $5,384,000, $3,948,000 and $3,558,000 in fiscal 1995, 1994, and 1993, respectively. 11 The increase in fiscal 1995 is primarily a result of a decrease in the amount of development spending capitalized, combined with an increase in spending levels. The increase in fiscal 1994 is due to an increase in spending levels. Product development expenditures prior to the capitalization of software were $6,550,000, $ 6,251,000 and $5,634,000, respectively, in fiscal years 1995, 1994, and 1993. The Company capitalizes software development costs in accordance with Statement of Financial Accounting Standards No. 86, and amortizes these costs through cost of systems revenues over a maximum of five years. The amount capitalized varies each period depending on how many software development projects have reached technological feasibility and whether they are in general release. The Company strongly believes in the importance of maintaining its technological strengths and will continue to invest substantial amounts in software development. General and Administrative Expenses - General and administrative expenses were 14.6%, 11.7% and 10.9% of revenues in fiscal years 1995, 1994, and 1993, respectively. The increase in fiscal 1995 was primarily due to increased general and administrative expenses as a result of the December, 1993, acquisitions of Mountain States and Insurnet, as well as severance costs for certain Company officers in fiscal 1995. The increase in fiscal 1994 was primarily the result of various one-time expenditures incurred to help improve operating efficiencies and reduce the cost structure of the Company, as well as the full year effect of 1993 personnel additions. Amortization of Goodwill, Customer Lists and Noncompete Agreements - Goodwill and noncompete agreements are costs from the acquisitions of Insurnet and Mountain States in December, 1993, and other acquisitions since fiscal 1992. The increase in fiscal 1995 and fiscal 1994 is attributable to the Insurnet and Mountain States acquisitions in December, 1993. The company follows a policy of continual evaluation of the carrying value of its intangible assets. See Note 2 of Notes to Consolidated Financial Statements of the Company. Interest Expense - The Company had interest expense of $944,000 in fiscal 1995, compared to $641,000 in fiscal 1994 and $376,000 in fiscal 1993. The increase in fiscal 1995 was due to higher interest rates than the prior fiscal year while the increase in fiscal 1994 was due to increased average borrowings. Income Tax Provision (Benefit) - The effective tax rates under SFAS No. 109 for fiscal years 1995, 1994, and 1993, were 9.0%, 1.4% and 7.0%, respectively. Lower than statutory effective tax rates and tax benefits are due to the operating losses in fiscal years 1995, 1994, and in 1993 were substantially a result of the benefits from net operating losses in prior years offsetting operating income for federal income taxes. Liquidity and Capital Resources - Working capital was a negative $5,747,000 at March 31, 1995, compared to a negative $4,966,000 at March 31, 1994. Working capital decreased during fiscal 1995 primarily due to a decrease in prepaid expenses and other assets and an increase in deferred revenues. The reduction in cash and accounts receivable was used to reduce bank borrowings and accounts payable. 12 A major component of the Company's negative net working capital position is a result of deferred revenues of $6,332,000 at March 31, 1995, substantially representing prepaid maintenance fees from its customers which are recognized as revenue ratably over the maintenance agreement terms. Since this liability is satisfied through normal on-going operations of the Company's service organization and does not require a payment to a third party, the Company's bank does not view deferred revenue as a liability in the calculation of financial covenants under the Company's line of credit. Net cash provided by operating activities was $2,550,000, $288,000 and $867,000 for fiscal years ended in 1995, 1994, and 1993, respectively. Although the Company reported a net loss in fiscal years 1995 and 1994, cash provided by operating activities was positive because a substantial portion of the loss was related to non-cash items including the amortization of goodwill and capitalized software. Cash used in investing activities was $2,155,000, $4,362,000 and $3,827,000 for the fiscal years ended 1995, 1994, and 1993, respectively. Cash from financing activities reflects the Company's borrowing and payment activities on its line of credit, proceeds from the exercise of options under the Company's various stock option plans and the issuance of preferred stock. In fiscal 1994, the Company raised $3,443,000 through the issuance of its Series C Preferred Stock and $1,375,000 through the issuance of Convertible Promissory Notes. In fiscal 1995, the Company raised the remaining $125,000 of the $1,500,000 of Convertible Promissory Notes. The Company has a line of credit agreement with a bank totaling $5 million which expires on December 5, 1995, which the Company expects to renew. Borrowings under the line of credit are generally limited to 75% of qualified accounts receivable, increasing to 80% for a forty-five day period each quarter. At March 31, 1995, the Company had borrowed $2,486,000 on its line of credit, compared to $3,786,000 on March 31, 1994. The credit agreement requires that the Company maintain certain minimum financial ratios. It also restricts certain activities of the Company without the approval of the bank, including the incurrence of senior debt, mergers and acquisitions, and the payment of dividends. The interest rate on the line of credit is prime plus 3.5%. At March 31, 1995, $1,409,000 remained available for borrowing under the line of credit. The Company believes that cash flows from its operations, along with available borrowings under its line of credit are sufficient to meet its current liabilities as they become due, along with meeting the Company's working capital and capital expenditure requirements for the next fiscal year. In the event the Company is unable to renew the existing line of credit, the Company will attempt to arrange alternate working capital financing through another bank or alternate financing companies. The Company does not have any material commitments for capital expenditures. 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS (In thousands, except for share amounts)
AS OF MARCH 31 ASSETS 1995 1994 --------------------- CURRENT ASSETS: Cash $ 877 $ 1,657 Accounts receivable, less allowances of $687 (1995) and $1,000 (1994) 7,639 9,702 Inventories 983 1,008 Prepaid expenses and other assets 1,424 1,781 -------- -------- TOTAL CURRENT ASSETS 10,923 14,148 Property and equipment, net 3,630 4,484 Software development costs, net 4,389 3,951 Goodwill and customer lists, net 5,284 5,914 Purchased software 2,484 2,693 Other assets 837 757 -------- -------- TOTAL ASSETS $ 27,547 $ 31,947 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 2,486 $ 4,029 Accounts payable and accrued liabilities 6,402 7,652 Accrued payroll and related benefits 1,441 1,489 Deferred revenue 6,332 5,944 -------- -------- TOTAL CURRENT LIABILITIES 16,661 19,114 Convertible promissory notes 1,500 1,375 Subordinated note payable 2,750 2,750 Excess lease liability 1,445 2,083 Other liabilities 638 394 -------- -------- TOTAL LIABILITIES $ 22,994 $ 25,716 -------- -------- Commitments and contingencies (Note 8) STOCKHOLDERS' EQUITY: Preferred stock, $.10 par value, 2,000,000 shares authorized, Series A, 0 (1995) and 16,577 (1994) shares issued and outstanding, respectively 0 3,703 Series B, 9,205 (1995) and 61,950 (1994) shares issued and outstanding, respectively 780 5,250 Series C, 36,268 shares issued and outstanding 3,570 3,570 Series D, 16,356 (1995) and 0 (1994) shares issued and outstanding, respectively 3,655 0 Common stock, $.10 par value: Non-designated, 50,000,000 shares authorized 7,979,173 (1995) and 7,011,415 (1994) issued and outstanding, respectively 798 701 Additional paid-in capital 18,507 14,085 Accumulated deficit (22,894) (21,213) Cumulative foreign currency translation adjustment 137 135 -------- -------- TOTAL STOCKHOLDERS' EQUITY 4,553 6,231 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,547 $ 31,947 -------- -------- -------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 14 CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
YEAR ENDED MARCH 31 1995 1994 1993 -------------------------------- REVENUES: Systems $21,100 $26,485 $26,057 Services 31,940 27,120 25,550 ------- ------- ------- TOTAL REVENUES 53,040 53,605 51,607 COSTS OF REVENUES: Systems 14,027 18,862 17,201 Services 17,983 16,906 15,265 ------- ------- ------- TOTAL COST OF REVENUES 32,010 35,768 32,466 ------- ------- ------- GROSS MARGIN 21,030 17,837 19,141 OPERATING EXPENSES: Product development 5,384 3,948 3,558 Sales and marketing 6,879 7,873 7,909 General and administrative 7,718 6,273 5,630 Amortization of goodwill, customer lists and noncompete agreements 1,646 1,413 1,097 Consolidation, repositioning and restructuring charges -- 6,490 -- ------- ------- ------- TOTAL OPERATING EXPENSES 21,627 25,997 18,194 ------- ------- ------- OPERATING (LOSS) INCOME (597) (8,160) 947 Interest expense 944 641 376 (Loss) income before income taxes (1,541) (8,801) 571 Income tax provision 140 121 40 ------- ------- ------- Net (loss) income ($1,681) ($8,922) $ 531 ------- ------- ------- ------- ------- ------- Net (loss) income per common share ($0.23) ($1.34) $ 0.07 ------- ------- ------- ------- ------- ------- Weighted average common shares and common share equivalents outstanding 7,306 6,672 7,897 ------- ------- ------- ------- ------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 15 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except for shares outstanding)
PREFERRED STOCK COMMON STOCK ------------------------------------------------------------------------ ----------------- SERIES A: SERIES B: SERIES C: SERIES D: SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------------------------------- BALANCE, MARCH 31, 1992 9,945 $2,215 31,950 $2,708 -- $ -- -- $ -- 6,160,615 $617 ------------------------------------------------------------------------------------------- Net income -- -- -- -- -- -- -- -- -- -- Exercise of stock options -- -- -- -- -- -- -- -- 231,575 23 Exercise of employee stock purchase plan -- -- -- -- -- -- -- -- 22,957 2 Issuance of common stock in connection with acquisitions -- -- -- -- -- -- -- -- 113,222 11 Issuance of Series A Preferred Stock 6,632 1,488 -- -- -- -- -- -- -- -- Issuance of Series B Preferred Stock due to the conversion of subordinated debentures -- -- 30,000 2,542 -- -- -- -- -- -- Translation adjustment -- -- -- -- -- -- -- -- -- -- ------------------------------------------------------------------------------------------- BALANCE, MARCH 31, 1993 16,577 $3,703 61,950 $5,250 -- -- -- -- 6,528,369 $653 ------------------------------------------------------------------------------------------- Net loss -- -- -- -- -- -- -- -- -- -- Redshaw acquisition adjustmentment 50,687 5 Exercise of stock options -- -- -- -- -- -- -- -- 17,023 2 Exercise of employee stock purchase plan -- -- -- -- -- -- -- -- 453 3 Issuance of common stock in conjunction with the acquisitions of Mountain Systems International, Inc. and Insurnet, Inc. -- -- -- -- -- -- -- -- 414,883 41 Issuance of Series C Preferred Stock -- -- -- -- 36,268 3,570 -- -- -- -- Translation adjustment -- -- -- -- -- -- -- -- -- -- ------------------------------------------------------------------------------------------- BALANCE, MARCH 31, 1994 16,577 $3,703 61,950 $5,250 36,268 $3,570 -- -- 7,011,415 $701 ------------------------------------------------------------------------------------------- Net loss -- -- -- -- -- -- -- -- -- -- Conversion of Series A, Preferred Stock (16,577) (3,703) -- -- -- -- 16,356 3,655 24,995 3 Conversion of Series B, Preferred Stock -- -- (52,745) (4,470) -- -- -- -- 879,083 88 Mountain States' acquisition adjustments -- -- -- -- -- -- -- -- 63,680 6 Translation adjustment -- -- -- -- -- -- -- -- -- -- ------------------------------------------------------------------------------------------- BALANCE, MARCH 31, 1995 0 $ 0 9,205 $ 780 36,268 $3,570 16,356 $3,655 7,979,173 $798 ------------------------------------------------------------------------------------------- ADDITIONAL FOREIGN PAID-IN ACCUMULATED TRANSLATION CAPITAL DEFICIT ADJUSTMENT ---------------------------------------- BALANCE, MARCH 31, 1992 $10,969 ($12,822) $32 Net income -- 531 -- Exercise of stock options 807 -- -- Exercise of employee stock purchase plan 134 -- -- Issuance of common stock in connection with acquisitions 423 -- -- Issuance of Series A Preferred Stock -- -- -- Issuance of Series B Preferred Stock due to the conversion of subordinated debentures -- -- -- Translation adjustment -- -- 47 ---------------------------------------- BALANCE, MARCH 31, 1993 $12,333 ($12,291) $79 ---------------------------------------- Net loss -- (8,922) -- Redshaw acquisition adjustment 236 -- -- Exercise of stock options 54 -- -- Exercise of employee stock purchase plan 3 -- -- Issuance of common stock in conjunction with the acquisitions of Mountain Systems International, Inc. and Insurnet, Inc. 1,459 -- -- Issuance of Series C Preferred Stock -- -- -- Translation adjustment -- -- 56 ---------------------------------------- BALANCE, MARCH 31, 1994 $14,085 ($21,213) $135 ---------------------------------------- Net loss -- (1,681) -- Conversion of Series A, Preferred Stock 46 -- -- Conversion of Series B, Preferred Stock 4,382 -- -- Mountain States' acquisition adjustment (6) -- -- Translation adjustment -- -- 2 ---------------------------------------- BALANCE, MARCH 31, 1995 $18,507 ($22,894) $137 ----------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 16 CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
YEAR ENDED MARCH 31 1995 1994 1993 --------------------------------- CASH FLOW FROM OPERATING ACTIVITIES: Net (loss) income ($1,681) ($8,922) $ 531 ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization 1,495 1,248 1,032 Amortization of capitalized software development costs 1,128 979 1,002 Amortization of purchased software 436 -- -- Amortization of goodwill, customer lists and noncompete agreements 1,646 1,413 1,097 Write off of capitalized software development costs -- 1,878 -- Foreign currency translation adjustment 2 56 47 Loss on disposal of fixed assets 76 318 -- Excess lease cost (638) 2,083 -- Other -- 134 -- CHANGES IN ASSETS AND LIABILITIES NET OF EFFECT OF ACQUISITION OF BUSINESSES: Accounts receivable, net 1,876 522 454 Inventories 25 690 955 Prepaid expenses and other assets (550) (12) (873) Accounts payable and accrued liabilities (1,250) 262 (2,966) Accrued payroll and related benefits (48) (141) (1,581) Other liabilities and deferred revenue 183 (220) 1,169 --------------------------------- Net cash provided by operating activities 2,700 288 867 --------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (718) (1,435) (1,361) Expenditures for capitalized software development (1,166) (2,303) (2,076) Purchased software (177) (332) (98) Cash outlays for acquisitions, net of cash acquired (244) (292) (292) --------------------------------- Net cash used in investing activities (2,305) (4,362) (3,827) --------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of notes payable (3,550) (8,653) (10,642) Borrowings on notes payable 2,250 8,366 10,895 Proceeds from exercise of stock options and employee stock purchase plan -- 59 966 Proceeds from issuance of convertible promissory notes 125 1,375 -- Proceeds from issuance of preferred stock -- 3,443 1,488 --------------------------------- Net cash provided by financing activities (1,175) 4,590 2,707 --------------------------------- Net increase (decrease) in cash (780) 516 (253) Cash at the beginning of the year 1,657 1,141 1,394 --------------------------------- Cash at the end of the year $ 877 $1,657 $1,141 --------------------------------- --------------------------------- SUPPLEMENTAL DISCLOSURES: Interest paid $ 594 $ 407 $ 215 Taxes paid 140 135 67 NON-CASH TRANSACTIONS: Common stock, preferred stock, subordinated convertible debentures and notes payable issued for acquisitions $ 450 $5,229 $ 434
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 17 DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION OF THE COMPANY: Delphi Information Systems, Inc., (the "Company") develops, markets and supports computer software systems which automate independent property and casualty insurance agencies and brokerages including the areas of rating, sales management, policy administration, accounting and electronic interface with the computers of insurance carriers. The Company also markets computer hardware and hardware support services to its customers. From January, 1991, to December, 1993, the Company acquired eight companies in similar or complimentary lines of business, including the March, 1993, acquisition of Continental Systems, Inc. ("Continental") and the December, 1993, acquisitions of Mountain Systems International, Inc. ("Mountain States") and Insurnet, Inc. ("Insurnet") noted below. The Company's recent efforts have been, and will continue to be, to streamline and consolidate operations which will result in cost savings and/or enhanced customer service. On March 9, 1993, the Company acquired all of the outstanding stock of Continental in exchange for 444,714 shares of the Company's common stock. Continental develops and markets insurance rating software and services for property and casualty insurance carriers and the independent agencies and brokerages in the property and casualty insurance industry. The merger was accounted for as a pooling of interests. Consequently, the historical financial statements of the Company have been restated to include the historical results of Continental. Fiscal 1993 revenues for the previously separate companies were $48,790,000 for the Company and $2,817,000 for Continental, and net income was $663,000 for the Company and the net loss for Continental was $132,000. On December 16, 1993, the Company acquired all of the outstanding stock of Mountain States of Scottsdale, Arizona, for consideration of 311,320 shares of the Company's common stock and a note payable of $500,000, which was paid in January, 1994. Per the terms of the merger agreement, the 311,320 shares of common stock was subject to a potential upward adjustment of an additional 63,680 shares which were issued in December, 1994, for a total of 375,000 shares. In addition, the shareholders of Mountain States earned additional consideration based upon growth in sales (see Note 11). The acquisition became effective on December 23, 1993. On December 30, 1993, the Company acquired all of the issued and outstanding capital stock of Insurnet, a wholly-owned subsidiary of Pacific Insurance Company, in exchange for a $5,000,000 principal amount, $2,750,000 carrying value subordinated note bearing interest at 6%, due June 30, 1996 (see Note 5), 103,563 shares of the Company's common stock, and a non-interest bearing $250,000 principal amount, $237,500 carrying value note, which was paid in March, 1995. The Agreement also provides that under certain circumstances Pacific Insurance Company may receive no more than 21,437 additional shares of Company common stock or additional subordinated notes, bearing interest at 6%, equal to the fair market value of such additional shares of Company common stock (see Note 11). 18 Mountain States develops and services agency management software that operates in a DOS and Windows-based Local Area Network (LAN) environment. Insurnet provides agency management systems and services to the independent property and casualty insurance industry throughout North America. Both acquisitions have been accounted for as purchases. Accordingly, the results of Mountain States have been recorded in the financial statements commencing on December 24, 1993, and the results of Insurnet have been recorded in the financial statements commencing on December 31, 1993. The excess of the cost of the acquisitions over the net fair value of identifiable assets and liabilities assumed at the date of acquisition was recorded as an intangible asset and amortized on a straight-line basis over five years for Mountain States, and on a straight-line basis over ten years for Insurnet. Proforma revenues, net loss and loss per share of the Company for the years ended March 31, 1994, and March 31, 1993, are presented as though the Mountain States and Insurnet operations had been combined with the Company at the beginning of each of these periods. The proforma results do not reflect any changes in operations which may occur as a result of the mergers. Fiscal 1994 proforma revenues, net loss and loss per share are $64,635,000, $8,827,000 and $1.27, respectively. Fiscal 1994 proforma results include Insurnet and Mountain States results beginning April 1, 1993, through the respective acquisition date combined with the Company's results as of March 31, 1994, which includes Insurnet and Mountain States activity for the period from the respective acquisition date through March 31, 1994. Fiscal 1993 proforma revenues, net loss and loss per share are $66,856,000, $1,522,000 and $0.23, respectively. Fiscal 1993 proforma results consist of Insurnet and Mountain States activity for calendar year 1992 combined with the Company's fiscal year 1993 activity. Proforma loss and loss per share include the amortization of noncompete agreements and goodwill representing expected annual charges of $641,000. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of intercompany transactions and balances. Revenue Recognition - The Company recognizes revenues related to software licenses and software maintenance in compliance with the American Institute of Certified Public Accountants (AICPA) Statement of Position No. 91-1, "Software Revenue Recognition". System revenues consist of revenues earned under software license agreements and revenues from computer hardware purchased by customers of the Company. When all components necessary to run the system have been shipped and only insignificant post-delivery obligations remain, revenue and costs are recognized at the time of shipment, based upon the sales price and the cost of specific items shipped. 19 Service revenues include maintenance fees for providing system updates for software products, user documentation and technical support, and sales of the Company's proprietary software which is not bundled with hardware or software of third parties. Hardware maintenance provided by third parties, but billed by the Company, is also offered to customers. Maintenance is generally billed to the customers in advance monthly, quarterly or annually and recognized as revenue ratably over the term of the maintenance contract. Other service revenues including training and consulting are recognized as the services are performed. Revenues related to custom programming are recognized based on the percentage of completion method. Software Development Costs - The Company capitalizes internally generated software development costs in compliance with the Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." Capitalization of software development costs begins upon the establishment of technological feasibility for the product. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs consider external factors including, but not limited to, anticipated future gross product revenues, estimated economic life and changes in software and hardware technology. Amortization of capitalized software development costs, through costs of systems revenues, begins when the products are available for general release to customers. The annual amortization is the greater of the amount computed using (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross product revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on. The maximum amortization period on a straight-line basis is five years. Capitalized software costs are amortized on a product-by-product basis. Amortization of capitalized software development costs was $1,128,000, $979,000 and $1,002,000 in fiscal 1995, 1994, and 1993, respectively. Net software development costs at March 31, 1995 and 1994 consist of the following (in thousands):
