<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 15, 1996
REGISTRATION NO. 333-07287
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
CCC INFORMATION SERVICES GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------
<TABLE>
<S> <C> <C>
DELAWARE 7389 54-1242469
(State or other (Primary Standard (I.R.S.
jurisdiction of Industrial Employer
incorporation or Classification Code Identification
organization) Number) No.)
</TABLE>
WORLD TRADE CENTER CHICAGO
444 MERCHANDISE MART
CHICAGO, ILLINOIS 60654
(312) 222-4636
(Address, including zip code and telephone number,
including area code, of Registrant's principal executive offices)
------------------
GERALD P. KENNEY
SECRETARY AND GENERAL COUNSEL
CCC INFORMATION SERVICES GROUP INC.
WORLD TRADE CENTER CHICAGO
444 MERCHANDISE MART
CHICAGO, ILLINOIS 60654
(312) 222-4636
(Name, address, including zip code and telephone number, including area code, of
agent for service)
------------------
COPIES TO:
<TABLE>
<S> <C>
LELAND E. HUTCHINSON VICTOR A. HEBERT
TERRENCE R. BRADY TIMOTHY G. HOXIE
WINSTON & STRAWN HELLER EHRMAN
35 WEST WACKER DRIVE WHITE &
CHICAGO, ILLINOIS 60601 MCAULIFFE
(312) 558-5600 333 BUSH STREET
SAN FRANCISCO,
CALIFORNIA 94104
(415) 772-6000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CCC INFORMATION SERVICES GROUP INC.
Cross Reference Sheet Pursuant to Rule 404(a) of the Securities Act of 1933
and Item 501(b) of Regulation S-K, Showing the Location or Heading in the
Prospectus of the Information Required by Part I of Form S-1.
<TABLE>
<CAPTION>
ITEM LOCATION OR HEADING IN PROSPECTUS
- -------------------------------------------------------------- ---------------------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus..................... Registration Statement Cover Page; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page; Available Information;
Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Prospectus Summary; Risk Factors; Business
4. Use of Proceeds.................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.................... Underwriting
6. Dilution........................................... Dilution
7. Selling Security Holders........................... Not Applicable
8. Plan of Distribution............................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to Be Registered......... Description of Capital Stock
10. Interest of Named Experts and Counsel.............. Not Applicable
11. Information with Respect to the Registrant......... Prospectus Summary; Risk Factors; Dividend Policy;
Dilution; Use of Proceeds; Capitalization;
Selected Consolidated Financial Data; Unaudited
Pro Forma Consolidated Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Principal Stockholders; Certain
Transactions; Description of Capital Stock; Shares
Eligible for Future Sale; Experts; Available
Information; Consolidated Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 15, 1996
PROSPECTUS
5,500,000 SHARES
[LOGO]
CCC INFORMATION SERVICES GROUP INC.
COMMON STOCK
All of the 5,500,000 shares of Common Stock offered hereby are being sold by
the Company. Prior to this Offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $10.00 and $12.00 per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. The Common Stock of the Company has been approved for
quotation on the Nasdaq National Market under the symbol "CCCG".
--------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $1,072,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 825,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about August , 1996 at the office of the agent of Hambrecht
& Quist LLC in New York, New York.
HAMBRECHT & QUIST
LAZARD FRERES & CO. LLC
RAYMOND JAMES & ASSOCIATES, INC.
August , 1996
<PAGE>
CLAIMS WORKFLOW MANAGEMENT
CCC INFORMATION SERVICES IS A LEADING SUPPLIER OF AUTO CLAIMS INFORMATION
AND PROCESSING, CLAIMS MANAGEMENT SOFTWARE AND VALUE-ADDED COMMUNICATIONS. CCC'S
PATHWAYS WORKFLOW MANAGEMENT SOFTWARE IS DESIGNED TO INTEGRATE CCC'S SOFTWARE
AND INFORMATION OFFERINGS IN A STANDARD ARCHITECTURE WITH A COMMON USER
INTERFACE. CCC'S SERVICES AND PRODUCTS IMPROVE THE EFFICIENCY OF THE AUTO CLAIMS
PROCESS.
THE INSIDE COVER CONSISTS OF A SCHEMATICS SHOWING THE GRAPHICAL USER
INTERFACE OF THE PATHWAYS SOFTWARE AND IDENTIFYING LABELS DEPICTING APPLICATION
OF THE SYSTEM WITH A FOLD-OUT PAGE BEHIND THE INSIDE FRONT COVER DEPICTING THE
AUTO CLAIMS PROCESS.
[INSIDE COVER PAGE]
--------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED HEREIN, THE "COMPANY" MEANS CCC
INFORMATION SERVICES GROUP INC., TOGETHER WITH ITS CONSOLIDATED SUBSIDIARIES,
UNLESS THE CONTEXT OTHERWISE REQUIRES. "CCC" REFERS TO CCC INFORMATION SERVICES
INC. AND ITS CONSOLIDATED SUBSIDIARIES, WHICH CONSTITUTE THE OPERATING
SUBSIDIARIES OF THE COMPANY. "CCCDC" OR THE "JOINT VENTURE" REFERS TO CCC
DEVELOPMENT COMPANY. UNLESS OTHERWISE SPECIFIED, THE PROSPECTUS ASSUMES (I) THE
COMPLETION OF A 40 FOR 1 SPLIT OF COMMON STOCK OF THE COMPANY IMMEDIATELY PRIOR
TO THE TIME THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART
BECOMES EFFECTIVE, (II) THE REDEMPTION OF 3,350 SHARES OF THE OUTSTANDING SERIES
C CUMULATIVE REDEEMABLE PREFERRED STOCK (THE "SERIES C PREFERRED STOCK") AND
22,780 SHARES OF THE OUTSTANDING SERIES D CUMULATIVE REDEEMABLE PREFERRED STOCK
(THE "SERIES D PREFERRED STOCK") OF THE COMPANY (COLLECTIVELY, THE "REDEEMABLE
PREFERRED STOCK") WHICH WILL OCCUR SIMULTANEOUSLY WITH THE CONSUMMATION OF THE
OFFERING, AND (III) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. A
GLOSSARY OF TECHNICAL TERMS BEGINS ON PAGE 41 OF THIS PROSPECTUS.