1995 1994 - -------------------------------------------------------------------- Total software development costs capitalized $5,496 $4,252 Less accumulated amortization (1,107) (301) - -------------------------------------------------------------------- $4,389 $3,951 - -------------------------------------------------------------------- - --------------------------------------------------------------------
During the third quarter of fiscal 1994, the Company wrote down its capitalized software development costs by $1,878,000 (see Note 3). Accounts Receivable - The Company's accounts receivable resulting from system sales are unsecured; however, the Company reserves a purchase security interest in the hardware until such time that the purchase price is paid in full. Inventories - Inventories, which consist primarily of computer equipment and consist entirely of finished goods, are stated at the lower of cost or market value. The cost of substantially all inventories is determined by specific identification. 20 Goodwill, Acquisition Costs and Customer Lists - Intangible assets relate to the excess of the cost of acquisitions over the net fair value of identifiable assets and liabilities and value assigned to customer lists. These costs are being amortized on a straight-line basis over five to ten years. Subsequent to acquisitions, the Company continually evaluates whether later events and circumstances have occurred that indicate the remaining useful life of the intangible assets may warrant revision or that the remaining balance of the intangible assets may not be recoverable. When factors indicate that the intangible assets should be evaluated for possible impairment, the Company uses an estimate of the related business segment's sufficiency of operating income and related cash flow over the remaining life of the intangible assets in measuring whether the intangible assets' value is recoverable. If management's assessment or other facts and circumstances pertaining to the recoverability of intangible assets of a particular business unit were to change, including their estimate of future operating income and related cash flows, the Company would adjust the carrying value of the intangible assets as appropriate. As of March 31, 1995, and 1994, the accumulated amortization was $2,306,000 and $1,514,000, respectively. Amortization of goodwill, acquisition costs and customer lists was $823,000, $649,000 and $359,000 in fiscal 1995, 1994, and 1993, respectively. Purchased Software - Purchased software represents product purchased for use in developing product, for licensing with the Company's products, or for direct sale to the Company's customers. These costs are being amortized on a straight-line basis over a maximum term of five years, or a shorter period, depending upon any contractual license agreement limitations or estimated remaining useful life. In fiscal 1994, the Company assigned $2,109,000 of the purchase price of Mountain States to purchased software. Other Assets - Other assets consist primarily of the long-term portion of noncompete agreements as well as miscellaneous long-term deposits. Property and Equipment - Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of three to ten years. Leasehold improvements are amortized over the shorter of the expected life of the improvements or the lease term. Income Taxes - The Company has adopted the liability method of accounting for income taxes pursuant to the Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end. Business tax credits are accounted for under the flow-through method. Income (Loss) Per Common Share - Income (loss) per common share for fiscal 1995, 1994, and 1993 is based on the weighted average number of common shares outstanding which includes the dilutive effect of convertible preferred stock, options and warrants in fiscal 1993. The effect of common share equivalents is not included in the loss per common share calculation for fiscal 1995 and 1994 because inclusion would be anti-dilutive. Primary and fully diluted earnings per share are the same for all periods presented. 21 Foreign Currency Transactions - The accounts of the Company's foreign subsidiary have been translated according to the provisions of the Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation". Gains or losses resulting from translation of the foreign subsidiary's financial statements are included in stockholders' equity. Any gains or losses resulting from foreign currency transactions are reflected in the consolidated results of the period in which they occur. NOTE 3 - CONSOLIDATION, REPOSITIONING AND RESTRUCTURING CHARGES: In fiscal 1994, as a result of the acquisition of Mountain States and its products, the Company's market and sales focus shifted. In evaluating the position of the Company, it was determined that it was necessary to write down certain assets to their net realizable value. Therefore, the Company took a charge to earnings of $4,206,000 in the third quarter of fiscal 1994. Capitalized software was written down to reflect the decreased value of such software in light of the acquisition. Additionally, the need for leased facilities diminished as a result of downsizing, resulting in a charge for excess lease commitments as well as headcount reductions. In the fourth quarter of fiscal 1994, the Company incurred an additional charge of $2,284,000. The initial charge reflected the Company's diminished use of its lease capacity in one of its facilities. In connection with its restructuring strategy, the Company considered ways to address such excess capacity, including subletting the entire facility and relocating to a smaller, more cost-effective operation. Based on such consideration and additional information relating to sublease opportunities, management decided to sublease the entire facility. This charge was partially reduced by an estimate of future sublease revenue, which is subject to update upon signing of a sublease agreement. Upon finalization of any sublease arrangement, the estimate will be adjusted. This adjustment could be material to the financial statements. The following summarizes the major restructuring costs (in thousands): Non-cash write down of capitalized software development costs $1,878 Reductions and changes in workforce and the elimination of facilities 3,919 Impairment of asset value due to acquisitions 628 Other items 65 - ---------------------------------------------------------------------------------- $6,490 - ---------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------
NOTE 4 - PROPERTY AND EQUIPMENT: Property and equipment at March 31, 1995 and 1994 consists of the following (in thousands):
1995 1994 - ---------------------------------------------------------------------------------- Computer equipment & purchased software $6,996 $7,401 Leasehold improvements 362 346 Furniture, fixtures and other 2,308 2,039 - ---------------------------------------------------------------------------------- 9,666 9,786 Less accumulated depreciation and amortization (6,036) (5,302) - ---------------------------------------------------------------------------------- $3,630 $4,484 - ---------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------
22 NOTE 5 - NOTES PAYABLE: Notes payable at March 31, 1995, and 1994, are comprised of the following:
1995 1994 - ----------------------------------------------------------------------------- Notes payable to bank $ 2,486 $ 3,786 Note payable and accrued interest from the purchase of Insurnet 0 243 Convertible promissory notes 1,500 1,375 Subordinated note payable 2,750 2,750 - ----------------------------------------------------------------------------- 6,736 8,154 Current portion (2,486) (4,029) - ----------------------------------------------------------------------------- $ 4,250 $ 4,125 - ----------------------------------------------------------------------------- - -----------------------------------------------------------------------------
The Company has a $5,000,000 line of credit agreement with a bank of which $2,486,000 was outstanding at March 31, 1995. At March 31, 1995, $1,409,000 remained available for borrowing under the line of credit. The line, which expires on December 5, 1995, carries an interest rate at the bank's prime lending rate plus 3.5 percent. Permitted borrowings under the line vary as a function of qualified accounts receivable and are collateralized by substantially all of the Company's assets. The agreement contains certain restrictive covenants including achievement by the Company of specified operating results and balance sheet ratios. The line also restricts certain activities of the Company without the approval of the bank, including the incurrence of senior debt, mergers and acquisitions, and the payment of dividends. Additional information related to line of credit borrowings for the three years ended March 31, 1995, is as follows (in thousands):
1995 1994 1993 - ---------------------------------------------------------------------------- Maximum amount borrowed during the year $4,036 $4,479 $3,114 Average amount borrowed during the year $3,340 $3,640 $1,815 Interest rate at the end of the year 12.5% 9.3% 9.0% Weighted average interest rate incurred during the year 12.8% 8.6% 9.3%
Average borrowings were determined based on the amounts outstanding at each month end. The weighted average interest rate during the year was computed by dividing actual interest by average borrowings outstanding during each of the years. The convertible promissory notes of $1,500,000 are due March 15, 1998, and bear interest at the prime rate and are convertible at the option of the holder into shares of the Company's common stock at a per share conversion price of $2.00, subject to certain anti-dilution provisions, for a total of 750,000 shares of common stock. 23 A total of $1,165,000 of the $1,500,000 promissory notes outstanding were to related parties, including $1,000,000 to Coral Group and $115,000 to foundations and trusts associated with and family members of Donald L. Lucas. Yuval Almog, Chairman of the Company's Board of Directors, is Managing Partner of Coral Group, Inc. Donald L. Lucas is a member of the Company's Board of Directors. NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES: Accounts payable and accrued liabilities at March 31, 1995, and 1994, consist of the following (in thousands):
1995 1994 - ---------------------------------------------------------------------------- Trade accounts payable $1,743 $4,643 Taxes other than income tax 330 350 Accrued reorganization costs 1,297 1,511 Other 3,032 1,148 - ---------------------------------------------------------------------------- $6,402 $7,652 - ---------------------------------------------------------------------------- - ----------------------------------------------------------------------------
NOTE 7 - INCOME TAXES: Pretax income (loss) from continuing operations consisted of (in thousands):
1995 1994 1993 - ------------------------------------------------------- Domestic $(1,624) $(8,910) $ 721 Foreign 83 109 (150) - ------------------------------------------------------- Total $(1,541) $(8,801) $ 571 - ------------------------------------------------------- - -------------------------------------------------------
The provisions for taxes on income from continuing operations consist of (in thousands):
1995 1994 1993 - ------------------------------------------------------- Current: U.S. Federal $ -- $ -- $-- State 74 73 40 Foreign 66 48 -- - ------------------------------------------------------- Total $140 $121 $40 - ------------------------------------------------------- Deferred: U.S. Federal $ -- $ -- $-- State -- -- -- Foreign -- -- -- - ------------------------------------------------------- Total $ -- $ -- $-- - ------------------------------------------------------- Total Provision $140 $121 $40 - ------------------------------------------------------- - -------------------------------------------------------
24 The income tax provision (benefit) on income (loss) differs from the amount obtained by applying the federal statutory rate because of the following items:
1995 1994 1993 - ----------------------------------------------------------------------------- Statutory rate (35.0)% (35.0)% 34.0% State income tax, net of federal tax effect 4.8 0.8 7.0 Amortization of intangible assets relating to acquired businesses 18.7 2.1 17.9 Losses producing no current tax benefit 16.3 32.9 -- NOL used to offset income -- -- (57.1) Other, net 4.2 0.6 5.2 - ----------------------------------------------------------------------------- Effective rate 9.0% 1.4% 7.0% - ----------------------------------------------------------------------------- - -----------------------------------------------------------------------------
Deferred income taxes reflect the impact of "temporary differences" between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. These temporary differences are determined in accordance with SFAS No. 109 and are more inclusive in nature than "timing differences" as determined under previously applicable accounting principles. Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 1995 and 1994 are as follows (in thousands):
1995 1994 ---------------------- ---------------------- DEFERRED TAX DEFERRED TAX ASSETS LIABILITIES ASSETS LIABILITIES - ----------------------------------------------------------------------------------------- Product enhancements $ -- $1,756 $ -- $1,582 Deferred rent 67 -- 146 -- Reserves 1,171 -- 1,154 -- NOL not utilized 6,593 -- 5,712 -- Tax credits not utilized 1,218 -- 1,271 -- - ----------------------------------------------------------------------------------------- 9,049 1,756 8,283 1,582 Valuation allowance (7,293) -- (6,701) -- ------- ------ ------- ------ Total deferred taxes $1,756 $1,756 $1,582 $1,582 - ----------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------
As of March 31, 1995, the Company had investment and business tax credit carryforwards of $161,000 and $1,057,000, respectively for both financial statement and federal income tax purposes. In addition, the Company has net operating losses available for offset against future taxable income of $16,640,000 for federal income tax, $15,817,000 for federal alternative minimum tax, and $4,646,000 for tax purposes for the primary State taxing authority. 25 In addition, the Company received net operating loss carry forwards in the acquisition of Redshaw of $3,220,000 for regular tax and $3,103,000 for alternative minimum tax. The Company received net operating loss carryforwards in the merger of Continental of $430,000 for federal income tax purposes. The utilization of these net operating losses could be limited due to the change in ownership of the acquired companies. Federal net operating loss carryforwards and a substantial portion of investment and other business tax credits will begin to expire after 1997, becoming fully expired by the year 2010 if not offset against future taxable income. NOTE 8 - COMMITMENTS AND CONTINGENCIES: Leases - The Company leases office space under non-cancelable operating leases with expiration dates ranging through 2000, with various renewal options. Other operating leases range from three to five years and are primarily for computer equipment. The aggregate minimum annual lease payments under leases in effect on March 31, 1995 are set forth below (in thousands) as follows:
- ---------------------------------------------------------------------- Capital Operating Fiscal Year Ending Leases Leases - ---------------------------------------------------------------------- 1996 $ 128 $2,544 1997 54 1,911 1998 46 1,734 1999 30 1,429 2000 2 378 - ---------------------------------------------------------------------- Total minimum lease commitments $ 260 $7,996 ------ Less: amount representing interest (36) - ------------------------------------------------------ Present value of obligations under capital leases 224 Less: current portion (110) - ------------------------------------------------------ Long-term obligations under capital leases $ 114 - ------------------------------------------------------
Rental expense covering the Company's office facilities and equipment for the fiscal years 1995, 1994 and 1993 aggregated $2,778,000, $2,901,000 and $2,849,000, respectively. Noncompetition Agreements - The Company entered into various noncompetition agreements with the shareholders of McCracken Computer, Inc., purchased in January, 1991, which expire over a period of 5 to 10 years. These agreements require the Company to make payments 26 totaling $4,700,000 to the McCracken shareholders over six years of which $3,636,000 has been paid to date. Future installments of $664,000 are due on the January, 31, anniversary date of the acquisition in 1996 and $400,000 in 1997. Noncompetition Agreements entered with the shareholders of other acquisitions require a total of $87,500 to be paid through December, 1996. Commitments related to the noncompetition agreements are amortized and expensed ratably over the life of each agreement. Contingencies - The Company is involved in certain legal actions and claims arising in the ordinary course of its business. It is the opinion of management and legal counsel that such litigation and claims will be resolved without a material effect on the Company's future results of operations or its financial position. NOTE 9 - SUBORDINATED CONVERTIBLE DEBENTURES: In connection with the acquisition of Redshaw on December 16, 1991, the Company issued $3,000,000 face value, $2,542,000 discounted carrying value, of subordinated convertible debt to shareholders of Redshaw. The notes were converted into 30,000 shares of the Company's Series B Preferred Stock in September, 1992, as approved by the Company's stockholders in August, 1992. In connection with the acquisition of Insurnet on December 30, 1993, the Company issued $5,000,000 face value, $2,750,000 discounted carrying value, of subordinated convertible debt to shareholders of Pacific Insurance Company. The note bears interest at the rate of 6%, for an effective annual interest rate of 11%, and is convertible into shares of a new series of the Company's preferred stock, to be designated Series E Preferred Stock, at the option of the Company. The Company is in the process of converting the note into Series E Preferred Stock. The Series E Preferred Stock includes a cumulative 6% annual dividend from the date of issuance, payable in shares of Company Common Stock. The Series E Preferred Stock would be convertible into shares of Company Common Stock at the option of the holder not earlier than June 30, 1996, and would automatically convert into shares of Company Common Stock on December 30, 1998. Each share of Series E Preferred Stock would be convertible into a number of shares of Common Stock of the Company as determined by dividing $84.745 plus any accrued and unpaid dividends on the Series E Preferred Stock at the time of conversion by a conversion price equal to the average of the closing prices of the Common Stock of the Company for the thirty trading days immediately prior to such conversion (the "Conversion Price"). The Conversion Price is subject to a minimum of $8.00 per share and maximum of $4.00 per share (as adjusted for certain events). Using the applicable trading value as of March 31, 1995, and assuming conversion of the Subordinated Note on that date, the Subordinated Note would have converted into 63,426 shares of Series E Preferred Stock and would have been convertible into 1,343,750 shares of Company Common Stock as of that date. The Series E preferred stock would be convertible at the holder's option on June 30, 1996, into a maximum of approximately 1,437,500 shares of Company Common Stock, based on the maximum Conversion Price outlined above. The actual Conversion Price at the time of the conversion will be determined based on the average of the closing prices of the Common Stock of the Company for the thirty trading days immediately prior to such conversion, subject to the maximum and minimum conversion prices outlined above. 