THE COMPANY
The Company is a leading supplier of automobile claims information and
processing, claims management software and value-added communication services.
The Company's customers include each of the 50 largest U.S. automobile insurance
companies, over 250 other automobile insurance companies and more than 8,500
collision repair facilities. The Company's technology-based services and
products improve efficiency, manage costs and increase consumer satisfaction in
the management of automobile claims and restoration. The Company believes that
its core competencies include the efficient collection and processing of claims
and automobile valuation and repair data, development of advanced client-server,
object-oriented claims software products, management of a value-added
communications network, understanding the workflow processes of automobile
claims and marketing through a customer-oriented field sales and service
organization.
The Company's services and products automate the process of evaluating and
settling both total loss and repairable automobile claims. The Company's TOTAL
LOSS services and products provide insurance companies the ability to effect
total loss settlements on the basis of market-specific vehicle values. The
Company's collision estimating services and products provide insurance
appraisers and collision repair facilities with up-to-date pricing, interactive
decision support and computer-assisted logic to produce accurate collision
repair estimates. Communication services offered by the Company connect
insurers, appraisers and collision repair facilities, providing the information
required to make appropriate and timely decisions. The Company also provides a
wide variety of related services and products intended to facilitate the overall
management of the automobile claims process. The Company's PATHWAYS workflow
management software is designed to integrate each of the Company's product
offerings on a common platform with a common graphical user interface,
facilitating the learning of new applications while providing the Company's
customers with a broader tool set for claims completion. The Company's services
and products are an integrated solution that combines reliable information,
advanced claims management software and value-added, secure communication
systems to improve the efficiency of the automobile claims process.
The Company markets its services and products to the key participants in the
automobile claims industry, including over 400 insurance companies and
approximately 20,000 to 25,000 collision repair facilities. The Company sells
its services and products to insurance companies through a 125 person direct
sales force. The Company contracts with 85 independent sales representatives to
sell its products to collision repair facilities. Over half of the Company's
revenue for 1995 was for services and products sold pursuant to contracts, which
generally have a two to three year term. A substantial portion of the Company's
remaining revenue represented sales to customers that have been doing business
with the Company for at least ten years. The Company's services and products are
sold either on a monthly subscription or a per transaction basis.
Insurance companies paid approximately $35 billion for automobile damage and
loss claims in 1994, of which the Company believes $19 billion was paid to
collision repair facilities and $13 billion was paid for total loss claims.
Competitive pressures and resistance by policy holders and regulators to premium
increases are causing insurance companies to focus on both customer satisfaction
and cost control. At the same time, the costs to operate a collision repair
facility have risen substantially over the past decade. Modern automobile
designs coupled with extensive environmental regulations are forcing collision
repair facilities to make significant capital
3
<PAGE>
investments in increasingly sophisticated equipment and better training.
Automobile insurance companies are seeking to reduce the costs of adjusting
claims through better and more timely flows of information and to increase
consumer satisfaction through faster, more efficient claims handling procedures.
Collision repair facilities are seeking to obtain a steady supply of customers
through greater connectivity with insurance companies and through improved
operating efficiency, business management and repair processing.
The Company's objective is to enhance its position as a leading provider of
business solutions to the automobile claims industry. The Company intends to
grow its installed user base and to offer new and enhanced services and
products. The Company focuses resources on leading insurance companies because
these customers drive new product innovation and influence the systems decisions
of other participants in the claims process. The Company has also committed
substantial resources to develop and program class libraries and claims workflow
objects and intends to leverage this technology asset to develop new services
and enhancements rapidly. The Company plans to expand its appraisal and
restoration outsourcing solution as an alternative to high cost independent
adjusters. The Company also plans to expand the scope of its service and product
offerings beyond automobile physical damage solutions to include claims
involving bodily injury and to offer selected insurance company customers a
total claims outsourcing solution.
Underlying each of the Company's principal services and products are
value-added databases which the Company's customers access using
workflow-oriented software and the Company's communications network. The
Company's proprietary database of valuation data used in connection with its
total loss services and products is built through the Company's own data
collection network. The Company offers its collision estimating services and
products through a personal computer-based, open systems approach utilizing an
object-oriented design which is readily integrated with customer legacy systems
and which enables rapid introduction of additional application modules. The
Company's product engineering activities focus on improving speed to market of
new products, services and enhancements, and reducing development costs.
CCC entered the vehicle total loss valuation market in 1980 when it
introduced the first computerized vehicle valuation system based on
market-specific conditions and physically inspected dealer inventories. The
Company was incorporated in Delaware in 1983. Its principal executive office is
located at 444 Merchandise Mart, Chicago, Illinois 60654. Its telephone number
is (312) 222-4636.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............... 5,500,000 Shares
Common Stock to be outstanding after the
Offering.......................................... 22,026,800 Shares(1)
Use of Proceeds................................... To repay certain bank debt of CCC that
has been guaranteed by the Company and
to redeem a portion of the Redeemable
Preferred Stock. See "Use of Proceeds."
Nasdaq National Market Symbol..................... CCCG
</TABLE>
- ------------------------------
(1) Excludes 2,579,760 shares of Common Stock issuable upon the exercise of
stock options outstanding at June 30, 1996 at a weighted average exercise
price of $2.64 per share.