27 NOTE 10 - PREFERRED STOCK: Series A Preferred Stock - During May, 1991, and January, 1993, the Company issued and sold in two private placements 9,945 and 6,632 shares, respectively, of its Series A Preferred stock par value of $.10 per share for a total of $2,249,559 and $1,500,138, respectively. The preferred stock was convertible by its holders at $4.35 per share into 862,000 shares of common stock of the Company not earlier than two years subsequent to its issuance and automatically converts to common stock three years after its issuance. The preferred stock includes voting rights equivalent to the number of common shares into which the preferred stock is convertible; certain registration rights on the common stock into which the preferred stock is converted; and certain anti-dilution covenants. No dividends are required under the terms governing the preferred stock. Issuance costs related to the sales of preferred stock totaled $35,000 in May, 1991, and $12,000 in January, 1993. The issuance of the Series C Preferred Stock on December 23, 1993, caused an adjustment in the conversion price of the Company's Series A Preferred Stock down to the conversion price of the Series C Preferred Stock. The issuance of the Company's convertible promissory notes in March, 1994 caused an additional adjustment in the conversion price of the Series A Preferred Stock down to $2.00. During May, 1994, the holders of the Company's Series A Preferred Stock exchanged such preferred stock for an equal number of shares of the Company's Series D Preferred Stock. The exchange was effected pursuant to agreements entered into in connection with the Company's issuance of the Series C Preferred Stock. The terms of the Series D Preferred Stock are substantially similar to those of the Series A Preferred Stock but do not require the conversion of the Series D Preferred Stock into common stock at a specified date. The Series A Preferred Stock was, by its terms, forced to convert to common stock on May 24, 1994. Series B Preferred Stock - In connection with the acquisition of Redshaw on December 16, 1991, 31,950 shares of the Company's Series B Preferred Stock were issued to shareholders of Redshaw. In September, 1992, the Company's subordinated convertible debentures were converted into 30,000 shares of the Company's Series B Preferred Stock. The 61,950 shares of Series B Preferred Stock became convertible into common stock at the option of the holder after December 12, 1994, and automatically convert into common stock on December 13, 1995. On December 16, 1994, the holders of 52,745 shares of the Company's Series B Preferred Stock converted that stock into 879,083 shares of Common Stock. The number of shares of common stock issuable on conversion of each share of Series B Preferred Stock is determined by dividing $100 by the average daily closing price of the common stock for the 30 trading days prior to conversion, however, not less than $6 per share. The maximum number of shares of common stock issuable on conversion of the remaining Series B Preferred Stock will be 153,417. The Series B Preferred Stock has no voting rights except as mandated by Delaware law and except that approval of the holders of more than 66 2/3 percent of the shares of Series B Preferred Stock is required for certain amendments to the Company's Certificate of Incorporation, reclassifications, re acquisitions of junior shares and increases in the authorized number of shares of Series B Preferred Stock. 28 Series C Preferred Stock - On December 23, 1993, the Company issued 36,268 shares of its Series C Preferred Stock. Each share was sold for $100 per share and had an initial conversion price into common Stock of $3.05058. Such shares were sold to a group of accredited investors for cash in the amount of $1,750,000 and for the conversion of $1,750,000 principal amount of notes payable plus accrued interest of approximately $127,000 owed by the Company. Issuance costs related to the sale of the Series C Preferred Stock totaled approximately $57,000. The issuance of the Company's convertible promissory notes in March, 1994, caused an adjustment in the conversion price of the Company's Series C Preferred Stock down to $2.00. The effect of such adjustment is that the Series C will be convertible into 1,813,400 shares of Common Stock. NOTE 11 - CONTINGENT ISSUANCES OF COMMON STOCK In connection with the Company's acquisition of Mountain States, the shareholders of Mountain States had the opportunity to earn additional consideration based upon growth in sales of Mountain States software products in the fiscal year beginning April 1, 1994. Per the terms of this agreement, a cash payment of $135,135 and an additional 339,280 shares of Common Stock were issued on May 25, 1995, to the former shareholders of Mountain States. The 311,320 shares of common stock issued for the acquisition of Mountain States was subject to a potential upward adjustment of an additional 63,680 shares, for a total of 375,000 shares, depending upon the average daily closing price of the Company's common stock for the twelve month period following the closing date of the acquisition. The additional 63,680 shares were issued December 16, 1994. The 103,563 shares of common stock issued in the acquisition of Insurnet is subject to a potential upward adjustment of an additional 21,437 shares, for a total of 125,000 shares, within two years of the Insurnet acquisition. This adjustment is contingent upon the price of the Company's common stock if sold by the Pacific Insurance Company within two years of the sale of Insurnet to the Company. NOTE 12 - COMMON STOCKHOLDERS' EQUITY: Stock Options - The Company has a stock incentive plan which provides for the granting of 3,000,000 stock options and stock appreciation rights to officers, directors and employees. Options granted under the program may be incentive stock options as defined under current tax laws or nonstatutory options. Options are granted at prices determined by the Board of Directors (not less than 100 percent of the market price of the stock at the time of grant and 110 percent with respect to incentive stock options granted to optionees who own 10 percent or more of the Company's stock). Stock options under this plan generally become exercisable in 25 percent increments maturing on each of the first through fourth anniversaries of the date of grant. All options must be exercised within ten years of the date of grant (with respect to incentive stock optionees owning 10 percent or more of the Company's stock, the term may be no longer than five years). No stock appreciation rights are outstanding. 29 The Company has granted nonstatutory options outside the stock incentive plan to purchase up to an aggregate of 95,000 shares. These options are granted at prices determined by the Board of Directors (no less than 100 percent of the market price). The options have various vesting periods and must be exercised within seven to ten years of the date of the grant. Information with respect to the Company's stock options is as follows:
Within Plan Outside Plan ----------- ------------ Shares Shares Under Option Under Option Option Prices Option Prices - --------------------------------------------------------------------------------- Balance, March 31, 1992 834,619 $2.50-$7.00 373,167 $2.50-$6.78 Granted 248,700 6.00-6.75 259,000 5.75-7.25 Exercised (106,186) 2.50-6.75 (125,389) 2.50 Canceled (183,950) 5.75-7.00 -- -- - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- Balance, March 31, 1993 793,183 $2.50-$6.88 506,778 $2.50-$7.38 Granted 245,500 4.88-5.50 20,000 4.75 Exercised (17,000) 2.50-5.75 -- -- Canceled (385,538) 2.50-6.88 (198,750) 6.00-7.38 - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- Balance, March 31, 1994 636,145 $2.50-$6.88 328,028 $2.50-$7.38 Granted 1,326,173 0.78-1.13 20,000 0.78 Exercised -- Canceled (533,937) 6.875-1.00 (253,028) 7.34-2.50 - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- Balance, March 31, 1995 1,428,381 $0.78-$6.75 95,000 $7.38-$0.78 - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- Exercisable at March 31, 1995 119,208 $6.75-$2.50 56,662 $4.75-$7.38 - --------------------------------------------------------------------------------- - --------------------------------------------------------------------------------- Available for Grant at March 31, 1995 941,783 -- -- -- - --------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------
30 Stock Purchase Plan - In July, 1989, the Company established a stock purchase plan for eligible employees. Employees may subscribe up to 10 percent of their compensation to purchase the Company's common stock at the lower of 85 percent of the fair market value at the date of grant or 85 percent of the fair market value six months after the date of grant. Shares subscribed to must be exercised one year after the date of grant or are canceled. The Company has reserved 200,000 shares of common stock for the plan. New subscriptions were granted by the Company to eligible employees on August 1, 1994. If fully exercised, the 142,942 shares remaining under the plan would be issued. These shares are due to be exercised on July 31, 1994. Stock Warrants - In connection with the Delphi/CIGNA Property and Casualty Agency Division of the CIGNA Property and Casualty Insurance Group of the Insurance Company of North America ("CIGNA") Agreement entered into in June, 1988, CIGNA received a warrant to acquire up to 250,000 shares of the Company's common stock for $7.50 per share, subject to adjustment, prior to expiration of the warrant on January 31, 1996. In connection with its line of credit agreement renewal with its bank in December, 1994, the Company agreed to issue to the bank a five-year warrant option to purchase 375,000 shares of common stock, at a price of $3.50 per share. In connection with its line of credit agreement with its bank in May, 1992, the Company agreed to issue warrants to the bank to purchase up to 75,000 shares of the Company's common stock over a five year term at the fair market value of the common stock on the date of grant of $6.75 per share. NOTE 13 - CASH OPTION PROFIT SHARING PLAN AND TRUST: Effective January 1, 1988, the Company adopted and implemented a 401(k) Cash Option Profit Sharing Plan which allows employees to contribute part of their compensation to the Profit Sharing Plan and Trust, on a pre-tax basis. The Company is under no obligation to contribute to the Plan. For the fiscal years ending March 31, 1995, 1994, and 1993, the Company did not make any contributions to the plan. 31 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Delphi Information Systems, Inc. We have audited the accompanying consolidated balance sheets of Delphi Information Systems, Inc. (a Delaware Corporation) and subsidiaries as of March 31, 1995, and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amount and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Delphi Information Systems, Inc. and subsidiaries as of March 31, 1995, and 1994, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1995, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Chicago, Illinois May 24, 1995 32 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information regarding directors of the Company required by this item is incorporated by reference to the Company's definitive proxy statement relating to its August 29, 1995, Annual Meeting of Stockholders under the captions "Election of Directors" and "Compliance with SEC Filing Requirements" which will be filed with the Securities and Exchange Commission within 120 days after March 31, 1995. The executive officers and senior management of the Company are as follows:
Name Age Position - ---- --- -------- M. Denis Connaghan 45 President, Chief Executive Officer Gustavus J. Esselen 39 Executive Vice President John R.Sprieser 47 Sr. Vice President, Chief Financial Officer, Secretary Michael J. Marek 36 Corporate Controller
The executive officers of the Company are elected annually by the Board. M. Denis Connaghan joined the Company in July, 1994, as Executive Vice President and Chief Operating Officer. In August, 1994, Mr. Connaghan was promoted to President, and in November, 1994, to Chief Executive Officer. From February, 1991, to June, 1994. Mr. Connaghan was with IBAX Healthcare Systems, most recently as Vice President, Technology and Business Unit General Manager. IBAX was a joint venture between IBM and Baxter in the development and marketing of computerized solutions to healthcare providers. From May, 1978, to February, 1990, Mr. Connaghan held a number of managerial and executive positions with Pansophic Systems, Inc., a publicly held computer software company. Gustavus J. Esselen, an Executive Vice President of the Company, is responsible for the global sales and marketing operations of the Company. Mr. Esselen has also been responsible for management of the Insight product operations of the Company since their acquisition in January 1991, including various sales and marketing, service, development and administrative functions. Mr. Esselen, a significant shareholder of the Company, served as a director of the Company from February, 1991, to September, 1993. Formerly, Mr. Esselen was the senior sales and marketing executive for McCracken Computer Inc. 33 John R. Sprieser joined the Company as Senior Vice President, Chief Financial Officer & Secretary, in January, 1995. He is responsible for all financial, administrative and internal information systems of the Company. Previously, Mr. Sprieser was Senior Vice President-Finance of IDC Services, Inc., which provides data processing and market research services principally to producers of filmed entertainment and broadcast commercials, from January, 1989, to January, 1995. From November 1986, to December, 1988, Mr. Sprieser was Vice President-Finance of Longman Group USA, Inc., a U.S. subsidiary of Pearson p/c, a U.K.-based publisher of books and software. Mr. Sprieser is a Certified Public Accountant. Michael J. Marek joined the Company as Corporate Controller in April, 1993. From April, 1992, to April, 1993, Mr. Marek was Director of Finance for Bang & Olufsen of America, Inc., the U.S. subsidiary of a European-based electronic component manufacturer. From November, 1991, to April, 1992, Mr. Marek was an independent financial consultant. From September, 1990, to November, 1991, Mr. Marek was Director of Financial Reporting for Pansophic Systems, Inc., a publicly held computer software company. From October, 1986, to September 1990 Mr. Marek held various positions with Applied Learning International, Inc., a subsidiary of National Education Corporation, most recently as U.S. Controller. Mr. Marek is a Certified Public Accountant. ITEM 11. EXECUTIVE COMPENSATION There is hereby incorporated by reference the information appearing under the caption "Compensation of Directors and Executive Officers" in the Company's proxy statement for its August 29, 1995, Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after March 31, 1995. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT There is hereby incorporated by reference the information appearing under the captions "Security Ownership of Management" and "Principal Stockholders of Delphi" in the Company's proxy statement for its August 29, 1995, Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after March 31, 1995. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There is hereby incorporated by reference the information appearing under the captions "Compensation of Directors and Executive Officers" in the Company's proxy statement for its August 29, 1995, Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after March 31, 1995. 34 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS. The following consolidated financial statements and supplementary data of the Company and its subsidiaries, required by Part II, Item 8 are filed herewith: - Report of Independent Public Accountants - Consolidated Balance Sheets as of March 31, 1995, and 1994 - Consolidated Statements of Operations for the Years Ended March 31, 1995, 1994, and 1993 - Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 1995, 1994, and 1993 - Consolidated Statements of Cash Flows for the Years Ended March 31, 1995, 1994, and 1993 - Notes to Consolidated Financial Statements (a) 2. FINANCIAL STATEMENTS. The following financial statement schedule is filed herewith: Schedule II - Valuation and Qualifying Accounts for the Years Ended March 31, 1995, 1994, and 1993. Schedules other than those listed above have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto. (b) EXHIBITS 2.2 Agreement for purchase and sale of stock of Insurnet, Incorporated among the Continental Corporation, Pacific Insurance Company, Insurnet, Incorporated and the Company (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K for December 30, 1993, and incorporated herein by reference). 3.1 Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1991, and incorporated herein by reference). 3.2 Certificate of Designations of Series B Preferred Stock filed with the Secretary of State of the State of Delaware on December 11, 1991, (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K for December 16, 1991, and incorporated herein by reference). 35 3.3 Certificate of Designations of Series C Preferred Stock filed with the Secretary of State of Delaware on December 21, 1993, (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K for December 23, 1993, and incorporated herein by reference). 3.4 Certificate of Designations of Series D Preferred Stock filed with the Secretary of State of Delaware on May 20, 1994. 3.5 Bylaws of the Company, as amended (filed as Exhibit 3.2 to the Company's Registration Statement on Form S-1 (No. 33-14501) and incorporated herein by reference). 4.1 Loan and Security Agreement dated June 8, 1993, between the Company and Silicon Valley Bank (filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993, and incorporated herein by reference). 4.2 Registration Rights Agreement dated as of January 31, 1991, among the Company, Frank H. McCracken and Gustavus Esselen (filed as Exhibit 4.3 to the Company's Registration Statement on Form S-1 (No. 33-57680) and incorporated herein by reference). 4.3 Registration Rights Agreement dated as of January 31, 1991, between the Company and The Chubb Corporation (filed as Exhibit 4.3 to the Company's Registration Statement on Form S-1 (No. 33-45153) and incorporated herein by reference). 4.5 Registration Rights Agreement dated as of March 1, 1993, among the Company and David J. Jordan, Karen E. Jordan, Kenneth M. Johnson and James H. Potter (filed as Exhibit 4.5 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993, and incorporated herein by reference). 4.6 Investors' Rights Agreement of the Company's Series C Preferred Stock dated as of December 21, 1993. 4.7 Registration Rights Agreement dated as of December 30, 1993, between the Company and Pacific Insurance Company. 4.8 Registration Rights Agreement dated as of December 10, 1993, between the Company and Phil Frandsen and Brenda Frandsen. 4.9 Investors' Rights Agreement of the Company's Convertible Promissory Notes dated as of March 15, 1994. 4.10 Promissory Note due June 30, 1996, dated as of December 30, 1993, to the order of Pacific Insurance Company. 4.11 Promissory Note due June 30, 1994, dated as of December 30, 1993, to the order of Pacific Insurance Company. 4.12* Amended schedule to Loan and Security Agreement dated December 21, 1994, between the Company and Silicon Valley Bank. 36 MANAGEMENT CONTRACTS AND COMPENSATION PLANS AND ARRANGEMENTS 10.1 Delphi Information Systems, Inc. 1983 Stock Incentive Plan, as amended (filed as Exhibit 10.1 to the Company's Registration Statement on Form S-1 (No. 33-45153) and incorporated herein by reference). 10.2 Delphi Information Systems, Inc. Cash Option Profit Sharing Plan (filed as Exhibit 4.2 to the Company's Registration Statement on Form S-8 (No. 33-19310) and incorporated herein by reference). 10.3 Delphi Information Systems, Inc. 1989 Stock Purchase Plan (included in the prospectus filed as part of the Company's Registration Statement on Form S-8 (No. 33-35952) and incorporated herein by reference). 10.4 Delphi Information Systems, Inc. Non-Qualified Stock Option Plan for Directors (filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1992, and incorporated herein by reference). 10.9 Agreement for Authorized Dealers and Industry Remarketers between the Company and International Business Machines Corporation, as amended (filed as Exhibit 10.11 to the Company's Registration Statement on Form S-1 (No. 33-45153) and incorporated herein by reference). 10.10 Stock Purchase Warrant dated June 5, 1992, issued by the Company to Silicon Valley Bank, and related Registration Rights Agreement (filed as Exhibit 10.12 to the Company's Registration Statement on Form S-1 (No. 33-45153) and incorporated herein by reference). 10.13 Stock Purchase Warrant, dated as of June 30, 1988, between CIGNA and the Company (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K for July 6, 1988, and incorporated herein by reference). 10.16 Amendment #1 dated June 29, 1990, to the Stock Purchase Warrant between CIGNA and the Company (filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1990, and incorporated herein by reference). 10.17 Lease between the Company and Westlake Renaissance Court for office space in Westlake Village, California, as amended (filed as Exhibit 10.5 to the Company's Registration Statement on Form S-1 (No. 33-14501) and incorporated herein by reference). 10.18 Lease dated April 17, 1986, between Mortimer B. Zuckerman and Edward H. Linde, as Trustees, as Landlord and McCracken Computer Inc., as Tenant, relating to premises at 10-20 Burlington Mall Road, Burlington, Massachusetts, as amended (filed as Exhibit 10.22 to the Company's Form S-1 Registration Statement (No. 33-45153) and incorporated herein by reference). 37 10.23* Employment agreement dated July 7, 1994, between the Company and M. Denis Connaghan. 10.24* Employment agreement dated January 31, 1995, between the Company and John R. Sprieser. 10.25* Severance Compensation Agreement dated October 19, 1994, between the Company and David J. Torrence. 10.26* Form of Stock Purchase Warrant between the Company and Silicon Valley Bank. 22.1 The subsidiaries of the Company and State of incorporation. 27.1* Financial Data Schedule. 99.1* Information, Financial Statements, and Exhibits required by Form 11-K in accordance with Rule 15d-21 under the Securities Exchange Act of 1934. - ------------------ * Filed herewith (c) Reports on Form 8-K ------------------- None. 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DELPHI INFORMATION SYSTEMS, INC. (Registrant) By /s/ M. Denis Connaghan ---------------------------- M. Denis Connaghan, President Date: June 27, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/Yuval Almog Chairman of the Board June 27, 1995 - ---------------------- (Yuval Almog) /s/M. Denis Connaghan Director, President and June 27, 1995 - ---------------------- Chief Executive Officer (M. Denis Connaghan) /s/John R. Sprieser Senior Vice President, June 27,1995 - --------------------- Finance and Administration, (John R. Sprieser) Chief Financial Officer and Corporate Secretary /s/Michael J. Marek Corporate Controller June 27, 1995 - --------------------- (Michael J. Marek) 39 /s/Donald L. Lucas Director June 27, 1995 - ---------------------- (Donald L. Lucas) /s/Larry G. Gerdes Director June 27, 1995 - ---------------------- (Larry G. Gerdes) /s/Richard R. Janssen Director June 27, 1995 - ---------------------- (Richard R. Janssen) 40 SCHEDULE II ----------- DELPHI INFORMATION SYSTEMS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993 Allowance for doubtful accounts receivable.