CCC-TM-, Pathways-TM-, EZEst-TM-, EZNet-TM-, ACCESS-TM-, ACCLAIM-TM-,
GuidePost-TM-, EZFocus-TM-, EZWorks-TM-, VINguard-TM- and AutoSearch-TM- are
trademarks of the Company. All other trademarks, service marks, or trade names
referred to in this Prospectus are the property of the respective owners.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary consolidated statement of operations data, per share
data, pro forma data and balance sheet data should be read in connection with
the consolidated financial statements, the notes related thereto and the
unaudited pro forma consolidated financial data included elsewhere in this
Prospectus. The information as of and for the three years ended December 31,
1995 is derived from the audited consolidated financial statements of the
Company. The information presented as of and for the two years ended December
31, 1992 and the six months ended June 30, 1995 and 1996 and all pro forma data
is derived from the unaudited consolidated financial information of the Company.
With respect to the unaudited financial information, the Company is of the
opinion that all material adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of the Company's interim and pro
forma results of operations and financial condition, have been included. The
results of operations presented below should not be regarded as necessarily
indicative of results that may be expected in any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------- -------------------------------
PRO PRO
FORMA FORMA
1991 1992 1993 1994(1) 1995 1995(2) 1995 1995(2) 1996
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 38,859 $ 45,805 $ 51,264 $ 91,917 $ 115,519 $ 115,519 $ 56,624 $ 56,624 $ 63,325
Expenses:
Operating expenses.......... 35,938 41,429 44,233 84,094 104,697 104,697 51,507 51,507 53,272
Purchased research and
development................ -- -- -- 13,791 -- -- -- -- --
Loss on lease termination... -- -- 3,802 -- -- -- -- -- --
Litigation settlements...... -- -- -- 1,750 4,500 4,500 4,500 4,500 --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss)....... $ 2,921 $ 4,376 $ 3,229 $ (7,718) $ 6,322 $ 6,322 $ 617 $ 617 $ 10,053
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations................... $ (5,946) $ (7,260) $ (5,774) $ (13,159) $ 1,286 $ 3,538 $ (1,107) $ (97) $ 6,691
Income (loss) from
discontinued operations, net
of income taxes.............. (194) 409 (4,357) 1,006 -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)............. (6,140) (6,851) (10,131) (12,153) 1,286 3,538 (1,107) (97) 6,691
Dividends and accretion on
mandatorily redeemable
preferred stock.............. -- -- -- (1,518) (3,003) (991) (1,455) (480) (1,604)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) applicable
to common stock.............. $ (6,140) $ (6,851) $ (10,131) $ (13,671) $ (1,717) $ 2,547 $ (2,562) $ (577) $ 5,087
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Income (loss) from:
Continuing operations....... $ (0.67) $ (0.78) $ (0.61) $ (0.99) $ 0.08 $ 0.16 $ (0.06) $ (0.01) $ 0.38
Discontinued operations..... (0.02) 0.04 (0.47) 0.07 -- -- -- -- --
Dividends and accretion on
mandatorily redeemable
preferred stock............ -- -- -- (0.11) (0.18) (0.05) (0.09) (0.02) (0.09)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) applicable
to common stock.............. $ (0.69) $ (0.74) $ (1.08) $ (1.03) $ (0.10) $ 0.11 $ (0.15) $ (0.03) $ 0.29
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Weighted average common and
common equivalent shares
outstanding.................. 8,819 9,228 9,392 13,237 17,025 22,525 16,617 22,117 17,593
<CAPTION>
PRO
FORMA
1996(2)
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 63,325
Expenses:
Operating expenses.......... 53,272
Purchased research and
development................ --
Loss on lease termination... --
Litigation settlements...... --
---------
Operating income (loss)....... $ 10,053
---------
---------
Income (loss) from continuing
operations................... $ 7,520
Income (loss) from
discontinued operations, net
of income taxes.............. --
---------
Net income (loss)............. 7,520
Dividends and accretion on
mandatorily redeemable
preferred stock.............. (529)
---------
Net income (loss) applicable
to common stock.............. $ 6,991
---------
---------
PER SHARE DATA:
Income (loss) from:
Continuing operations....... $ 0.32
Discontinued operations..... --
Dividends and accretion on
mandatorily redeemable
preferred stock............ (0.02)
---------
Net income (loss) applicable
to common stock.............. $ 0.30
---------
---------
Weighted average common and
common equivalent shares
outstanding.................. 23,093
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------
ACTUAL AS ADJUSTED (3)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash.................................................................................. $ 4,690 $ 4,774
Working capital....................................................................... (14,483) (6,631)
Total assets.......................................................................... 44,609 43,374
Current portion of long-term debt..................................................... 8,151 1,151
Long-term debt, excluding current maturities.......................................... 21,386 1,208
Mandatorily redeemable preferred stock................................................ 35,729 11,791
Stockholders' deficit................................................................. (51,125) (116)
</TABLE>
- ------------------------------
(1) The Company accounted for its interest in the Joint Venture under the equity
method of accounting prior to acquiring the remaining interest in the Joint
Venture, effective March 30, 1994.
(2) Pro forma data gives effect to the Offering (at an assumed initial offering
price of $11.00) as of January 1, 1995, including: (i) redemption of a
portion of the Redeemable Preferred Stock, (ii) elimination of interest
expense associated with repayment of a portion of the Company's existing
indebtedness under the 1994 bank credit facility, elimination of
amortization associated with the write-off of deferred debt issue costs as a
result of the early retirement of debt and (iii) the tax effects of the
interest-related adjustments described above. See "Unaudited Pro Forma
Consolidated Financial Data" presented elsewhere in this Prospectus.
(3) Adjusted to reflect (i) receipt by the Company of the net proceeds to be
received from the sale of Common Stock offered hereby at an assumed initial
public offering price of $11.00 per share and (ii) the application of the
net proceeds of the Offering to repay existing indebtedness under the
Company's 1994 bank credit facility in the principal amount of approximately
$27.2 million (or approximately 98% of the principal amount outstanding),
plus accrued interest of approximately $0.4 million and to redeem Redeemable
Preferred Stock with a stated value of approximately $26.1 million (or
approximately 67% of the stated value outstanding), plus accrued dividends
of approximately $1.5 million.