March 31, March 31, March 31, 1995 1994 1993 ---- ---- ---- Beginning Balance $1,000,000 $735,000 $1,188,000 Provisions for Allowance 396,000 547,000 179,000 Write Off of Accounts Receivable Against Allowance (847,000) (664,000) (632,000) Allowance Acquired in Acquisitions 138,000 382,000 -- ---------- --------- --------- $ 687,000 $1,000,000 $735,000 ---------- ---------- --------- ---------- ---------- ---------
41 EX-4.12 2 EXHIBIT 4.12 Exhibit 4.12 SILICON VALLEY BANK AMENDED SCHEDULE TO LOAN AND SECURITY AGREEMENT BORROWER: DELPHI INFORMATION SYSTEMS, INC. ADDRESS: 3501 ALGONQUIN ROAD, SUITE 5OO ROLLING MEADOWS, ILLINOIS 60008 BORROWER: REDSHAW, INC. ADDRESS: 680 ANDERSON DRIVE, BUILDING 10 PITTSBURGH, PENNSYLVANIA 15520 BORROWER: CANADIAN INSURANCE COMPUTER SERVICES, INC. ADDRESS: 305 MILNER AVENUE, SUITE 312 SCARBORAUGH, ONTARIO, CANADA, M1B3VR BORROWER: CONTINENTAL SYSTEMS, INC. ADDRESS: 4572 S. HAGADORN EAST LANSING, MICHIGAN 48823 BORROWER: SPECIALTY PROGRAM SERVICES, INC. ADDRESS: 3685 ROGER B. CHAFFEE MEMORIAL BLVD. GRAND RAPIDS, MICHIGAN 49548 BORROWER: COMPUSULT, INC. ADDRESS: ONE WEST DEER VALLEY ROAD, SUITE 203 PHOENIX, ARIZONA 85027 BORROWER: INSURNET, INCORPORATED ADDRESS: 1900 POWELL STREET EMERYVILLE, CALIFORNIA 94608 BORROWER: MS INTERNATIONAL ACQUISITION CORPORATION ADDRESS: 10799 90TH STREET P.O. BOX 13450 SCOTTSDALE, ARIZONA 85267 DATE: DECEMBER 21, 1994 BORROWER: Delphi Information Systems, Inc. ("Delphi"), Redshaw, Inc. ("Redshaw"), Canadian Insurance Computer Services, Inc. ("Canadian"), Continental Systems, Inc. ("Continental"), Specialty Program Services, Inc. ("Specialty"), Compusult, Inc. ("Compusult"), -1- SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- Insurnet, Incorporated ("Insurnet") and MS International Acquisition Corporation ("MS International") are jointly and severally referred to herein as "Borrower". CREDIT LIMIT (Section 1.1): An amount not to exceed the lesser of: (i) $5,000,000* at any one time outstanding; or (ii) 75% (the "Advance Rate") of the Net Amount of Borrower's accounts, which Silicon in its discretion deems eligible for borrowing; provided, however, that outstanding Obligations representing borrowings with respect to Borrower's accounts which are more than 90 days past invoice date may not exceed 20% of the total Obligations at any time outstanding. Silicon will, in its reasonable discretion, at the request of the Borrower, increase the Advance Rate to 80% for more than 45 consecutive days in any fiscal quarter of Borrower. "Net Amount" of an account means the gross amount of the account, minus all applicable sales, use, excise and other similar taxes and minus all discounts, credits and allowances of any nature granted or claimed. * ON A JOINT BASIS FOR DELPHI, REDSHAW, CANADIAN, CONTINENTAL, SPECIALTY, COMPUSULT, INSURNET, AND MS INTERNATIONAL Without limiting the fact that the determination of which accounts are eligible for borrowing is a matter of Silicon's discretion, the following will not be deemed eligible for borrowing: accounts outstanding for more than 120 days from the invoice date, accounts subject to any contingencies, accounts owing from an account debtor outside the United States (unless pre- approved by Silicon in its discretion, or backed by a letter of credit satisfactory to Silicon, or FCIA insured satisfactory to Silicon), accounts owing from one account debtor to the extent they exceed 25% of the total eligible accounts outstanding, accounts owing from an affiliate of Borrower, and accounts owing from an account debtor to whom Borrower is or may be liable for goods purchased from such account debtor or otherwise. In addition, if more than 50% of the accounts owing from an account debtor are outstanding more than 120 days from the invoice date or are otherwise not eligible accounts, then all accounts owing from that account debtor will be deemed ineligible for borrowing. Further, Borrower and Silicon agree to reevaluate the discretionary borrowing formulas set forth above on a quarterly basis for potential modification, although Silicon's agreement to so evaluate the borrowing formula shall not be construed as a commitment or agreement to modify them, which modification shall be done in the sole discretion of Silicon. LETTER OF CREDIT SUBLIMIT Silicon, in its reasonable discretion, will from time to time during the term of this Agreement issue letters of credit for the account of the Borrower ("Letters of Credit"), in an aggregate amount at any one time outstanding not to exceed $250,000*, upon the request of the Borrower, provided that, on the date the Letters of Credit are to be -2- issued, Borrower has available to it Loans in an amount equal to or greater than the face amount of the Letters of Credit to be issued Prior to issuance of any Letters of Credit, Borrower shall execute and deliver to Silicon Applications for Letters of Credit and such other documentation as Silicon shall specify (the "Letter of Credit Documentation"). Fees for the Letters of Credit shall be as provided in the Letter of Credit Documentation. Letters of Credit may have a maturity date up to twelve months beyond the Maturity Date in effect from time to time, provided that if on the Maturity Date, or on any earlier effective date of termination, there are any outstanding letters of credit issued by Silicon or issued by another institution based upon an application, guarantee, indemnity or similar agreement on the part of Silicon, then on such date Borrower shall provide to Silicon cash collateral in an amount equal to the face amount of all letters of credit plus all interest, fees and cost due or to become due in connection therewith, to secure all of the Obligations relating to said letters of credit, pursuant to Silicon's then standard form cash pledge agreement. *ON A JOINT BASIS FOR DELPHI, REDSHAW, CANADIAN, CONTINENTAL, SPECIALTY, COMPUSULT, INSURNET, AND MS INTERNATIONAL The Credit Limit set forth above regarding the Loans and the Loans available under this Agreement at any time shall be reduced by the face amount of Letters of Credit from time to time outstanding. INTEREST RATE (Section 1.2): A rate equal to the "Prime Rate" in effect from time to time, plus 3.50% per annum. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. "Prime Rate" means the rate announced from time to time by Silicon as its "prime rate," it is a base rate upon which other rates charged by Silicon are based, and it its not necessarily the best rate available at Silicon. The interest rate applicable to the Obligations shall change on each date there is a change in the Prime Rate. LOAN ORIGINATION FEE (Section 1.3): SEE AMENDMENT OF EVEN DATE HEREWITH. MATURITY DATE (Section 1.3): DECEMBER 5, 1995 PRIOR NAMES OF BORROWER (Section 3.2): NONE TRADE NAMES OF BORROWER (Section 3.2): NONE -3- OTHER LOCATIONS AND ADDRESSES (Section 3.3): SEE ATTACHED EXHIBIT A. MATERIAL ADVERSE LITIGATION (Section 3.10): NONE NEGATIVE COVENANTS- EXCEPTIONS (Section 4.6): Without Silicon's prior written consent, Delphi may repurchase shares of its stock pursuant to any employee stock purchase or benefit plan, provided that the total amount paid by Delphi for such stock does not exceed $250,000 in any fiscal year. FINANCIAL COVENANTS (Section 4.1): Delphi shall comply with all of the following covenants. Except as otherwise specifically provided below, compliance shall be determined as of the end of each month, on a consolidated basis, commencing with the period ending December 31, 1994: QUICK ASSET RATIO: Delphi shall maintain a ratio of "Quick Assets" to current liabilities of not less than .65 to 1. NET WORTH: Borrower shall maintain a net worth of not less than $7,800,000. DEBT TO NET WORTH RATIO: Borrower shall maintain a ratio of total liabilities to net worth of not more than 1.55 to 1. PROFITABILITY Borrower shall not incur an operating loss (after taxes) for the fiscal quarters ending December 31, 1994 and March 31, 1995; and Borrower shall attain an operating profit (after taxes) for each fiscal quarter thereafter in a minimum amount of $150,000. DEFINITIONS: "Current assets," and "current liabilities" shall have the meanings ascribed to them in accordance with generally accepted accounting principles. "Net worth" means the excess of total assets over total liabilities, determined in accordance with generally accepted accounting principles. "Quick Assets" means cash on hand or on deposit in banks, readily marketable securities issued by the United States, readily marketable commercial paper rated "A-1" by Standard & Poor's Corporation (or a similar rating by a similar rating organization), certificates of deposit and banker's acceptances, and accounts receivable (net of allowance for doubtful accounts). DEFERRED REVENUES: For purposes of the above quick asset ratio, deferred revenues shall not be counted as current liabilities. For purposes of the above debt to net worth ratio, deferred revenues shall not be counted in determining net worth for purposes of -4- such ratio. For all other purposes deferred revenues shall be counted as liabilities in accordance with generally accepted accounting principles. SUBORDINATED DEBT: "Liabilities" for purposes of the foregoing covenants do not include indebtedness which is subordinated to the indebtedness to Silicon under a subordination agreement in form specified by Silicon or by language in the instrument evidencing the indebtedness which is acceptable to Silicon. OTHER COVENANTS (Section 4.1): Borrower shall at all times comply with all of the following additional covenants: 1. BANKING RELATIONSHIP. Borrower shall at all times maintain its primary banking relationship with Silicon. 2. WEEKLY BORROWING BASE CERTIFICATE AND LISTING. Within 5 days after the end of each week, Borrower shall provide Silicon with a Borrowing Base Certificate in such form as Silicon shall specify, and an aged listing of Borrower's accounts receivable and accounts payable. 3. INDEBTEDNESS. Without limiting any of the foregoing terms or provisions of this Agreement, Borrower shall not in the future incur indebtedness for borrowed money, except for (i) indebtedness to Silicon, and (ii) indebtedness incurred in the future for the purchase price of or lease of equipment in an aggregate amount not exceeding $250,000 (in the aggregate for all Borrowers) at any time outstanding. 4. FINANCIAL STATEMENTS. Without limitation of the other terms and provisions hereof, Delphi will provide to Silicon (i) within 30 days after the end of each month, consolidating monthly financial statements prepared by the Borrower, and a Compliance Certificate in such form as Silicon shall reasonably specify, signed by the Chief Financial Officer of the Borrower, certifying that throughout such month the Borrower was in full compliance with all of the terms and conditions of this Agreement together with such other information as Silicon shall reasonably request and (ii) within 90 days after the end of each fiscal year, complete annual financial statements, certified by independent certified public accountants acceptable to Silicon together with a CPA management letter, which shall be acceptable to Silicon. 5. PERFECTION OF CANADIAN COLLATERAL; ETC. The Borrower agrees to cooperate fully with Silicon and to execute and deliver to Silicon such instruments, documentation and filings that Silicon determines are necessary or desirable in order to perfect or otherwise protect its security interest in the Collateral located in Canada or otherwise relating to Canadian domiciliaries. -5- 7. COPYRIGHT FILINGS; REPRESENTATION; COVENANT REGARDING REGISTRATION; ETC. (a) Borrower represents and warrants to Silicon that all of its software, the licensing or other disposition of which by Borrower now does or will hereafter result in accounts receivable owing to Borrower (the "Software") has been registered with the United States Copyright Office, other than for those items identified on Exhibit B hereto. With respect to those items identified on Exhibit B hereto, (i) Borrower agrees to register such items with the United States Copyright Office immediately, and to provide to Silicon copies of such registrations and (ii) Borrower agrees to execute and deliver to Silicon a security agreement with respect to such items, on Silicon's standard form, in form suitable for filing with the United States Copyright Office. (b) Borrower represents and warrants that at all times over 75% of its accounts arising from the licensing or other disposition of Software arise and will continue to arise from the licensing or other disposition of the following Software: INfinity, Elite, Master, Classic, INSIGHT. -6- (c) Nothing herein limits the security interest of Silicon in all Software and all accounts arising from the licensing or other disposition of the same, which is and will to be in full force and effect, notwithstanding any failure to comply with the provisions of this Section 7. BORROWER: SILICON: DELPHI INFORMATION SYSTEMS, INC. SILICON VALLEY BANK BY_________________________________ BY_________________________________ PRESIDENT OR VICE PRESIDENT BY_________________________________ TITLE___________________________ SECRETARY OR ASS'T SECRETARY BORROWER: BORROWER: REDSHAW, INC. CANADIAN INSURANCE COMPUTER SERVICES, INC. BY_________________________________ BY_________________________________ PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT BY_________________________________ BY_________________________________ SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY BORROWER: BORROWER: CONTINENTAL SYSTEMS, INC. SPECIALTY PROGRAM SERVICES, INC. BY_________________________________ BY_________________________________ PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT BY_________________________________ BY_________________________________ SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY -7- BORROWER: BORROWER: COMPUSULT, INC. INSURNET, INCORPORATED BY_________________________________ BY_________________________________ PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT BY_________________________________ BY_________________________________ SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY BORROWER: MS INTERNATIONAL ACQUISITION CORPORATION BY_________________________________ PRESIDENT OR VICE PRESIDENT BY_________________________________ SECRETARY OR ASS'T SECRETARY -8- SILICON LOAN DOCUMENTS ---------------------------------------------------------------------- SCHEDULE TO LOAN AND SECURITY AGREEMENT Ex A-List of locations -1- SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT BORROWER: DELPHI INFORMATION SYSTEMS, INC. ADDRESS: 3501 ALGONQUIN ROAD, SUITE 500 ROLLING MEADOWS, ILLINOIS 60008 BORROWER: REDSHAW, INC. ADDRESS: 680 ANDERSON DRIVE, BUILDING 10 PITTSBURGH, PENNSYLVANIA 15520 BORROWER: CANADIAN INSURANCE COMPUTER SERVICES, INC. ADDRESS: 305 MILNER AVENUE, SUITE 312 SCARBORAUGH, ONTARIO, CANADA, M1B3VR BORROWER: CONTINENTAL SYSTEMS, INC. ADDRESS: 4572 S. HAGADORN EAST LANSING, MICHIGAN 48823 BORROWER: SPECIALTY PROGRAM SERVICES, INC. ADDRESS: 3685 ROGER B. CHAFFEE MEMORIAL BLVD. GRAND RAPIDS, MICHIGAN 49548 BORROWER: COMPUSULT, INC. ADDRESS: ONE WEST DEER VALLEY ROAD, SUITE 203 PHOENIX, ARIZONA 85027 BORROWER: INSURNET, INCORPORATED ADDRESS: 1900 POWELL STREET EMERYVILLE, CALIFORNIA 94608 BORROWER: MS INTERNATIONAL ACQUISITION CORPORATION ADDRESS: 10799 90TH STREET P.O. BOX 13450 SCOTTSDALE, ARIZONA 85267 DATE: DECEMBER 21, 1994 THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY BANK ("Silicon") and the borrowers named above (jointly and severally, the "Borrower"), with reference to the following facts: -1- SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT - -------------------------------------------------------------------------------- A. Silicon entered into that certain Loan and Security Agreement dated January 24, 1991 (as amended, the "Loan Agreement") with Delphi Information Systems, Inc. ("Delphi") and McCracken Acquisition Corporation ("McCracken"). The Loan Agreement was amended by that certain Amendment to Loan Agreement dated May 1, 1992 among Silicon, Delphi, McCracken, Redshaw, Inc. ("Redshaw") and Canadian Insurance Computer Services, Inc. ("Canadian"), pursuant to which, among other things, Redshaw and Canadian were added as borrowers. McCracken has been dissolved and its assets distributed to its sole shareholder, Delphi. The Loan Agreement was further amended by that certain Amendment to Loan Agreement dated June 8, 1993 among Silicon, Delphi, Redshaw, Canadian, Continental Systems, Inc. ("Continental"), Specialty Program Services, Inc. ("Specialty"), and Compusult, Inc. ("Compusult"), pursuant to which, among other things, Continental, Specialty and Compusult were added as borrowers. The Loan Agreement was further amended by that certain Amendment to Loan Agreement dated July 20, 1994 among Silicon, Delphi, Redshaw, Canadian, Continental, Specialty, Compusult, Insurnet, Incorporated ("Insurnet") and MS International Acquisition Corporation ("MS International") pursuant to which, among other things, Insurnet and MS International were added as borrowers. (Capitalized terms used but not defined in this Amendment, shall have the meanings set forth in the Loan Agreement.) B. The parties desire to modify the Loan Agreement as herein set forth. The Parties agree as follows: 1. AMENDED SCHEDULE. Effective on the date this Amendment is accepted and executed by Silicon, the Schedule to the Loan Agreement is amended to read as set forth on the Schedule hereto. 2. RELEASE AND WAIVER. In consideration for Silicon entering into this Amendment, Borrower hereby releases and forever discharges Silicon, and its successors, assigns, agents, shareholders, directors, officers, employees, agents, attorneys, parent corporations, subsidiary corporations, affiliated corporations, affiliates, and each of them, from any and all claims, debts, liabilities, demands, obligations, costs, expenses, actions and causes of action, of every nature and description, known and unknown, whether or not related to the subject matter of this Agreement, which Borrower now has or at any time may hold, by reason of any matter, cause or thing occurred, done, omitted or suffered to be done prior to the date of this Agreement. Borrower waives the benefits of California Civil Code Section 1542, which provides: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Borrower understands that the facts which it believes to be true at the time of making the release provided for herein may later turn out to be different than it now believes, and that information which is not now known or suspected may later be discovered. Borrower accepts this possibility, and Borrower assumes the risk of the facts turning out to be different and new information being discovered; and Borrower further agrees that the release provided for herein shall in all respects continue to be effective--and not subject to termination or rescission because of any difference in such facts or any new information. This release is fully effective on the date hereof. -2- Silicon is not releasing Borrower from any claims, debts, liabilities, demands, obligations, costs, expenses, actions or causes of action. 3. FEE. As consideration for Silicon's entering into this Amendment to Loan Agreement, Borrower shall pay Silicon a fee of $60,000, concurrently herewith, which fee shall be deemed fully earned as of the date hereof. 4. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon that (i) all recitals set forth in this Amendment are true and correct, and (ii) all representations and warranties set forth in the Loan Agreement, as amended hereby, and in the Representations and Warranties of Delphi to Silicon, dated February 17, 1994, are true and correct. 5. GENERAL PROVISIONS. This Amendment, the Loan Agreement, all prior written amendments to the Loan Agreement signed by Silicon and the Borrowers or any of them, and the other written documents and agreements between Silicon and the Borrowers or any of them set forth in full all of the representations and agreements of the parties with respect to the subject matter hereof and supersede all prior discussions, representations, agreements and understandings between the parties with respect to the subject hereof. Except as herein expressly amended, all of the terms and provisions of the Loan Agreement, and all other documents and agreements between Silicon and the Borrowers or any of them shall continue in full force and effect and the same are hereby ratified and confirmed. BORROWER: SILICON: DELPHI INFORMATION SYSTEMS, INC. SILICON VALLEY BANK BY ___________________________________ BY ________________________________ PRESIDENT OR VICE PRESIDENT BY ___________________________________ TITLE______________________________ SECRETARY OR ASS'T SECRETARY -3- BORROWER: BORROWER: REDSHAW, INC. CANADIAN INSURANCE COMPUTER SERVICES, INC. BY ___________________________________ BY ________________________________ PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT BY ___________________________________ BY ________________________________ SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY BORROWER: BORROWER: CONTINENTAL SYSTEMS, INC. SPECIALTY PROGRAM SERVICES, INC. BY ___________________________________ BY ________________________________ PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT BY ___________________________________ BY ________________________________ SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY BORROWER: BORROWER: COMPUSULT, INC. INSURNET, INCORPORATED BY ___________________________________ BY ________________________________ PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT BY ___________________________________ BY ________________________________ PRESIDENT OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY -4- BORROWER: MS INTERNATIONAL ACQUISITION CORPORATION BY ___________________________________ PRESIDENT OR VICE PRESIDENT BY ___________________________________ SECRETARY OR ASS'T SECRETARY -5- SILICON VALLEY BANK CERTIFIED RESOLUTION GUARANTOR: DELPHI INFORMATION SYSTEMS, INC. A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE DATE: DECEMBER 21, 1994 I, the undersigned, Secretary or Assistant Secretary of the above-named corporation, a corporation organized under the laws of the state set forth above, do hereby certify that the following is a full, true and correct copy of resolutions duly and regularly adopted by the Board of Directors of said corporation as required by law, and by the by-laws of said corporation, and that said resolutions are still in full force and effect and have not been in any way modified, repealed, rescinded, amended or revoked. RESOLVED, that this corporation borrow from Silicon Valley Bank ("Lender"), from time to time, such sum or sums of money as, in the judgment of the officer or officers hereinafter authorized hereby, this corporation may require. RESOLVED FURTHER, that any officer of this corporation be, and he or she is hereby authorized, directed and empowered, in the name of this corporation, to execute and deliver to Lender, and Lender is requested to accept, the loan agreements, security agreements, notes, financing statements, and other documents and instruments providing for such loans and evidencing and/or securing such loans, with interest thereon, and said authorized officers are authorized from time to time to execute renewals, extensions and/or amendments of said loan agreements, security agreements, and other documents and instruments. RESOLVED FURTHER, that said authorized officers be and they are hereby authorized, directed and empowered, as security for any and all indebtedness of this corporation to Lender, whether arising pursuant to this resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to Lender, or deed in trust for its benefit, any property of any and every kind, belonging to this corporation, including, but not limited to, any and all real property, accounts, inventory, equipment, general intangibles, instruments, documents, chattel paper, notes, money, deposit accounts, furniture, fixtures, goods, and other property of every kind, and to execute and deliver to Lender any and all grants, transfers, trust receipts, loan or credit agreements, pledge agreements, mortgages, deeds of trust, financing statements, security agreements and other hypothecation agreements, which said instruments and the note or notes and other instruments referred to in the preceding paragraph may contain such provisions, covenants, recitals and agreements as Lender may require and said authorized officers may approve, and the execution thereof by said authorized officers shall be conclusive evidence of such approval. RESOLVED FURTHER, that the Lender may conclusively rely upon a certified copy of these resolutions and continue to conclusively rely on such certified copy of these resolutions for all past, present and future transactions until written notice of any change hereto is given to Lender by this corporation by certified mail, return receipt requested. IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or Assistant Secretary on the date set forth above. ________________________________________ Secretary or Assistant Secretary CERTIFIED RESOLUTION GUARANTOR: REDSHAW, INC. A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF PENNSYLVANIA DATE: DECEMBER 21, 1994 I, the undersigned, Secretary or Assistant Secretary of the above-named corporation, a corporation organized under the laws of the state set forth above, do hereby certify that the following is a full, true and correct copy of resolutions duly and regularly adopted by the Board of Directors of said corporation as required by law, and by the by-laws of said corporation, and that said resolutions are still in full force and effect and have not been in any way modified, repealed, rescinded, amended or revoked. RESOLVED, that this corporation borrow from Silicon Valley Bank ("Lender"), from time to time, such sum or sums of money as, in the judgment of the officer or officers hereinafter authorized hereby, this corporation may require. RESOLVED FURTHER, that any officer of this corporation be, and he or she is hereby authorized, directed and empowered, in the name of this corporation, to execute and deliver to Lender, and Lender is requested to accept, the loan agreements, security agreements, notes, financing statements, and other documents and instruments providing for such loans and evidencing and/or securing such loans, with interest thereon, and said authorized officers are authorized from time to time to execute renewals, extensions and/or amendments of said loan agreements, security agreements, and other documents and instruments. RESOLVED FURTHER, that said authorized officers be and they are hereby authorized, directed and empowered, as security for any and all indebtedness of this corporation to Lender, whether arising pursuant to this resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to Lender, or deed in trust for its benefit, any property of any and every kind, belonging to this corporation, including, but not limited to, any and all real property, accounts, inventory, equipment, general intangibles, instruments, documents, chattel paper, notes, money, deposit accounts, furniture, fixtures, goods, and other property of every kind, and to execute and deliver to Lender any and all grants, transfers, trust receipts, loan or credit agreements, pledge agreements, mortgages, deeds of trust, financing statements, security agreements and other hypothecation agreements, which said instruments and the note or notes and other instruments referred to in the preceding paragraph may contain such provisions, covenants, recitals and agreements as Lender may require and said authorized officers may approve, and the execution thereof by said authorized officers shall be conclusive evidence of such approval. RESOLVED FURTHER, that the Lender may conclusively rely upon a certified copy of these resolutions and continue to conclusively rely on such certified copy of these resolutions for all past, present and future transactions until written notice of any change hereto is given to Lender by this corporation by certified mail, return receipt requested. IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or Assistant Secretary on the date set forth above. ________________________________________ Secretary or Assistant Secretary CERTIFIED RESOLUTION GUARANTOR: CANADIAN INSURANCE COMPUTER SERVICES, INC., A CORPORATION ORGANIZED UNDER THE LAWS OF CANADA DATE: DECEMBER 21, 1994 I, the undersigned, Secretary or Assistant Secretary of the above-named corporation, a corporation organized under the laws of the state set forth above, do hereby certify that the following is a full, true and correct copy of resolutions duly and regularly adopted by the Board of Directors of said corporation as required by law, and by the by-laws of said corporation, and that said resolutions are still in full force and effect and have not been in any way modified, repealed, rescinded, amended or revoked. RESOLVED, that this corporation borrow from Silicon Valley Bank ("Lender"), from time to time, such sum or sums of money as, in the judgment of the officer or officers hereinafter authorized hereby, this corporation may require. RESOLVED FURTHER, that any officer of this corporation be, and he or she is hereby authorized, directed and empowered, in the name of this corporation, to execute and deliver to Lender, and Lender is requested to accept, the loan agreements, security agreements, notes, financing statements, and other documents and instruments providing for such loans and evidencing and/or securing such loans, with interest thereon, and said authorized officers are authorized from time to time to execute renewals, extensions and/or amendments of said loan agreements, security agreements, and other documents and instruments. RESOLVED FURTHER, that said authorized officers be and they are hereby authorized, directed and empowered, as security for any and all indebtedness of this corporation to Lender, whether arising pursuant to this resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to Lender, or deed in trust for its benefit, any property of any and every kind, belonging to this corporation, including, but not limited to, any and all real property, accounts, inventory, equipment, general intangibles, instruments, documents, chattel paper, notes, money, deposit accounts, furniture, fixtures, goods, and other property of every kind, and to execute and deliver to Lender any and all grants, transfers, trust receipts, loan or credit agreements, pledge agreements, mortgages, deeds of trust, financing statements, security agreements and other hypothecation agreements, which said instruments and the note or notes and other instruments referred to in the preceding paragraph may contain such provisions, covenants, recitals and agreements as Lender may require and said authorized officers may approve, and the execution thereof by said authorized officers shall be conclusive evidence of such approval. RESOLVED FURTHER, that the Lender may conclusively rely upon a certified copy of these resolutions and continue to conclusively rely on such certified copy of these resolutions for all past, present and future transactions until written notice of any change hereto is given to Lender by this corporation by certified mail, return receipt requested. IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or Assistant Secretary on the date set forth above. ________________________________________ Secretary or Assistant Secretary CERTIFIED RESOLUTION GUARANTOR: CONTINENTAL SYSTEMS, INC., A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF MICHIGAN DATE: DECEMBER 21, 1994 I, the undersigned, Secretary or Assistant Secretary of the above-named corporation, a corporation organized under the laws of the state set forth above, do hereby certify that the following is a full, true and correct copy of resolutions duly and regularly adopted by the Board of Directors of said corporation as required by law, and by the by-laws of said corporation, and that said resolutions are still in full force and effect and have not been in any way modified, repealed, rescinded, amended or revoked. RESOLVED, that this corporation borrow from Silicon Valley Bank ("Lender"), from time to time, such sum or sums of money as, in the judgment of the officer or officers hereinafter authorized hereby, this corporation may require. RESOLVED FURTHER, that any officer of this corporation be, and he or she is hereby authorized, directed and empowered, in the name of this corporation, to execute and deliver to Lender, and Lender is requested to accept, the loan agreements, security agreements, notes, financing statements, and other documents and instruments providing for such loans and evidencing and/or securing such loans, with interest thereon, and said authorized officers are authorized from time to time to execute renewals, extensions and/or amendments of said loan agreements, security agreements, and other documents and instruments. RESOLVED FURTHER, that said authorized officers be and they are hereby authorized, directed and empowered, as security for any and all indebtedness of this corporation to Lender, whether arising pursuant to this resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to Lender, or deed in trust for its benefit, any property of any and every kind, belonging to this corporation, including, but not limited to, any and all real property, accounts, inventory, equipment, general intangibles, instruments, documents, chattel paper, notes, money, deposit accounts, furniture, fixtures, goods, and other property of every kind, and to execute and deliver to Lender any and all grants, transfers, trust receipts, loan or credit agreements, pledge agreements, mortgages, deeds of trust, financing statements, security agreements and other hypothecation agreements, which said instruments and the note or notes and other instruments referred to in the preceding paragraph may contain such provisions, covenants, recitals and agreements as Lender may require and said authorized officers may approve, and the execution thereof by said authorized officers shall be conclusive evidence of such approval. RESOLVED FURTHER, that the Lender may conclusively rely upon a certified copy of these resolutions and continue to conclusively rely on such certified copy of these resolutions for all past, present and future transactions until written notice of any change hereto is given to Lender by this corporation by certified mail, return receipt requested. IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or Assistant Secretary on the date set forth above. ________________________________________ Secretary or Assistant Secretary CERTIFIED RESOLUTION GUARANTOR: SPECIALTY PROGRAM SERVICES, INC., A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF MICHIGAN DATE: DECEMBER 21, 1994 I, the undersigned, Secretary or Assistant Secretary of the above-named corporation, a corporation organized under the laws of the state set forth above, do hereby certify that the following is a full, true and correct copy of resolutions duly and regularly adopted by the Board of Directors of said corporation as required by law, and by the by-laws of said corporation, and that said resolutions are still in full force and effect and have not been in any way modified, repealed, rescinded, amended or revoked. RESOLVED, that this corporation borrow from Silicon Valley Bank ("Lender"), from time to time, such sum or sums of money as, in the judgment of the officer or officers hereinafter authorized hereby, this corporation may require. RESOLVED FURTHER, that any officer of this corporation be, and he or she is hereby authorized, directed and empowered, in the name of this corporation, to execute and deliver to Lender, and Lender is requested to accept, the loan agreements, security agreements, notes, financing statements, and other documents and instruments providing for such loans and evidencing and/or securing such loans, with interest thereon, and said authorized officers are authorized from time to time to execute renewals, extensions and/or amendments of said loan agreements, security agreements, and other documents and instruments. RESOLVED FURTHER, that said authorized officers be and they are hereby authorized, directed and empowered, as security for any and all indebtedness of this corporation to Lender, whether arising pursuant to this resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to Lender, or deed in trust for its benefit, any property of any and every kind, belonging to this corporation, including, but not limited to, any and all real property, accounts, inventory, equipment, general intangibles, instruments, documents, chattel paper, notes, money, deposit accounts, furniture, fixtures, goods, and other property of every kind, and to execute and deliver to Lender any and all grants, transfers, trust receipts, loan or credit agreements, pledge agreements, mortgages, deeds of trust, financing statements, security agreements and other hypothecation agreements, which said instruments and the note or notes and other instruments referred to in the preceding paragraph may contain such provisions, covenants, recitals and agreements as Lender may require and said authorized officers may approve, and the execution thereof by said authorized officers shall be conclusive evidence of such approval. RESOLVED FURTHER, that the Lender may conclusively rely upon a certified copy of these resolutions and continue to conclusively rely on such certified copy of these resolutions for all past, present and future transactions until written notice of any change hereto is given to Lender by this corporation by certified mail, return receipt requested. IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or Assistant Secretary on the date set forth above. ________________________________________ Secretary or Assistant Secretary CERTIFIED RESOLUTION GUARANTOR: COMPUSULT, INC., A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF ARIZONA DATE: DECEMBER 21, 1994 I, the undersigned, Secretary or Assistant Secretary of the above-named corporation, a corporation organized under the laws of the state set forth above, do hereby certify that the following is a full, true and correct copy of resolutions duly and regularly adopted by the Board of Directors of said corporation as required by law, and by the by-laws of said corporation, and that said resolutions are still in full force and effect and have not been in any way modified, repealed, rescinded, amended or revoked. RESOLVED, that this corporation borrow from Silicon Valley Bank ("Lender"), from time to time, such sum or sums of money as, in the judgment of the officer or officers hereinafter authorized hereby, this corporation may require. RESOLVED FURTHER, that any officer of this corporation be, and he or she is hereby authorized, directed and empowered, in the name of this corporation, to execute and deliver to Lender, and Lender is requested to accept, the loan agreements, security agreements, notes, financing statements, and other documents and instruments providing for such loans and evidencing and/or securing such loans, with interest thereon, and said authorized officers are authorized from time to time to execute renewals, extensions and/or amendments of said loan agreements, security agreements, and other documents and instruments. RESOLVED FURTHER, that said authorized officers be and they are hereby authorized, directed and empowered, as security for any and all indebtedness of this corporation to Lender, whether arising pursuant to this resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to Lender, or deed in trust for its benefit, any property of any and every kind, belonging to this corporation, including, but not limited to, any and all real property, accounts, inventory, equipment, general intangibles, instruments, documents, chattel paper, notes, money, deposit accounts, furniture, fixtures, goods, and other property of every kind, and to execute and deliver to Lender any and all grants, transfers, trust receipts, loan or credit agreements, pledge agreements, mortgages, deeds of trust, financing statements, security agreements and other hypothecation agreements, which said instruments and the note or notes and other instruments referred to in the preceding paragraph may contain such provisions, covenants, recitals and agreements as Lender may require and said authorized officers may approve, and the execution thereof by said authorized officers shall be conclusive evidence of such approval. RESOLVED FURTHER, that the Lender may conclusively rely upon a certified copy of these resolutions and continue to conclusively rely on such certified copy of these resolutions for all past, present and future transactions until written notice of any change hereto is given to Lender by this corporation by certified mail, return receipt requested. IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or Assistant Secretary on the date set forth above. ________________________________________ Secretary or Assistant Secretary CERTIFIED RESOLUTION GUARANTOR: INSURNET, INCORPORATED, A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE DATE: DECEMBER 21, 1994 I, the undersigned, Secretary or Assistant Secretary of the above-named corporation, a corporation organized under the laws of the state set forth above, do hereby certify that the following is a full, true and correct copy of resolutions duly and regularly adopted by the Board of Directors of said corporation as required by law, and by the by-laws of said corporation, and that said resolutions are still in full force and effect and have not been in any way modified, repealed, rescinded, amended or revoked. RESOLVED, that this corporation borrow from Silicon Valley Bank ("Lender"), from time to time, such sum or sums of money as, in the judgment of the officer or officers hereinafter authorized hereby, this corporation may require. RESOLVED FURTHER, that any officer of this corporation be, and he or she is hereby authorized, directed and empowered, in the name of this corporation, to execute and deliver to Lender, and Lender is requested to accept, the loan agreements, security agreements, notes, financing statements, and other documents and instruments providing for such loans and evidencing and/or securing such loans, with interest thereon, and said authorized officers are authorized from time to time to execute renewals, extensions and/or amendments of said loan agreements, security agreements, and other documents and instruments. RESOLVED FURTHER, that said authorized officers be and they are hereby authorized, directed and empowered, as security for any and all indebtedness of this corporation to Lender, whether arising pursuant to this resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to Lender, or deed in trust for its benefit, any property of any and every kind, belonging to this corporation, including, but not limited to, any and all real property, accounts, inventory, equipment, general intangibles, instruments, documents, chattel paper, notes, money, deposit accounts, furniture, fixtures, goods, and other property of every kind, and to execute and deliver to Lender any and all grants, transfers, trust receipts, loan or credit agreements, pledge agreements, mortgages, deeds of trust, financing statements, security agreements and other hypothecation agreements, which said instruments and the note or notes and other instruments referred to in the preceding paragraph may contain such provisions, covenants, recitals and agreements as Lender may require and said authorized officers may approve, and the execution thereof by said authorized officers shall be conclusive evidence of such approval. RESOLVED FURTHER, that the Lender may conclusively rely upon a certified copy of these resolutions and continue to conclusively rely on such certified copy of these resolutions for all past, present and future transactions until written notice of any change hereto is given to Lender by this corporation by certified mail, return receipt requested. IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or Assistant Secretary on the date set forth above. ________________________________________ Secretary or Assistant Secretary CERTIFIED RESOLUTION GUARANTOR: MS INTERNATIONAL ACQUISITION CORPORATION, A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE DATE: DECEMBER 21, 1994 I, the undersigned, Secretary or Assistant Secretary of the above-named corporation, a corporation organized under the laws of the state set forth above, do hereby certify that the following is a full, true and correct copy of resolutions duly and regularly adopted by the Board of Directors of said corporation as required by law, and by the by-laws of said corporation, and that said resolutions are still in full force and effect and have not been in any way modified, repealed, rescinded, amended or revoked. RESOLVED, that this corporation borrow from Silicon Valley Bank ("Lender"), from time to time, such sum or sums of money as, in the judgment of the officer or officers hereinafter authorized hereby, this corporation may require. RESOLVED FURTHER, that any officer of this corporation be, and he or she is hereby authorized, directed and empowered, in the name of this corporation, to execute and deliver to Lender, and Lender is requested to accept, the loan agreements, security agreements, notes, financing statements, and other documents and instruments providing for such loans and evidencing and/or securing such loans, with interest thereon, and said authorized officers are authorized from time to time to execute renewals, extensions and/or amendments of said loan agreements, security agreements, and other documents and instruments. RESOLVED FURTHER, that said authorized officers be and they are hereby authorized, directed and empowered, as security for any and all indebtedness of this corporation to Lender, whether arising pursuant to this resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to Lender, or deed in trust for its benefit, any property of any and every kind, belonging to this corporation, including, but not limited to, any and all real property, accounts, inventory, equipment, general intangibles, instruments, documents, chattel paper, notes, money, deposit accounts, furniture, fixtures, goods, and other property of every kind, and to execute and deliver to Lender any and all grants, transfers, trust receipts, loan or credit agreements, pledge agreements, mortgages, deeds of trust, financing statements, security agreements and other hypothecation agreements, which said instruments and the note or notes and other instruments referred to in the preceding paragraph may contain such provisions, covenants, recitals and agreements as Lender may require and said authorized officers may approve, and the execution thereof by said authorized officers shall be conclusive evidence of such approval. RESOLVED FURTHER, that the Lender may conclusively rely upon a certified copy of these resolutions and continue to conclusively rely on such certified copy of these resolutions for all past, present and future transactions until written notice of any change hereto is given to Lender by this corporation by certified mail, return receipt requested. IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or Assistant Secretary on the date set forth above. ________________________________________ Secretary or Assistant Secretary EX-10.23 3 EXHIBIT 10.23 Exhibit 10.23 ------------- [cad 157]Letterhead[cad 179] July 7, 1994 Mr. M. Denis Connaghan 801 Quinwood Lane Maitland, Florida 32751 Re: Employment Offer Dear Denis: Pursuant to our most recent discussion of your letter requesting a modification from my original offer, we have agreed to the following: 1) Your stock option vesting will be consistent with the rest of the senior executives. Since we are repricing options, it is my hope that your options would vest consistent with my request for our repricing, which is 25% after six months of employment; 25% one year thereafter; 25% at 30 months; 25% after 42 months of employment. However, if the Stock Option Committee does not accept this recommendation, you will vest 25% each year beginning from the first anniversary of your employment and 25% each year thereafter, until the option is fully vested. 