With regard to redemption of the Redeemable Preferred Stock, the adjustments
reflect acceleration of the unaccreted portion of the original preferred
stock discount as a charge to stockholders' equity (deficit). There is no
income tax benefit associated with the accelerated accretion. With regard to
repayment of a portion of the 1994 bank credit facility, the adjustments
reflect deferred debt issue costs, net of related income tax benefits, as a
charge to stockholders' equity (deficit). The deferred debt issue cost
write-off will be charged against earnings, as an extraordinary item, net of
tax, in the period in which a portion of the 1994 bank credit facility is
repaid. Based on an assumed public offering price of $11.00 per share, this
charge is estimated to be $0.9 million before income taxes.
6
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING FACTORS SHOULD
BE CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has an accumulated net deficit from inception of approximately
$65.0 million through June 30, 1996. Losses have resulted principally from costs
incurred in product acquisition and development, from servicing of debt and from
general and administrative costs. These costs have exceeded the Company's
revenues, which have been derived primarily from the sale of its TOTAL LOSS
product and its collision estimating product, EZEST. Most of the Company's other
products are relatively new and, with the exception of EZNET, the Company's
communications service, have not yet produced significant revenue. Although the
Company has recorded substantial revenue growth in each of the years ended
December 31, 1993, 1994 and 1995, and net income before dividends and accretion
on preferred stock of $1.3 million in the year ended December 31, 1995, there
can be no assurance that the Company will be able to sustain such growth or
achieve or maintain profitability in future periods. Despite its accumulated
deficit, as of December 31, 1995, the Company's net operating loss carryforwards
totaled only $0.3 million. This disparity is attributable to the lack of tax
basis for certain past operating charges. Since inception, the Company has
charged against earnings: (i) goodwill amortization related to acquired
businesses in the amount of approximately $37.5 million, (ii) purchased in-
process research and development software projects of approximately $13.8
million and (iii) purchased software amortization of approximately $4.6 million.
The Offering will not result in a change in control for income tax purposes that
would limit the use of the net operating loss carryforwards. In addition, as of
December 31, 1995, the Company had no research investment credit carryforwards.
The Company has established deferred income tax asset valuation allowances
because of its history of operating losses and an inability to project future
taxable income with certainty. Such valuation allowances have been and will
continue to be released to income if and to the extent the Company is able to
successfully achieve a recapitalization through the Offering and demonstrate a
predictable pattern of profitability. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
FINANCIAL POSITION; NEGATIVE WORKING CAPITAL; POTENTIAL FINANCING NEEDS
At June 30, 1996, the Company's stockholders' deficit was $51.1 million. The
net proceeds from the sale of Common Stock offered hereby will enable the
Company to improve substantially its financial position by repaying a portion of
the 1994 bank credit facility, under which CCC is the primary obligor and the
Company is guarantor, and redeeming a portion of the Redeemable Preferred Stock.
Historically, the Company's business has operated with a negative working
capital. At June 30, 1996, negative working capital was $14.5 million, and the
ratio of current assets to current liabilities was .57 to 1. The Company has the
ability to operate with a negative working capital because it receives
substantial payments from customers for services and products in advance of the
costs incurred to provide such services and products and the availability of
bank lines of credit. Assuming application of the net proceeds from the sale of
Common Stock offered hereby as described herein as of June 30, 1996, the Company
would have pro forma adjusted negative working capital as of June 30, 1996 of
$6.6 million. The Company believes that cash flows from operations and available
bank lines of credit will be sufficient to fund working capital needs for at
least one year. However, the continued availability of bank lines of credit will
require compliance with bank covenants. It is possible that circumstances could
arise in the operation of the Company's business that would reduce cash flows
substantially or would cause the Company not to be in compliance with bank
covenants. The Company is currently in compliance with the covenants of its
lending agreements. Failure to comply with bank covenants could cause
indebtedness to become due immediately or render lines of credit not to be
available when needed. In such event the Company may need to seek alternate
sources of financing, including the potential issuance of debt or equity
securities, at a time and on terms that may not be favorable to the Company.
Issuance of additional equity securities could result in substantial dilution to
7
<PAGE>
stockholders. There can be no assurance that such future financing will be
available on terms acceptable to the Company or at all. Due to the Company's
stockholders' deficit and negative working capital, new investors will
experience immediate and substantial dilution. See "Dilution."
RELIANCE ON MAJOR CUSTOMERS
The Company derives a substantial portion of its revenues from sales to
large insurance companies, including State Farm Mutual Automobile Insurance
Company ("State Farm"). State Farm accounted for approximately 12.4% of the
Company's revenue in 1995. Any loss of or material decrease in the business from
any large insurer, and in particular from State Farm, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Customers."
TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT
The markets in which the Company competes are increasingly characterized by
technological change. The introduction of competing services or products
incorporating new technologies could render some or all of the Company's
services and products unmarketable. The Company believes that its future success
depends on its ability to enhance its current services and products and to
develop new services and products that address the increasingly sophisticated
needs of its customers. As a result, the Company has in the past and intends to
continue to commit substantial resources to product development and programming.
Over the two years ended December 31, 1995, the Company expended approximately
$24.9 million for product development and programming. The development of new
products may result in unanticipated expenditures and capital costs which may
not be recovered in the event of an unsuccessful product. Development projects
can be lengthy and are subject to changing market requirements and unforseen
factors which can result in delays. The failure of the Company to develop and
introduce new or enhanced services and products in a timely and cost-effective
manner in response to changing technologies or customer requirements would have
a material adverse effect on the Company's business, financial condition and
results of operations.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced, and in the future may continue to experience,
significant quarter to quarter fluctuations in its results of operations.