2) In the event that Delphi is purchased and the entity ceases to exist under it's current charter, all of your unvested stock option will vest one day prior to completion of the purchase of Delphi. 3) Delphi will pay all customary and reasonable relocation expenses within the $60,000 limit and I will work with you in good faith to determine what is included in all reasonable expenses associated with your relocation. I believe this fully constitutes our most recent understanding and conclusion. We are anxious to get started and look forward to your leadership and contribution. Sincerely, /s/ David J. Torrence - ------------------------------ David J. Torrence President and CEO DJT:pc June 17, 1994 Mr. M. Denis Connaghan 801 Quinwood Lane Maitland, Florida 32751 Dear Denis: Welcome to Delphi Information Systems and my personal best wishes to you for a long and fruitful career here. Listed below is a summary of our offer and agreement. If you have any other understanding that is different, then please contact me immediately so we can be sure that we are in synch, with no chance of any misunderstandings. 1) TITLE: ------ Executive Vice President, Chief Operating Officer 2) SALARY: ------- Your salary will be $200,000 annually and will be reviewed each year by the Chief Executive Officer and Board of Directors. 3) BONUS: ------ Your bonus target percent will be 45% of your base salary. This will be a $90,000 target bonus to be earned by achieving all planned objectives agreed upon between you, Delphi's Chief Executive Officer, and the Board of Directors. 4) RELOCATION ALLOWANCE: --------------------- Delphi will pay a maximum of $60,000 for all of your relocation expenses in relocating from Florida to Chicago. This would include real estate fees, transportation, the movement of household goods, and all expenses normally associated with the selling of your Florida home and the purchase of a home in Chicago. Delphi will provide tax assistance relative to the relocation. Tax assistance will be to offset any taxes that you incur as a result of the relocation. Page Two June 17, 1994 5) STOCK OPTION: ------------- You will receive a stock option to purchase 200,000 shares of Delphi Common Stock. This option will vest 25% over 4 years, beginning twelve months after your start date: Example: if your start date is July 11, 1994, then this stock option will vest: 50,000 shares on July 11, 1995; 50,000 shares on July 11, 1996; 50,000 shares on July 11, 1997; and the remaining 50,000 shares on July 11, 1998. The price will be determined by the stock option committee at its quarterly meeting. 6) SEVERANCE AGREEMENT: -------------------- You will receive twelve months of salary continuance if you are terminated without cause before December 31, 1995. To receive this salary continuance you must actively seek employment, and upon being employed your salary from Delphi will cease. The purpose is to assist you in seeking employment and is not to be construed as a twelve month severance payment without condition. If the company is sold and your role is materially changed, then the same conditions apply and you will be eligible for salary continuance. This does not include our intended acquisition, or merger, of Agena. Even though Agena might own a controlling interest, this would not constitute a purchase of Delphi. I believe this constitutes our specific understanding and this is the information that I have provided to Yuval Almog, Delphi's Chairman, prior to my final offer to you and your acceptance. Again, I am excited about your joining Delphi and look forward to your leadership and management expertise to enhance the value of Delphi Information Systems. Sincerely, /s/ David J. Torrence - --------------------- David J. Torrence President and Chief Executive Officer DJT:pc cc: Yuval Almog EX-10.24 4 EXHIBIT 10.24 Exhibit 10.24 ------------- SUMMARY OF EMPLOYMENT OFFER AND AGREEMENT ----------------------------------------- 1. TITLE: ----- Senior Vice President - Finance and Chief Financial Officer 2. START DATE: ---------- January 27, 1995 with at least a committed 50% of time, and full- time starting no later than July 10. 3. SALARY: ------ Salary will be $140,000 annually and will be reviewed each year by the Chief Executive Officer and Board of Directors. Salary will be prorated until full time begins. 4. BONUS: ----- The bonus will be 40% of the base salary. This is a $56,000 annualized target bonus to be earned by achieving all planned objectives agreed upon between John Sprieser, Delphi s Chief Executive Officer and the Board of Directors. A significant majority of the objectives will be based on the 1996 Business Plan. 5. STOCK OPTION: ------------ A stock option grant to purchase 100,000 shares of Delphi Common Stock. This option will vest at a rate of 25% per year over 4 years, beginning six months after the day of employment. This will be consistent with all other senior executive options Example: if employment starts on January 27, 1995 then stock options will vest no later than: 25,000 shares on July 27, 1995 25,000 shares on July 27, 1996 25,000 shares on July 27, 1997 and the remaining 25,000 shares on July 27, 1998 The price will be determined by the stock option committee at its quarterly meeting and will be the fair market value at that time. In the event the company is sold or merged in such a way that it is not the surviving entity, the vesting of all options will accelerate to the date just prior to such transaction. 6. SEVERANCE AGREEMENT: ------------------- If employment is terminated because of a material change in role on or before January 27, 1996 you will receive six months of salary continuance including health benefits. To receive this salary continuance you must actively seek employment and this is not to be construed as a six month severance payment without condition. If the company is sold and your role is materially changed, then the same conditions apply and you will be eligible for salary continuance. /s/M. Denis Connaghan /s/ John R. Sprieser - ------------------------ ----------------------- M. Denis Connaghan John R. Sprieser President and CEO EX-10.25 5 EXHIBIT 10.25 Exhibit 10.25 ------------- SEVERANCE COMPENSATION AGREEMENT This agreement is entered into effective as of October 19, 1994, between Delphi Information Systems, Inc. ("Delphi") and David J. Torrence ("Mr. Torrence") for the purpose of setting forth their mutual agreements and understandings concerning Mr. Torrence's severance of his employment with Delphi and related compensation arrangements as follows: 1. Mr. Torrence voluntarily resigns as Chief Executive Officer and as a member of Delphi's Board of Directors effective October 31, 1994. Mr. Torrence voluntarily resigns all other positions with Delphi, including as an employee, effective as of December 31, 1994. 2. Subject to F.I.C.A. and federal and state withholding taxes, Delphi (a) shall continue to pay $19,562 per month to Mr. Torrence in accordance with its standard payroll practices for executives through December 31, 1995, and (b) on December 31, 1994, shall pay to Mr. Torrence any accrued but unpaid vacation (up to four weeks). Subsequent to December 31, 1994, Mr. Torrence shall no longer accrue any vacation. 3. No further bonuses shall be payable to Mr. Torrence. 4. Subject to the terms thereof and to the extent that such plans (or replacements therefor) continue to be maintained by Delphi, Mr. Torrence shall continue to participate at Delphi's expense in the medical, life insurance and long-term disability insurance plans of Delphi in which he was participating at October 19, 1994, (or their replacements) until the earlier of (a) December 31, 1995, or (b) the date on which he becomes eligible to participate in comparable plans offered by another employer. Beyond December 31, 1995, Mr. Torrence shall have such right as is provided by COBRA to continue to participate in the medical plan of Delphi at his expense. 5. Subject to the terms thereof, Mr. Torrence may continue to participate in Delphi's stock purchase plan and Section 401(k) plan through December 31, 1995. 6. Pursuant to the 1993 Stock Incentive Plan, Mr. Torrence shall be granted a 50,000 share non-qualified stock option at a per share exercise price equal to the "Market Price" effective October 19, 1994. Subject to paragraph 10(b), the vesting schedule will be: 12,500 shares vesting 6/1/95 12,500 shares vesting 1/1/96 12,500 shares vesting 6/1/96 12,500 shares vesting 1/1/97 Subject to the terms of the 1993 Stock Incentive Plan, the vested portion of the stock option shall remain exercisable until 7/1/97. Market Price" shall mean the average of the closing prices for Delphi's common shares on the NASDAQ National Market System as reported in THE WALL STREET JOURNAL for the ten days most immediately prior to October 19, 1994, on which a trade for such shares was reported. 7. Mr. Torrence's obligation under the November 11, 1991, agreement to lend Mr. Torrence $66,000, which is being ratably forgiven over the first four years of his employment, will continue to be ratably forgiven following the execution of this agreement, regardless of the changes in Mr. Torrence's employment status. 8. At its election, Delphi will either (a) reimburse Mr. Torrence up to $400 per month for out-of-pocket expenses through December 31, 1995, incurred by him to maintain an office and for telephone and secretarial services, or (b) provide similar services to Mr. Torrence. Such reimbursements will be made by Delphi promptly upon submission by Mr. Torrence of documentation of such expenses. 9. As a condition to the receipt of payments and benefits (including the vesting of options) described above, Mr. Torrence agrees: a. To provide consulting assistance to Delphi by telephone or in person for 24 months commencing January 1, 1995, but such consulting services shall not require more than 20 hour per month on Mr. Torrence's part, and shall not be required at such times or in such manner as would interfere with Mr. Torrence's other employment or business activities, if any. b. To refrain from competing with Delphi and its subsidiaries, whether as proprietor, employee, officer, director, partner, shareholder, consultant or otherwise, in any business that Delphi is engaged in on January 1, 1995, (the "Commencement Date"), in any geographical area where Delphi and its subsidiaries are actually and actively competing in such businesses at the Commencement Date, for a period of two years from the Commencement Date. The foregoing shall not prevent Mr. Torrence from acquiring or holding up to a 5% equity interest in any publicly held corporation. c. To refrain from using or disclosing to others any trade secret or proprietary information of Delphi obtained by him while an employee or director of Delphi (including, without limiting the generality of the foregoing, business strategy, customer lists, pricing information, and source codes). This obligation shall not apply, however, to any such information which has become publicly available without fault on the part of Mr. Torrence. d. To refrain from hiring, or from advising any other person, firm or corporation to hire, any active employee of Delphi, and to refrain from inducing any employee of Delphi to leave such employment, for a period of two years from the Commencement Date. This obligation shall not, however, prevent Mr. Torrence from responding to any request for a reference from any existing or former employee of Delphi who is seeking alternative employment with a person, firm or corporation which is not Mr. Torrence's employer. Ms. Peggy Cacioppo, Mr. Torrence's Executive Assistant, is excluded from this condition. e. To refrain from any act or statement that would or might cause competitive damage to Delphi (including, without limiting the generality of the foregoing, any disparagement of Delphi or its products, systems or management) for a period of two years from the date hereof. f. To refrain from disclosing to any subsequent employer or prospective employer the terms of Paragraphs 1 through 8 of this Agreement. g. At Delphi's request, to resign as a director of Alliance for Productive Technology, Inc. and discontinue participation in its activities. 10. Mr. Torrence acknowledges that damages would not be an adequate remedy to Delphi for any breach by him of any of the provisions of Paragraph 9 hereof and that accordingly, in the event of any such breach Delphi shall be entitled (a) to suspend payments and benefits to Mr. Torrence hereunder, (b) terminate the future vesting of the stock options described in paragraph 6 above, and (c) to obtain an order of specific performance and/or a restraining order or injunction, as appropriate. 11. It is the intention of Delphi and Mr. Torrence that their relationship subsequent to October 19, 1994, shall be governed solely by this Agreement and that all prior agreements, understandings and arrangements between them shall be superseded by this Agreement. Delphi hereby releases Mr. Torrence, and Mr. Torrence hereby releases Delphi, to the fullest extent permitted by law, from all claims and causes of action that the releasing party may have that arise from their agreements, understandings and arrangements superseded hereby, or that arise from the employment relationship, prior to October 19, 1994. 12. Without by implication limiting the foregoing, in consideration of the promises referred to herein, the sufficiency of which is hereby acknowledged, Mr. Torrence, on behalf of himself and his heirs and personal representatives, does hereby fully, finally and unconditionally release and forever discharge Delphi and its affiliated entities, and their respective former and present officers, agents, employees and directors, and all of their respective predecessors, successors, heirs, personal representatives and assigns ("Releasees"), in both their personal and corporate capacities, from any and all rights, claims, liabilities, obligations, charges, damages, costs, expenses, attorneys' fees, suits, actions, causes of action and demands, of any and every kind, nature and character, known or unknown, liquidated or unliquidated, absolute or contingent, in law and in equity, enforceable or arising under any local, state or federal common law, constitution, statute, regulation or ordinance of the United States or any of the states of the United States or any municipality or other governmental entity in the United States, including without limitation rights and claims arising under the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. Section 621 ET SEQ., Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e ET SEQ., the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. Section 1001 ET SEQ., the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. Section 12101 ET SEQ., the Consolidated Omnibus Reconciliation Act of 1985, as amended, I.R.C. Section 4980B, the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. Section 201 ET SEQ., the Civil Rights Act of April 9, 1866, 42 U.S.C. Section 1981 ET SEQ., the National Labor Management Relations Act, 29 U.S.C. Section 141 ET SEQ., the Occupational Safety and Health Act, 29 U.S.C. Section 651 ET SEQ., the Illinois Human Rights Act, as amended, 775 ILCS 5/1/-101 ET SEQ., the Illinois Wage Payments and Collection Act, 820 ILCS 115/1 ET SEQ., and the Chicago Human Rights Ordinance, as amended, Chicago, Ill. Code Section 2-160-010 ET SEQ., which Mr. Torrence or his heirs or personal representatives many now have, have ever had or may in the future have, which arise out of or are in any way connected with Mr. Torrence's past employment with Delphi or its affiliates or any of the Releasees or the termination of said employment or which arise out of or are in any way connected with any past actions or omissions of Delphi or its affiliates or any of the Releasees, including without limitation claims for compensation, wages and benefits except as specifically provided for in this Agreement. Mr. Torrence covenants not to sue or to file any actions, lawsuits or claims of any kind against Delphi, 3 or its affiliates or any of the Releasees with respect to rights and claims covered by this release, except for a violation of the terms of this Agreement. 13. Mr. Torrence acknowledges that he was advised by Delphi to consult with an attorney prior to executing this Agreement and that he could have twenty-one days within which to consider this Agreement. 14. Mr. Torrence acknowledges that he has read this Agreement, that he understands the provisions of this Agreement and that he is executing this Agreement voluntarily, of his own free will. Mr. Torrence further represents that in executing this Agreement, he does not rely on any inducements, promises or representations made by Delphi or its representatives, other than those expressly embodied herein. 15. This agreement shall be governed by and construed in accordance with the laws of the State of Illinois. This Agreement may be executed in counterparts, but all counterparts shall be considered as a single instrument. This Agreement supersedes all prior agreements and understandings between the parties relating to these subjects. 16. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, legal representation and assigns. Delphi shall be responsible for all payments and obligations hereunder. IN WITNESS WHEREOF, this Agreement has been executed by the parties of October 19, 1994. DELPHI INFORMATION SYSTEMS, INC. /s/ David J. Torrence By: /s/ M. Denis Connaghan - ------------------------ ------------------------------------- David J. Torrence President and Chief Operating Officer 4 EX-10.26 6 EXHIBIT 10.26 EXHIBIT 10.26 THE WARRANT GRANTED HEREBY AND THE SHARES ISSUABLE UPON THE EXERCISE OF SUCH WARRANT HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION OR AN EXEMPTION FROM THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF SAID ACT OR LAWS. TRANSFER OF SUCH WARRANT IS RESTRICTED AS PROVIDED HEREIN. DELPHI INFORMATION SYSTEMS, INC. STOCK PURCHASE WARRANT January 31, 1995 Silicon Valley Bank 3000 Lakeside Drive Santa Clara, CA 95054-2895 Delphi Information Systems, Inc., a California corporation (the "Company"), in consideration of extension of credit facilities to it by Silicon Valley Bank (the "Bank"), hereby grants to the Bank the right and warrant to purchase during this Warrant Exercise Period, as defined below, but in no event later than February 1, 2000, an aggregate of up to 375,000 shares of the Company's Common Stock, $.10 par value, at the Purchase Price per share as defined below. The number of shares eligible to be purchased under this Agreement is subject to adjustment from time to time as provided in Section 4 hereof. The execution and delivery of this Stock Purchase Warrant ("this Warrant") have been approved by a resolution adopted by the Board of Directors of the Company. The following capitalized terms used in this Warrant shall have the following respective meanings: (a) The term "Common Stock" refers to the Common Stock, $.10 par value, of the Company, and any class of common voting stock into which such Common Stock may be changed pursuant to any reclassification of the Company's shares. (b) The term "Underlying Common Stock" refers to the shares of Common Stock issuable upon exercise, in whole or in part, of this Warrant. (c) The term "Purchase Price" refers to the purchase price of the shares of the Underlying Common Stock subject to this Warrant which shall initially be $3.50 per share and shall be subject to adjustment as provided herein. (d) The term "Registration Rights Agreement" means the Registration Rights Agreement between the Company and the Bank entered into contemporaneously with this Warrant. (e) The term "Warrant Exercise Period" shall mean the period beginning on the effective date of this Warrant and ending at 4:00 p.m, Chicago time, February 1, 2000. 1. REPRESENTATIONS AND WARRANTIES. (a) The Company represents and Warrants to the Bank that: (i) The Company has full right, power and authority to enter into this Warrant and to perform all of its obligations hereunder or contemplated hereby; this Warrant has been duly authorized, executed and delivered by the Company and is enforceable in accordance with its terms; and no consent, approval, authorization, order of, or filing with, any court or governmental authority is required to consummate the transactions contemplated by this Agreement. (ii) The execution, delivery and performance by the Company of this Warrant will not conflict with or constitute a breach of, or default under, the charter or by-laws of the Company or any contract or other instrument to which the Company is a party or by which it is bound, or any statute or regulation or any order or decree of any court or governmental authority binding on the Company. -2- (iii) The shares of Underlying Common Stock have been duly and validly authorized and such shares, when so issued upon exercise of this Warrant, will be duly and validly issued and outstanding, fully paid and nonassessable. (b) The Bank represents and warrants to the Company that: (i) The Bank is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in "restricted securities" and has requested, received, reviewed and considered all information the Bank deems relevant in making a decision to purchase the Underlying Common Stock. (ii) The Bank will acquire the shares of Underlying Common Stock for its own account for investment and with no present intention of distributing or reselling any of such shares and the Bank will not, directly or indirectly, voluntarily offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any such shares except in compliance with the registration requirements of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations promulgated thereunder, and applicable state securities laws and regulations. (iii) The Bank has been informed by the Company that (A) the Company will rely upon the exemption from registration requirements contained in Section 4(2) of the Act in connection with the sale to the Bank of the shares of Underlying Common Stock upon exercise of this Warrant, (B) such shares are not and will not be registered under the Act except in the circumstances described in the Registration Rights Agreement, and (C) absent such registration, such shares must be held by the Bank indefinitely unless they are sold pursuant to an exemption from registration under the Act. (iv) (A) All certificates representing the Underlying Common Stock, any certificates subsequently issued in substitution therefor and each certificate for any securities -3- issued pursuant to any stock split, share reclassification, stock dividend or other similar capital event shall bear a legend substantially as follows and any additional legend which may be required by any administrator of any state securities law or by any other applicable law, rule or regulation: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED or IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION OR AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS OF SAID ACT OR LAWS. (B) At such time as the Company is reasonably satisfied that the legend or legends referred to above are no longer necessary or appropriate to require compliance with the Act or other laws referred to above (by reason of registration or qualification, establishment of applicable exemptions, passage of time or otherwise), the Company will issue to the Bank, in substitution for the certificates bearing such legend or legends, new unlegended certificates. (C) Appropriate stop transfer instructions with respect to such shares will be placed with the transfer agent of the Company. (v) The Bank has been advised of the adoption of Rule 144 (the "Rule") promulgated under the Act by the Securities and Exchange Commission (the "Commission") which permits limited resale of "restricted securities" as defined by the Rule (such as the Underlying Common Stock subject to the satisfaction of various conditions specified in the Rule. The Bank understand that failure to comply with the provisions of the Rule could result in its being unable to sell or otherwise dispose of the Underlying Common Stock under the Rule. -4- (vi) The Bank agrees that in the event it effects or purports to effect any transaction pursuant to the Rule, it will transmit to the Company concurrently with its transmission to the Commission, (A) a copy of all materials required to be filed with the Commission pursuant to the Rule, (B) a statement from the broker effecting the transaction evidencing the compliance by it with the Rule and (C) a copy of each document delivered by it to such broker with respect to such sale. (vii) References above to the Rule are not intended to limit or preclude sale or transfer by the Bank of Underlying Common Stock pursuant to other applicable exemptions from the registration requirements of the Act. 2. TRANSFERABILITY OF THIS WARRANT. This Warrant shall be nontransferable except to an "affiliate" of the Bank as that term is defined in Rule 405 under the Act. Moreover, no transfer to an affiliate may be made, nor shall the Company be obligated to recognize any such transfer, unless the proposed transferee has agreed in writing to be bound by the terms of this Warrant. 3. EXERCISABILITY OF WARRANT; METHOD OF EXERCISE. (a) EXERCISABILITY OF WARRANT. The maximum number of shares of Underlying Common Stock purchasable upon exercise of this Warrant is 375,000, subject to adjustment as provided in Section 4 hereof. Within that maximum, this Warrant may be exercised at any time or from time to time during this Warrant Exercise Period with respect to any or all of the shares of Underlying Common Stock, except that no single exercise shall relate to less than 25,000 shares. (b) METHOD OF EXERCISE. To the extent of the shares of Underlying Common Stock purchasable under this Warrant at any particular time, such shares may be purchased prior to the end of this Warrant Exercise Period by exercise by this Warrant in the following manner: the Bank shall deliver to the Company a written notice specifying the number of shares of Underlying Common Stock that it wishes to purchase upon exercise of this Warrant together with -5- its check in the full amount of the Purchase Price of such shares. Such notice and check must be received by the Company at its principal office prior to 4:00 p.m., Chicago time, on February 1, 2000. This Warrant will be deemed exercised, and the Bank will be deemed to have become a shareholder of record with respect to the shares covered by any exercise, upon receipt of such notice and check by the Company. (c) ISSUANCE OF CERTIFICATES. As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within ten days thereafter, the Company will cause to be issued in the name of and delivered to the Bank a certificate or certificates for the number of fully paid and nonassessable shares of the Underlying Common Stock to which the Bank is entitled upon such exercise. Unless otherwise requested by the Bank in the notice of exercise referred to in Section 3(b), a single stock certificate will be issued to the Bank in connection with each Warrant exercise. 4. ANTIDILUTION PROVISIONS. The number of shares of Underlying Common Stock covered by this Warrant and the Purchase Price are subject to adjustment in accordance with the following provisions: (a) STOCK DIVIDENDS, STOCK SPLITS AND REVERSE SPLITS. In case (i) the outstanding shares of the Common Stock shall be subdivided into a greater number of shares, (ii) a dividend in Common stock shall be paid in respect of Common Stock or (iii) there shall be any other distribution on the Common Stock payable otherwise than out of earnings, retained earnings or earned surplus, the Purchase Price per share in effect immediately prior to such subdivision or at the record date of such dividend or distribution shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend or distribution be proportionately reduced; and, conversely, if outstanding shares of Common Stock shall be combined into a smaller number of shares thereof, the Purchase Price per share in effect immediately prior to such -6- combination shall simultaneously with the effectiveness of such combination be proportionately increased. If there shall be a distribution described in the preceding subparagraph (iii) the Purchase Price per share in effect immediately prior to such distribution shall be reduced by an amount equal to the fair value thereof per share of Common Stock as determined by the Board of Directors of the Company. Any dividend paid or distributed on the Common Stock in stock of any other class or securities convertible into shares of Common Stock shall be treated as a dividend paid in Common Stock to the extent that shares of Common Stock are then or thereafter issuable upon the conversion thereof. Whenever the Purchase Price per share is adjusted as provided in the preceding paragraph, the number of shares of the Underlying Common Stock purchasable upon exercise of this Warrant immediately prior to such adjustment shall be adjusted, effective simultaneously with such adjustment, to equal the product obtained (calculated to the nearest full share) by multiplying such number of shares of the Underlying Common Stock by a fraction, the numerator of which is the Purchase Price per share in effect immediately prior to such adjustment and the denominator of which is the Purchase Price per share in effect upon such adjustment, which adjusted number of shares of the Underlying Common Stock shall thereupon be the number of shares of the Underlying Common Stock purchasable upon exercise of this Warrant until further adjusted as provided herein. (b) REORGANIZATIONS. In case (i) the Company or a successor corporation shall be recapitalized by reclassifying its outstanding Common Stock into a stock with a different par value or by changing its outstanding Common Stock with par value to stock without par value, or (ii) the company or a successor corporation shall be a party to a consolidation or merger with, or shall sell or convey all or substantially all of its or any successor corporation's assets to, any other entity or entities, then as a condition of such reorganization, consolidation, merger, sale or conveyance, lawful and adequate provision shall be made whereby the Bank shall thereafter have -7- the right to purchase, upon the terms and conditions specified herein, in lieu of the shares of Common Stock theretofore purchasable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities and property receivable upon such recapitalization, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which the Bank might have purchased upon exercise of this Warrant immediately prior to such recapitalization, consolidation, merger, sale or conveyance. As used herein, the term "successor corporation" shall mean any corporation with which the Company or a successor corporation has been consolidated or merged or to which the Company's assets have been sold. (d) EFFECT OF DISSOLUTION OR LIQUIDATION. In case the Company shall dissolve or liquidate all or substantially all of its assets, all rights under this Warrant shall terminate as of the date upon which a certificate of dissolution or liquidation shall be filed with the Secretary of State of Delaware (or, if the Company theretofore shall have been merged or consolidated with a corporation incorporated under the laws of another state, the date upon which action of equivalent effect shall have been taken). 5. FURTHER COVENANTS OF THE COMPANY. (a) RESERVATION OF STOCK. The Company shall at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, all shares of the Underlying Common Stock from time to time issuable upon the exercise of this Warrant and shall take all necessary actions to ensure that the par value per share of the Underlying Common Stock is at all times not greater than the then-effective Purchase Price per share. (b) TITLE TO STOCK. All shares of the Underlying Common Stock delivered upon the exercise of this Warrant shall be duly authorized, validly issued, fully paid and nonassessable; and the Bank shall receive good and marketable title to the Underlying Common Stock, free and -8- clear of all voting and other trust arrangements, liens, encumbrances, equities, and claims whatsoever. 6. RIGHT OF FIRST REFUSAL. (a) If the Bank should propose to sell or otherwise transfer any or all of the shares of Underlying Common Stock, the Bank shall first offer the same to the Company for purchase by delivering written notice to the Company specifying the number of shares that the Bank proposed to sell or otherwise transfer and offering the same for purchase by the Company at the price hereinafter specified. The Company shall have a period of five business days after the date of receipt of such notice within which to accept such offer by delivering written notice of its acceptance to the Bank. The Bank's offer may be accepted only as to the entire number of shares covered by the Bank's offer. If the Company determines to accept the Bank's offer, the purchase price shall be the higher of (i) the average of the closing sale prices of the Common Stock in the principal market in which the Common Stock is then traded during the give-day period referred to above or (ii) if the Bank shall have received a bona fide offer to purchase such shares from an independent and financially responsible third party, the price per share specified in such third party's offer (a copy of which shall be furnished to the Company). The closing of the purchase and sale of the shares covered by the Bank's offer shall be completed within 10 days after its receipt of the Company's acceptance by the Bank's delivery of the certificates for the shares of Underlying Common Stock being sold against the Company's check for the full amount of the purchase price. If the Company fails to accept the Bank's offer, the Bank shall be free to sell the offered shares within 90 days after the expiration of the aforesaid five-day period (and, if the Bank's offer price was determined by a third-party offer, in accordance with such offer) free of the provisions of this paragraph. If the Bank fails to sell all the offered shares within such 90-day period, the provisions of this paragraph shall again be applicable to the offered shares remaining unsold. -9- (b) The Bank shall not be required to offer shares of Underlying Common Stock to the Company in connection with any proposed transfer thereof to any affiliate of the Bank, but such affiliate shall acknowledge to the Company in writing that it holds such shares subject to all the terms and provisions of this Warrant and that it will offer such shares to the Company pursuant to this Section 6 if it should ever cease to be affiliated with the Bank. 7. MISCELLANEOUS. (a) Any notice required or permitted to be given to either party hereto shall be in writing and shall be deemed given when received by such party at the address of such party given below or at such changed address of which such party shall have notified the other: If to the Bank, to its address set forth at the beginning of this Warrant. If to the Company, to: Delphi Information Systems, Inc. 3501 Algonquin Road Rolling Meadows, Illinois 60008 Attention: President (b) This Warrant and any of the terms hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of Delaware. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect any of the terms hereof. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed as of January 31, 1995. DELPHI INFORMATION SYSTEMS, INC. By: --------------------------------------------------------- -10- The above Warrant is confirmed and accepted as of January 31, 1995. SILICON VALLEY BANK By: ------------------------- -11- EX-27 7 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS OF DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES AS OF MARCH 31, 1995, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, STOCKHOLDERS' EQUITY AND CASH FLOWS FOR THE PERIOD ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS MAR-31-1995 MAR-31-1995 877 0 8,326 (687) 983 10,923 9,666 (6,036) 27,547 16,661 0 798 780 7,225 (4,250) 27,547 53,040 53,040 32,010 32,010 21,231 396 944 (1,541) 140 (1,681) 0 0 0 (1,681) (0.23) (0.23)
EX-99.1 8 EXHIBIT 99.1 EXHIBIT 99.1 ------------ Information, Financial Statements, and Exhibits Required by Form 11-K in accordance with Rule 15d-21 under the Securities Exchange Act of 1934 For the Fiscal Years Ended December 31, 1994 and December 31, 1993 Delphi Information Systems, Inc. Cash Option Profit Sharing Plan DELPHI INFORMATION SYSTEMS, INC. -------------------------------- The principal executive offices of Delphi Information Systems, Inc. are located at 3501 Algonquin Road, Rolling Meadows, Illinois 60008 ITEM 1. CHANGES IN THE PLAN ------------------- Delphi Information Systems, Inc. (the "Company") adopted the Cash Option Profit Sharing Plan (the "Plan") effective January 1, 1988. There were no material changes in the provisions of the Plan during 1994 or 1993. ITEM 2. CHANGES IN INVESTMENT POLICY ---------------------------- There were no material changes made during 1994 or 1993 with respect to investment policy. ITEM 3. CONTRIBUTIONS UNDER THE PLAN ---------------------------- The Company made no contributions to the Plan in 1994 or 1993. ITEM 4. PARTICIPATING EMPLOYEES ----------------------- As of December 31, 1994, there were approximately 479 employees who were participants in the Plan compared to 276 employees as of December 31, 1993. The increase in the number of participants during the year is partly due to employees of Mountain States and Insurnet, companies acquired by Delphi in December, 1993, who enrolled in the Plan during the year. ITEM 5. ADMINISTRATION OF THE PLAN -------------------------- (a) The Plan is administered by the Company's Administrative Committee (the "Committee" or "Administrators"), the members of which are appointed by the Board of Directors. The members of the Committee and their titles with the Company as of April 1, 1995 are as follows: Position with the Member's Names Company or Affiliates -------------- --------------------- M. Denis Connaghan President and CEO John Sprieser Vice President, Finance and CFO Meigan Putnam Vice President, Operations The business address of each member of the Committee is 3501 Algonquin Road, Rolling Meadows, Illinois 60008. The Administrators of the Plan also serve as the Trustees of the Plan. The trust established under the Plan is administered by the Trustees. (b) During 1994 and 1993, no Committee members or Trustees received any compensation from the Plan for services rendered in connection with the administration of the Plan. ITEM 6. INVESTMENT CUSTODIAN -------------------- (a) Connecticut General Life Insurance Company ("CIGNA") acts as custodian of the Plan's securities and investments. Its offices are located at: Connecticut General Life Insurance Company Group Pension Division Metro Center One 350 Church Street M-80 Hartford, CT 06104 CIGNA manages participant contributions which are invested in an employee directed combination of the Guaranteed Long Term Account, Guaranteed Government Securities Account, Income and Growth Account and/or the Growth Opportunities Account. CIGNA delivers participants' contributions that are to be invested in the Company's common stock to Smith Barney Shearson ("Smith Barney") who executes the buy or sell orders it is given and holds the stock certificates. Smith Barney's offices are located at: Smith Barney Shearson 350 California Street San Francisco, CA 94104-1477 (b) The contract and administrative fees incurred by the Plan are payable to CIGNA, the Plan Custodian. During 1994, the fees were $14,979 compared to$17,731 in 1993. The Company paid these fees on behalf of the Plan in both years. (c) The Company and the Plan Administrators had a banker's blanket bond in the amount of $500,000 at December 31, 1994 with a deductible of $-0-. ITEM 7. REPORTS TO PARTICIPATING EMPLOYEES ---------------------------------- Participating employees are furnished quarterly statements during the year reflecting the status of their accounts. The first such statement was issued on March 31, 1988. ITEM 8. INVESTMENTS OF PLAN ------------------- Brokerage fees of $634 were paid to Smith Barney in 1994 compared to $257 in 1993. No brokerage fees were paid to any person described in SEC requirements for disclosure in Item 8(a)(2) of this form. 3 ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS --------------------------------- (a) Index of Financial Statements and Schedules Page ---- Report of Independent Public Accountants F-1 Statement of Net Assets Available for Plan Benefits, with Fund Information, as of December 31, 1994 F-2 Statement of Net Assets Available for Plan Benefits, with Fund Information, as of December 31, 1993 F-3 Statement of Changes in Net Assets Available for Plan Benefits, with Fund Information, for the Year Ended December 31, 1994 F-4 Statement of Changes in Net Assets Available for Plan Benefits, with Fund Information, for the Year Ended December 31, 1993 F-5 Notes to Financial Statements F-6 to F-10 Schedule I - Item 27a--Schedule of Assets Held for Investment Purposes F-11 Schedule II - Item 27d--Schedule of Reportable Transactions F-12 (b) Exhibits None 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 the Committee has duly caused this annual Report to be signed by the undersigned thereunto duly authorized. DELPHI INFORMATION SYSTEMS, INC. Cash Option Profit Sharing Plan Date: June 27, 1995 Signature /s/ John Sprieser ------------------------ ----------------- John Sprieser VP-Finance and CFO 5 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Trustees of Delphi Information Systems, Inc. Cash Option Profit Sharing Plan We have audited the accompanying statements of net assets available for Plan benefits of Delphi Information Systems, Inc. Cash Option Profit Sharing Plan as of December 31, 1994 and 1993 and the related statements of changes in net assets available for the Plan benefits, with fund information, for the years then ended. These financial statements and schedules referred to below are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits as of December 31, 1994 and 1993 and the changes in its net assets available for plan benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets held for investment purposes and reportable transactions are presented for purpose of additional analysis and are not a required part of the basic financial statements, but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The fund information in the statement of net assets available for plan benefits and the statement of changes in net assets available for plan benefits is presented for purposes of additional analysis rather than to present the net assets available for plan benefits and changes in net assets available for plan benefits of each fund. The supplemental schedules and fund information have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The schedule of assets held for investment purposes as of December 31, 1994 and the schedule of reportable transactions for the year ended December 31, 1994 do not disclose the historical cost of the Plan's investments. Disclosure of this information is required by the Department of Labor Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. ARTHUR ANDERSEN LLP Chicago, Illinois June 19, 1995 F-1
DELPHI INFORMATION SYSTEMS, INC. CASH OPTION PROFIT SHARING PLAN STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION AS OF DECEMBER 31, 1994 FUND INFORMATION ----------------------------------------------------------------------------- Guaranteed Income Delphi Guaranteed Government and Growth Common Long Term Securities Growth Opportunities Loan Stock Account Account Account Account Account Total ----------------------------------------------------------------------------- ----------- PLAN ASSETS: Investments: Delphi Common Stock $ 17,454 $ -- $ -- $ -- $ -- $ -- $ 17,454 Guaranteed Long Term Account -- 1,785,877 -- -- -- -- 1,785,877 Guaranteed Government Securities Account -- -- 124,765 -- -- -- 124,765 Income and Growth Account -- -- -- 1,099,845 -- -- 1,099,845 Growth Opportunities Account -- -- -- -- 2,070,965 -- 2,070,965 Participant Loans -- -- -- -- -- 211,656 211,656 ----------------------------------------------------------------------------------------- Total investments 17,454 1,785,877 124,765 1,099,845 2,070,965 211,656 5,310,562 Cash -- -- -- -- -- -- 0 Participants' contributions receivable 837 23,971 2,606 23,481 39,173 -- 90,068 ----------------------------------------------------------------------------------------- Net assets available for Plan benefits $ 18,291 $ 1,809,848 $ 127,371 $ 1,123,326 $ 2,110,138 $ 211,656 $ 5,400,630 ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
F-2
DELPHI INFORMATION SYSTEMS, INC. CASH OPTION PROFIT SHARING PLAN STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION AS OF DECEMBER 31, 1993 FUND INFORMATION ------------------------------------------------------------------------- Guaranteed Income Delphi Guaranteed Government and Growth Common Long Term Securities Growth Opportunities Loan Stock Account Account Account Account Account Total ------------------------------------------------------------------------- ----------- PLAN ASSETS: Investments: Delphi Common Stock $ 35,680 $ -- $ -- $ -- $ -- $ -- $ 35,680 Guaranteed Long Term Account -- 1,610,788 -- -- -- -- 1,610,788 Guaranteed Government Securities Account -- -- 107,599 -- -- -- 107,599 Income and Growth Account -- -- -- 751,881 -- -- 751,881 Growth Opportunities Account -- -- -- -- 1,268,807 -- 1,268,807 Participant Loans -- -- -- -- -- 120,047 120,047 --------------------------------------------------------------------------------------- Total investments 35,680 1,610,788 107,599 751,881 1,268,807 120,047 3,894,802 Cash 819 -- -- -- -- 819 Participants' contributions receivable 1,224 18,769 14,044 17,690 21,982 5,590 79,299 --------- ------------ ------------ ----------- -------------- ------------------------ Net assets available for Plan benefits $ 37,723 $ 1,629,557 $ 121,643 $ 769,571 $ 1,290,789 $ 125,637 $ 3,974,920 --------- ------------ ----------- ----------- -------------- ------------------------ --------- ------------ ----------- ----------- -------------- ------------------------ The accompanying notes are an integral part of these statements.