Quarterly results of operations may fluctuate as a result of a variety of
factors, including the introduction of new or upgraded services and products by
the Company or its competitors, customer acceptance of new services and
products, product development expenses, the timing of significant orders, the
volume of usage of the Company's services and products, competitive conditions
in the industry and general economic conditions. Many of these factors are
beyond the Company's control. Further, the Company's contracts generally involve
significant customer commitments (for each appraisal work station, customers are
required to invest approximately $4,000 in computers and related peripherals)
and may require time-consuming authorization procedures within the customer's
organization; the sales cycles for the Company's services and products to the
automobile insurance industry are therefore typically lengthy (generally between
6 and 18 months) and subject to a number of factors outside of the Company's
control. For these and other reasons the overall revenues of the Company are
difficult to forecast, and the Company believes that period-to-period
comparisons of results of operations are not necessarily meaningful or
indicative of the results that the Company may achieve for any subsequent
quarter or a full year. Such fluctuations may result in volatility in the price
of the Common Stock, and it is possible that in future quarters the Company's
operating results will be below the expectations of public market analysts and
investors. Such an event could have a material adverse effect on the price of
the Common Stock. In addition, the principal payment obligations and the
restrictive covenants of the Company's 1994 bank credit facility have continued
to constrain the Company's operating activities. During the first half of 1996,
the Company did not incur certain operating expenditures and make certain
investments that it would have made in the absence of the 1994 bank credit
facility covenants. As a result, the Company postponed until later in the year
its plans to enhance internal functions and capabilities (including improvements
to customer tracking software, additional staff hiring and training, and certain
sales and marketing activities). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Selected Quarterly Financial
Results."
8
<PAGE>
COMPETITION
The markets for the Company's services and products are highly competitive.
Over the past few years, the Company has experienced competitive price pressure,
particularly in the collision estimating market, and expects such trend to
continue. The Company's principal competitors are divisions of two
well-capitalized, multinational firms, Automated Data Processing, Inc. ("ADP")
and Thomson Corporation ("Thomson"), both of which have greater financial,
marketing, technical and other resources than the Company. The Company intends
to address competitive price pressures by providing high quality, feature
enhanced products and services to its clients. The Company intends to continue
to develop user friendly claims products and services incorporating its
comprehensive proprietary inventory of data. The Company expects that the
PATHWAYS workflow manager will provide the necessary position with its insurance
customers to effectively compete against competitive price pressures.
At times, insurance companies have entered into agreements with service
providers (including ADP, Thomson and CCC) wherein the agreement provides, in
part, that the insurance company will either use the product or service of that
vendor on an exclusive basis or designate the vendor as a preferred provider of
that product or service. If it is an exclusive agreement, the insurance company
mandates that collision repair facilities, independent appraisers and regional
offices use the particular product or service. If the vendor is a preferred
provider, the collision repair facilities, appraisers and regional offices, are
encouraged to use the preferred product, but may still choose another vendor's
product or service. Additionally, some insurance companies mandate that all
products be tested and approved at the companies' national level before regional
levels can purchase such products. The benefits of being an endorsed product or
on the approved list of an insurance company include immediate customer
availability and a head start over competitors who may not be so approved. With
respect to those insurance companies that have endorsed ADP or Thomson, but not
CCC, the Company will be at a competitive disadvantage. In addition, in
connection with the Company's strategy to provide outsourced claims processing
services, the Company will compete with other third-party service providers,
some of whom may have more capital and greater resources than the Company. There
can be no assurance that the Company will be able to compete successfully
against current or future competitors or that competitive pressures will not
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will depend largely on the efforts and
abilities of its executive officers and upon certain key technical, managerial
and sales employees. The loss of the services of any of the Company's key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company believes that it will
need to hire additional technical personnel in order to enhance its existing
products and to develop new products. The Company's success also depends in
large part upon its ability to attract and retain highly-skilled managerial,
sales and marketing personnel. If the Company is unable to hire the necessary
personnel, the development and sale of product enhancements and new products
would likely be delayed or prevented. Competition for highly skilled technical,
managerial, sales and marketing personnel is intense. Certain of the Company's
senior management personnel have recently joined the Company. There can be no
assurance that the Company will be successful in retaining its key personnel and
in attracting the personnel it requires to continue its growth strategy. See
"Business--Competition," "--Employees" and "Management."
USE OF LICENSED INFORMATION
The Company's success depends to a substantial degree on its ability to
provide customers access to a breadth of data from many different sources. A
substantial portion of the data utilized in the Company's collision estimating
products is derived from the Motor Crash Estimating Guide, a publication of a
subsidiary of The Hearst Corporation. The Company has a license to use the Motor
Crash Estimating Guide data under an agreement which expires on April 30, 2002.
The license is automatically renewed on a year-to-year basis after April 30,
2002 unless either party furnishes the other with two years' prior notice of
nonrenewal. There can be no assurance that the Company will be able to renew the
Hearst license on economic terms that are beneficial to the Company or at all.
The Company does not believe that it has access to an alternative database that
would
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<PAGE>
provide comparable information. Any interruption of the Company's access to the
Motor Crash Estimating Guide data could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Technology."
DEPENDENCE ON PROPRIETARY RIGHTS; RISKS OF INFRINGEMENT
The Company regards the technology underlying its services and products as
proprietary. The Company relies primarily on a combination of intellectual
property laws, patents, trademarks, confidentiality agreements and contractual
provisions to protect its proprietary rights. The Company has registered certain
of its trademarks. The Company's TOTAL LOSS calculation process is not patented;
however, the underlying methodology and processes are trade secrets of the
Company and are essential to the Company's TOTAL LOSS business. Existing trade
secrets and copyright laws afford the Company limited protection. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's software or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's software is difficult. There can be no assurance that the
obligations to maintain the confidentiality of the Company's trade secrets and
proprietary information will effectively prevent disclosure of the Company's
confidential information or provide meaningful protection for the Company's
confidential information, or that the Company's trade secrets or proprietary
information will not be independently developed by the Company's competitors.
There can be no assurance that the Company's trade secrets or proprietary
information will provide competitive advantages or will not be challenged or
circumvented by its competitors. Litigation may be necessary for the Company to
defend against claims of infringement, to protect its intellectual property
rights and could result in substantial cost to, and diversion of efforts by, the
Company. There can be no assurance that the Company would prevail in any such
litigation. If the Company is unable to protect its proprietary rights in its
intellectual property, it could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company is not aware that any of its software, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
the Company has been involved previously in intellectual property litigation the
resolution of which resulted in substantial payments by the Company. There can
be no assurance that third parties will not assert infringement claims against
the Company in the future. Any such claims, with or without merit, can be time
consuming and expensive to defend or can require the Company to enter into
royalty or licensing agreements or cease the infringing activities. The failure
to obtain such royalty agreements, if required, and the Company's involvement in
such litigation could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Intellectual
Property."
CONTROL BY EXISTING STOCKHOLDER
White River Ventures, Inc. ("White River") will continue to control the
Company after the Offering, subject to the terms of a stockholders agreement
(the "Stockholders Agreement") entered into by the Company, White River, and
certain other stockholders. See "Principal Stockholders--Stockholders
Agreement."
Upon consummation of the Offering, White River will beneficially own or
control an aggregate of 39.0% of the outstanding shares of Common Stock (or
approximately 37.6% if the Underwriters' over-allotment option is exercised in
full). In addition, White River and its affiliates will beneficially own or
control an aggregate of 1,589 shares of the Series C Preferred Stock and 10,794
shares of the Series D Preferred Stock, which will constitute approximately
96.2% of the outstanding shares of each such series.
Under the terms of the Series C Preferred Stock, for so long as White River
and its affiliates own at least 50% of the outstanding shares of Series C
Preferred Stock, the holders of a majority of such shares may elect a majority
of the board of directors of the Company in the event of a dividend default or a
redemption default, neither of which has occurred to date. See "Description of
Capital Stock--The Redeemable Preferred Stock." In connection with the
recapitalization of the Company in 1994 and to help ensure that White River
Corporation, the parent of White River, avoid registration as an investment
company under the Investment Company Act of 1940, White River and the Company
have also entered into an agreement (the "White River Agreement") whereby the
Company has agreed, upon receipt of notice from White River that it owns less
than 50% of the outstanding shares of Common Stock, to exchange 500 shares of
the outstanding Series D Preferred Stock for 500 shares of new Series E
Cumulative Redeemable Preferred Stock, par value $1.00 (the "Series E Preferred
10
<PAGE>
Stock"), which carries certain voting rights if it is held by White River or any
of its affiliates. The Series E Preferred Stock votes according to a formula,
the effect of which is to cause White River and its affiliates, through their
ownership of shares of Series E Preferred Stock, to have 51% of the votes to be
cast on any matter to be voted upon by the holders of Common Stock, provided all
of the shares of such Series E Preferred Stock are issued, outstanding and held
by White River and its affiliates. To the extent White River also owns shares of
Common Stock, such Series E Preferred Stock will only provide an additional
voting percentage that, when added together with the vote from White River's
shares of Common Stock, will provide White River with a maximum of 51% of the
votes.
Pursuant to the terms of the Certificate of Designations for the Series E
Preferred Stock, the voting power of the outstanding shares of Series E
Preferred Stock is reduced according to a formula to the extent that outstanding
shares of Series E Preferred Stock are either redeemed by the Company or no
longer owned by White River and its affiliates. If White River and its
affiliates were to continue to hold 39.0% of the outstanding shares of Common
Stock, the Series E Preferred Stock voting power combined with the voting power
of the Common Stock held by White River would be less than a majority when 393
(or 78.6%) of the 500 shares of Series E Preferred Stock had been so redeemed or
are no longer so owned. The outstanding shares of Series E Preferred Stock are
redeemable pro rata with the outstanding shares of Series C and Series D
Preferred Stock and other parity stock, if any. White River has informed the
Company of its present intention to exchange 500 shares of Series D Preferred
Stock for 500 shares of Series E Preferred Stock sometime after the consummation
of the Offering. When properly notified in writing of such request, the Company
will issue, within three business days, such 500 shares of Series E Preferred
Stock to White River. See "Description of Capital Stock-- The Series E Preferred
Stock."
The Stockholders Agreement provides that certain stockholders affiliated
with management (the "Management Stockholders") may nominate three of seven
directors while the Stockholders Agreement remains in effect. In addition, the
directors designated by the Management Stockholders have been delegated the
authority of the board of directors, to the extent permitted by applicable law
and subject to the fiduciary duties of the other directors, to determine the
timing, price and terms of future offerings of Common Stock and of certain
business combinations. See "Principal Stockholders--Stockholders Agreement" for
a detailed description of the Stockholders Agreement.
Because of its ownership of shares of Common Stock and Series C Preferred
Stock, and its ability to acquire shares of Series E Preferred Stock, White
River will be able to elect a majority of the board of directors after the
Offering and will be in control of the Company. When shares of the Series E
Preferred Stock are issued to White River or its affiliates pursuant to the
White River Agreement, White River will have a majority of the votes on any
matter brought to a vote of the stockholders, regardless of the number of shares
of Common Stock owned by White River and its affiliates. White River and its
affiliates will retain the Series E Preferred Stock majority voting power until
sufficient shares of Series E Preferred Stock have been redeemed by the Company
or transferred to non-affiliates of White River to reduce the Series E Preferred
Stock voting power below a majority. This may render more difficult or tend to
discourage unsolicited mergers, acquisitions, tender offers, proxy contests or
assumptions of control and changes of incumbent management, even when
stockholders other than White River consider such a transaction to be in their
best interest. Accordingly, stockholders may be deprived of an opportunity to
sell their shares at a premium over the market price of the shares. See
"Principal Stockholders -- Stockholders Agreement" and "Certain Transactions."