F-3
DELPHI INFORMATION SYSTEMS, INC. CASH OPTION PROFIT SHARING PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1994 FUND INFORMATION -------------------------------------------------------------------- Guaranteed Income Delphi Guaranteed Government and Growth Common Long Term Securities Growth Opportunities Loan Stock Account Account Account Account Account Total -------------------------------------------------------------------------------- ADDITIONS: Contributions: Participants $24,780 $431,171 $45,190 $709,453 $858,721 $0 $2,069,315 Investment Income: Net appreciation/(depreciation) in fair value of investments (36,699) 0 3,332 (58,553) 18,320 0 (73,600) Interest 0 99,325 307 2,742 1,959 0 104,333 Dividends 102 0 0 0 0 0 102 -------------------------------------------------------------------------------- Total investment income/(loss) (36,597) 99,325 3,639 (55,811) 20,279 0 30,835 -------------------------------------------------------------------------------- Total additions (11,817) 530,496 48,829 653,642 879,000 0 2,100,150 -------------------------------------------------------------------------------- DEDUCTIONS: Benefits paid to participants (4,127) (307,794) (14,943) (163,220) (184,222) 0 (674,306) Other expenses (134) 0 0 0 0 0 (134) -------------------------------------------------------------------------------- Total deductions (4,261) (307,794) (14,943) (163,220) (184,222) 0 (674,440) -------------------------------------------------------------------------------- LOANS ISSUED TO PARTICIPANTS 0 (154,924) (1,306) (25,779) (12,336) 194,345 0 LOAN PRINCIPAL REPAYMENTS 0 81,023 2,082 12,583 12,638 (108,326) 0 INTERFUND TRANSFERS (3,354) 31,490 (28,934) (123,471) 124,269 0 0 -------------------------------------------------------------------------------- NET INCREASE (DECREASE) (19,432) 180,291 5,728 353,755 819,349 86,019 1,425,710 NET ASSETS AVAILABLE FOR PLAN BENEFITS Beginning of year 37,723 1,629,557 121,643 769,571 1,290,789 125,637 3,974,920 -------------------------------------------------------------------------------- End of year $18,291 $1,809,848 $127,371 $1,123,326 $2,110,138 $211,656 $5,400,630 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements
F-4
DELPHI INFORMATION SYSTEMS, INC. CASH OPTION PROFIT SHARING PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1993 FUND INFORMATION ------------------------------------------------------------------ Guaranteed Income Delphi Guaranteed Government and Growth Common Long Term Securities Growth Opportunities Loan Stock Account Account Account Account Account Total ------------------------------------------------------------------------------ ADDITIONS: Contributions: Participants $18,263 $389,586 $61,403 $238,871 $367,281 $0 $1,075,404 Investment Income: Net appreciation/(depreciation) in fair value of investments (10,455) 0 1,662 93,632 200,694 0 285,533 Interest 0 133,453 0 0 0 0 133,453 Dividends 57 0 0 0 0 0 57 ------------------------------------------------------------------------------ Total investment income/(loss) (10,398) 133,453 1,662 93,632 200,694 0 419,043 ------------------------------------------------------------------------------ Total additions 7,865 523,039 63,065 332,503 567,975 0 1,494,447 ------------------------------------------------------------------------------ DEDUCTIONS: Benefits paid to participants (17,606) (510,979) (8,289) (35,264) (61,116) 0 (633,254) Other expenses (adjustment) 0 (13,923) 0 13,735 0 0 (188) ------------------------------------------------------------------------------ Total deductions (17,606) (524,902) (8,289) (21,529) (61,116) 0 (633,442) ------------------------------------------------------------------------------ LOANS ISSUED TO PARTICIPANTS 0 (83,299) 0 0 0 83,299 0 LOAN PRINCIPAL REPAYMENTS 0 73,957 0 0 0 (73,957) 0 INTERFUND TRANSFERS (461) (201,796) 13,075 108,382 80,800 0 0 ------------------------------------------------------------------------------ NET INCREASE (DECREASE) (10,202) (213,001) 67,851 419,356 587,659 9,342 861,005 NET ASSETS AVAILABLE FOR PLAN BENEFITS Beginning of year 47,925 1,842,558 53,792 350,215 703,130 116,295 3,113,915 ------------------------------------------------------------------------------ End of year $37,723 $1,629,557 $121,643 $769,571 $1,290,789 $125,637 $3,974,920 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ The accompanying notes are an integral part of these statements.
F-5 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994 AND 1993 1. PLAN DESCRIPTION ---------------- The following is a general description of the Cash Option Profit Sharing Plan (the "Plan"). Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. GENERAL The Plan, which commenced January 1, 1988, is a qualified cash option profit sharing plan offered to all eligible employees of Delphi Information Systems, Inc. (the "Company" or "Delphi") when hired. Enrollment to participate and election changes occur quarterly. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and Section 401 (a) and Section 401 (k) of the Internal Revenue Code of 1986, as amended (IRC). At December 31, 1994, there were 479 active participants in the Plan of whom 257, 73, 241, 268 and 59 were electing to invest either wholly or partially in the CIGNA Guaranteed Long Term Account, the CIGNA Guaranteed Government Securities Account, the CIGNA Income and Growth Account, the CIGNA Growth Opportunities Account and Delphi Common Stock, respectively. At December 31, 1993 there were 276 active participants of whom 208, 60, 152, 162 and 43 were electing to invest either wholly or partially in the CIGNA Guaranteed Long Term Account, the CIGNA Guaranteed Government Securities Account, the CIGNA Income and Growth Account, the CIGNA Growth Opportunities Account and Delphi Common Stock, respectively. CONTRIBUTIONS Participants may elect to contribute an amount equaling from 1% to 20% of their basic compensation up to a maximum of $9,240 for 1994 compared to $8,994 for 1993 (salary reduction contributions). This maximum allowable contribution is adjusted each year for increases in the cost of living as provided in applicable regulations. This annual amount is an aggregate limitation that applies to all of an individual's salary reduction contributions and similar contributions under other plans. The Company may make an annual discretionary contribution to the Plan. Each Plan year, the Company will decide what portion of its profits, if any, it will contribute to the Plan. The Company did not make any contribution to the Plan during 1994 and 1993. The salary reduction contributions made on behalf of each participant are paid to the Custodian as soon as practical after the last day of each month, and deposited to the investment funds as directed by the participant. F-6 DELPHI INFORMATION SYSTEMS, INC. CASH OPTION PROFIT SHARING PLAN NOTES TO FINANCIAL STATEMENTS, Continued DECEMBER 31, 1994 AND 1993 PARTICIPANT ACCOUNTS Each participant's account is credited with (1) the participant's contributions, (2) the related Company matching contributions, if any, and (3) fund earnings or losses. These accounts are summarized in the accompanying financial statements as net assets available for plan benefits. VESTING Each participant has an immediate, fully vested right to receive all salary reduction contributions and earnings thereon, upon termination from the Company, or upon separation caused by death of the participant or under other special circumstances. The Company's contributions to the Plan, if any, and the earnings on such contributions, become vested over four years of service. INVESTMENTS Each participant directs that salary reduction contributions for the participants' benefit and any earnings thereon be invested in one or more of the following funds: a. CIGNA Guaranteed Long Term Account - Invests in longer term fixed income securities, such as corporate bonds and commercial mortgages. b. CIGNA Guaranteed Government Securities Account - Invests in U.S. Treasuries, government agency obligations and repurchase agreements fully backed by such securities. c. CIGNA Income and Growth Account - Invests in a diversified portfolio of equity and fixed income securities. d. CIGNA Growth Opportunities Account - Invests in common stocks and securities convertible into common stocks. e. Delphi Stock Account - Invests in the shares of the Company's common stock. Participants are limited to a maximum of 25% of their annual contributions that can be invested in the Company's stock. F-7 DELPHI INFORMATION SYSTEMS, INC. CASH OPTION PROFIT SHARING PLAN NOTES TO FINANCIAL STATEMENTS, Continued DECEMBER 31, 1994 AND 1993 PAYMENT OF BENEFITS Upon termination of employment, a participant's benefit is distributed in a single, lump sum payment. The distribution is made in the form of cash, unless the participant elects to receive the portion of his account that was invested in the Company's stock in the form of whole shares of such Company stock. EXPENSES Expenses in connection with the purchase or sale of stock or other securities are charged to the fund for which such purchase or sale is made. The Trust Agreement stipulates that expenses incurred by the Trustee in the performance of its duties shall be paid from the Trust Fund unless paid by the Company at its sole discretion. During 1994 and 1993 the Company elected to pay these expenses which consisted of the following: (1) accounting and legal fees of approximately $6,000 in both 1994 and 1993; and (2) record keeping fees paid to the Custodian of $14,979 and $17,731 in 1994 and 1993, respectively. TERMINATION Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become fully vested in any Company contributions to their accounts. ADMINISTRATION The Plan is administered by an Administrative Committee appointed by the Board of Directors of the Company. The Committee has responsibility for supervising the collection of contributions, delivery of such contributions to the Trustee, and maintenance of necessary records. The Trustee's responsibilities include receipt of Plan contributions, investment and maintenance of trust assets in the available funds, and distributions under the plan of such amounts as the Committee shall direct from time to time. F-8 DELPHI INFORMATION SYSTEMS, INC. CASH OPTION PROFIT SHARING PLAN NOTES TO FINANCIAL STATEMENTS, Continued DECEMBER 31, 1994 and 1993 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ BASIS OF ACCOUNTING The accompanying financial statements are prepared on the accrual basis of accounting. INVESTMENTS Investments are stated at fair value. Purchases and sales of securities are reflected on a settlement date basis. In accordance with the policy of stating investments at fair value, realized and unrealized gains and losses on investments are reflected as net appreciation/depreciation in the Statements of Changes in Net Asset Available for Plan Benefits. Dividend income is accrued on the ex-dividend date. Interest income from other investments is accrued as earned. The value of the investment in the Guaranteed Long Term Account and the Guaranteed Government Securities Account is equal to the amounts deposited in the account plus interest credited thereon less expenses, charges and other distributions. The Guaranteed Long Term Account bore an interest rate of 5.40 percent at December 31, 1994 (6.25 percent at December 31, 1993). The Guaranteed Government Securities Account held 11,280.74 units with a unit value of $11.06 at December 31, 1994. The value of a unit in the Income and Growth Account and the Growth Opportunities Account is based on the market value of the assets in the account at year-end. The Income and Growth Account held 60,199.51 units with a unit value of $18.27 at December 31, 1994. The Growth Opportunities Account held 66,956.51 units with a unit value of $30.93 at December 31, 1994. Investments in these accounts, traded on national securities exchanges, are valued at year-end closing prices, and in the case of over- the-counter securities, at closing prices at December 31. LOANS TO PARTICIPANTS The Plan allows participants to borrow against their accounts subject to certain limitations. The rate of interest on such borrowings is equal to the rate of interest paid by the Guaranteed Long Term Account at the time the loan is made (6.75% to 15.90% at December 31, 1994). Employee loans outstanding were $211,656 and $125,637 at December 31, 1994 and 1993, respectively. CONTRIBUTIONS Participant contributions are recorded in the period that a participant's payroll deductions are made. Participant rollovers are funds transferred into the Plan during the respective year from new participants' previous employer plans. F-9 DELPHI INFORMATION SYSTEMS, INC. CASH OPTION PROFIT SHARING PLAN NOTES TO FINANCIAL STATEMENTS, Continued DECEMBER 31, 1994 and 1993 3. RECONCILIATION TO FORM 5500 --------------------------- As of December 31, 1994 and 1993, the Plan had $0 and $127,591, respectively, of pending distributions to participants who elected to withdraw from the operation and earnings of the Plan. These amounts are recorded as a liability in the Plan's Form 5500; however, these amounts are not recorded as a liability in the accompanying financial statements in accordance with generally accepted accounting principles. The following table reconciles benefits paid per the financial statements to the Form 5500 as filed by the Company for the year ended December 31, 1994:
Net Assets Available for Plan Benefits Benefits December 31 Payable to Benefits --------------------------- Participants Paid 1994 1993 ------------ ---------- ------------ ----------- Per financial statements $ 0 $ 674,306 $ 5,400,630 $ 3,974,920 Accrued benefit 0 0 0 (127,591) payments Reversal of 1993 accrual 0 (127,591) 0 0 benefit payments ------------ ----------- ------------- ------------ Per Form 5500 $ 0 $ 546,715 $ 5,400,630 $ 3,847,329 ------------ ----------- ------------- ------------
4. TAX STATUS ---------- Although the Plan has received a favorable determination letter dated December 18, 1989 from the Internal Revenue Service, it has not been updated for the latest plan amendments. However, management has recently filed for a new determination letter but has not yet received it. The plan administrator and management believe that the Plan was designed and operated in compliance with the applicable requirements of the IRC. Therefore, they believe that the Plan was qualified and the related trust was tax-exempt through the year ended December 31, 1994. 5. RECLASSIFICATIONS ----------------- Certain 1993 amounts have been reclassified to conform to the 1994 presentation. F-10
DELPHI INFORMATION SYSTEMS, INC. CASH OPTION PROFIT SHARING PLAN SCHEDULE I - ITEM 27A - - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AS OF DECEMBER 31, 1994 Market Value at Close of Name of Issuer and Title of Issue Cost (a) Period --------------------------------- -------- ---------- * Delphi common stock, 22,348 shares, $0.10 par value, $.781 per share $ 17,454 * CIGNA Guaranteed Long Term Account, 5.40 percent 1,785,877 * CIGNA Guaranteed Government Securities Account, 11,280.74 units, $11.06 per unit 124,765 * CIGNA Income and Growth Account, 60,199.51 units, $18.27 per unit 1,099,845 * CIGNA Growth Opportunities Account, 66,956.51 units, $30.93 per unit 2,070,965 * Participant Loans 6.75 percent to 15.90 percent interest 211,656 ----------- $5,310,562 ----------- ----------- (a) Historical cost information could not be obtained from the Plan's custodian. * Represents a party in interest as of December 31, 1994. The accompanying notes are an integral part of these statements.
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DELPHI INFORMATION SYSTEMS, INC. CASH OPTION PROFIT SHARING PLAN SCHEDULE II - 27D -- SCHEDULE OF REPORTABLE TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 1994 Purchases Dispositions --------- ----------------------------------- Purchase Price and Current Value Involved Fund Description Number of of Assets on Selling Gain/ Party Name of Assets Transactions Transaction Date Price Cost (a) Loss -------- --------------- ----------------- ------------ ----------------- ------- -------- ------------------ * CIGNA Guaranteed Fixed Income (b) $673,582 $567,085 $ -- Long Term Account * CIGNA Income and Equity and Fixed (b) 782,075 369,946 -- Growth Income Securities Account Fund * CIGNA Growth Common Stock (b) 1,012,248 218,072 -- Opportunities Fund Account (a) Historical cost information could not be obtained from the Plan's custodian. (b) Information could not be obtained from the Plan's custodian. * Represents a party in interest as of December 31, 1994. The accompanying notes are an integral part of these statements.
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