BENEFITS TO EXISTING STOCKHOLDERS
Approximately $27.6 million of the net proceeds from the sale by the Company
of the Common Stock offered hereby will be used to redeem a portion of the
Redeemable Preferred Stock, of which 96.2% is owned by White River and 3.8% is
owned by affiliates of Hambrecht & Quist LLC, a representative of the
Underwriters. See "Certain Transactions", "Description of Capital Stock" and
"Underwriting."
DEPENDENCE ON TRANSMISSION SERVICES AND DATA OPERATIONS
The Company maintains its TOTAL LOSS database on a mainframe computer which
has been outsourced to a data center service provider for the past ten years.
The Company's operations are dependent on its ability to protect its computer
equipment and the information stored in the third party service bureau against
damage that
11
<PAGE>
may be caused by fire, power loss, telecommunications failures, unauthorized
intrusion and other events. The service bureau data center consists of an IBM
compatible mainframe processor, disk storage, a tape library, printer output
capability, communications facilities and mini-computers. The data center is
protected by an uninterruptible power supply system with short term battery
back-up and security and authorization procedures. Software and related data
files are backed-up regularly and stored off-site and the Company and service
bureau also have a contingency and disaster recovery plan that is designed to
reduce the risk of extended interruption of the Company's services in the event
of damage to, or other failure of, its data center. There can be no assurance
that these measures will be sufficient to eliminate the risk of extended
interruption in the Company's operations due to interference or disruptions to
the Company's access to the information maintained at the data center. Any such
interruption could have a material adverse effect on the Company's business,
financial condition and results of operations.
Certain of the Company's data services are transmitted using transmission
methods which are not within the control of the Company. The Company relies on
several companies to provide dial-up access to the Company's services. Any
damage or failure that causes interruption in these services could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Although the Company has implemented a contingency plan for the interruption
of transmission service and data operations, the Company does not maintain any
business interruption insurance.
GOVERNMENT REGULATION
The insurance industry is subject to extensive state regulation. Because the
Company markets and sells its products and services to participants in the
insurance industry, particular aspects of the Company's business are affected by
such regulation, including the methodology implemented to calculate total loss
valuations, restrictions or prohibitions on the ability of an insurance company
to direct or suggest insureds to use selected repair facilities and the
monitoring and licensing of claim adjusters and appraisers. Due to the
state-by-state regulation of the insurance industry, the Company's services and
products may be affected by varying regulations which may increase costs to the
Company in complying with such regulations. Changes in regulations which
adversely affect the Company's existing and potential clients could have a
material adverse effect on the Company's business, financial condition and
results of operations.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of the Company's Common Stock after this
Offering could adversely affect the market price of the Common Stock. Several of
the Company's principal stockholders hold a significant portion of the Company's
outstanding Common Stock, including White River which holds 8,584,564 shares
representing 39.0% of the outstanding shares of the Common Stock after the
Offering (37.6% if the Underwriters' over-allotment option is exercised in
full), and a decision by one or more of these stockholders to sell their shares
could adversely affect the market price of the Common Stock. Upon consummation
of the Offering, the Company will have 22,026,800 shares of Common Stock
outstanding (22,851,800 shares assuming exercise in full of the Underwriters'
over-allotment option). Of these shares, all shares sold in this Offering and
808,000 shares held by certain stockholders not affiliated with the Company will
be freely tradeable under the federal securities laws immediately following this
Offering. Of the remaining shares, 14,911,500 shares of Common Stock are subject
to lock-up agreements with representatives of the Underwriters. Such lock-up
agreements restrict transfers of such shares, without the written consent of
Hambrecht & Quist LLC, until 180 days after the date of this Prospectus. In
addition, a total of 5,962,885 shares are subject to right of first refusal
agreements with the Company. Beginning 180 days after the date of this
Prospectus, approximately 15,563,900 shares will be eligible for sale pursuant
to Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"),
of which 13,050,800 shares are held by affiliates of the Company. As of June 30,
1996, options to purchase an aggregate of 2,579,800 shares of Common Stock were
outstanding under the Company's Stock Option Plan, and 1,577,700 of these shares
which are acquired upon exercise of options within 180 days of this Prospectus
are subject to the 180 day lock-up described above. See "Management--Stock
Option Plan." Following the closing of this Offering, the Company intends to
register on Form S-8 under the Securities Act shares of Common Stock issuable
under the Stock Option Plan. Such registration will be effective upon its
filing. See "Shares Eligible For Future Sale."
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<PAGE>
BLANK CHECK PREFERRED STOCK
Pursuant to the Certificate of Incorporation, additional shares of preferred
stock may be issued in the future by the Company without stockholder approval
and upon such terms and conditions, and having such rights, privileges and
preferences, as the Board may determine in the exercise of its business
judgment. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, any preferred stock that may be issued in the future.
The issuance of additional preferred stock, while providing desirable
flexibility in connection with possible acquisitions, financings and other
corporate transactions, could have the effect of discouraging, or making more
difficult, a third party's acquisition of a majority of the Company's
outstanding voting stock. The Company has no present plans to issue any
additional shares of preferred stock. See "Control by Existing Stockholder" and
"Description of Capital Stock--Preferred Stock."
NO PRIOR PUBLIC MARKET; DETERMINATION OF PUBLIC OFFERING PRICE; POSSIBLE
VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance given as to (i) the liquidity of the trading
market for the Common Stock, (ii) whether an active public market will develop
for the Common Stock or (iii) whether the Common Stock will trade in the public
market subsequent to the Offering at or above the initial public offering price.
If an active public market for the Common Stock does not develop, the market
price and liquidity of the Common Stock may be materially and adversely
affected. The initial public offering price of the Common Stock offered hereby
was determined by negotiations among the Company and the Underwriters and may
not be indicative of the market price for the Common Stock after the Offering.
See "Underwriting." The trading price of the Common Stock could be subject to
wide fluctuations in response to variations in the Company's quarterly operating
results, changes in earnings estimates by securities analysts, conditions in the
Company's businesses or general market or economic conditions. In addition, in
recent years the stock market has experienced extreme price and volume
fluctuations. These fluctuations have had a substantial effect on the market
prices for many emerging growth companies, often unrelated to the operating
performance of the specific companies. Such market fluctuations could have a
material adverse effect on the market price of the Common Stock.
DILUTION TO NEW INVESTORS
Investors purchasing shares of Common Stock in the Offering will experience
immediate and substantial dilution in net tangible book value. Prior to this
Offering each outstanding share of Common Stock has a negative net tangible book
value of $3.81, and after the Offering will have a negative net tangible book
value of $0.35. The net tangible book value dilution to purchasers of Common
Stock in this Offering will be $11.35 per share. See "Dilution." To the extent
outstanding options to purchase the Company's Common Stock are exercised, there
will be further dilution. See "Management--Stock Option Plan."
HOLDING COMPANY STRUCTURE
The Company is a holding company with no business operations of its own. The
Company's only material asset is all of the outstanding capital stock of CCC,
which is pledged pursuant to a guaranty of the 1994 bank credit facility.
Accordingly, the Company will be dependent on dividends and distributions from
CCC to pay its expenses and to pay any cash dividends or distributions on the
Common Stock that may be authorized by the Board of Directors of the Company.
There can be no assurance that CCC will generate sufficient cash flow to pay
dividends or distribute funds to the Company or that applicable state law and
contractual restrictions, including negative covenants contained in the debt
instruments of CCC, will permit such dividends or distributions.
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<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain any future earnings for funding
growth and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. Furthermore, covenants in the 1994 bank credit facility
prohibit the payment of cash dividends on Common Stock.
As of June 30, 1996, dividends in the approximate amount of $2.2 million had
accrued at a rate of 2.75% per annum on the Redeemable Preferred Stock.
Redeemable Preferred Stock totalling $27.6 million, including accrued dividends
thereon of $1.5 million, is being redeemed with a portion of the proceeds of
this Offering. The yield-to-maturity on the Redeemable Preferred Stock
approximated 9%. So long as any shares of Redeemable Preferred Stock remain
outstanding, the Company cannot declare and pay dividends on the Common Stock.
On June 6, 1996 the Board of Directors of the Company approved a
distribution to stockholders of record of the Company of 40,000 shares and
options to purchase 50,000 additional shares of the common stock of Faneuil ISG,
Inc., which shares and options had been received by the Company in partial
consideration of the sale by the Company to Faneuil ISG, Inc. of certain
business assets in August 1994. The distributed shares and options were recorded
on the books of the Company at cost with a carrying value of $530,000.
Purchasers of Common Stock offered hereby will not participate in this
distribution.
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<PAGE>
DILUTION
The net tangible book value of the Company at June 30, 1996, was a negative
$63.0 million, or a negative $3.81 per share. "Net tangible book value per
share" represents the amount of total tangible assets less total liabilities
divided by the number of shares of Common Stock outstanding. Without taking into
account any other changes in the net tangible book value after June 30, 1996,
other than to give effect to the receipt by the Company of the net proceeds from
the sale of 5,500,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $11.00 per share, the net tangible book value
of the Company at June 30, 1996 would have been negative $7.8 million or a
negative $0.35 per share. This represents an immediate increase of net tangible
book value of $3.46 per share to existing stockholders and an immediate dilution
of $11.35 per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $ 11.00
Net negative tangible book value per share before the Offering............ $ 3.81
Less increase per share attributable to new investors..................... 3.46
---------
Net negative tangible book value per share after the Offering(1)............ 0.35
---------
Dilution per share to new investors......................................... $ 11.35
---------
---------
</TABLE>
- ------------------------------
(1) If the Underwriters' over-allotment option is exercised in full, the net
tangible book value per share would be approximately $0.03, resulting in
dilution to new investors in this Offering of $10.97 per share.
The following table summarizes, on a pro forma basis as of June 30, 1996,
the differences between existing stockholders and new investors purchasing
shares of Common Stock in the Offering (at an assumed initial public offering
price of $11.00 per share) with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK TOTAL
ACQUIRED CONSIDERATION
------------------------ --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ---------- --------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......................... 16,526,800 75.0% $ 10,097,000(1) 14.3% $ 0.61
New investors.................................. 5,500,000 25.0 60,500,000 85.7 11.00
------------ ----- --------------- -----
Total........................................ 22,026,800 100.0% $ 70,597,000 100.0% $ 3.21
------------ ----- --------------- -----
------------ ----- --------------- -----
</TABLE>
- ------------------------------
(1) Excludes certain transactions totalling $3,926,000 not involving stockholder
cash consideration.
The computations in the above table are determined before deducting the
underwriting discount and estimated offering expenses payable by the Company.
Both tables set forth in this section assume no exercise of outstanding stock
options. At June 30, 1996, options to purchase 2,579,760 shares of Common Stock
were outstanding with a weighted average exercise price of $2.64 per share. To
the extent outstanding options are exercised, there will be further dilution to
new investors. See "Management--Stock Option Plan."
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<PAGE>
USE OF PROCEEDS
The net proceeds from the sale by the Company of the Common Stock offered
hereby will be approximately $55.2 million (or approximately $63.6 million if
the Underwriters' over-allotment option is exercised in full) based on an
assumed initial public offering price of $11.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company intends to use approximately $27.6 million of such net proceeds to repay
a portion of the outstanding indebtedness of CCC under the 1994 bank credit
facility of which the Company is the guarantor. The agent lender under the 1994
bank credit facility is Canadian Imperial Bank of Commerce. The Company also
intends to use the remaining net proceeds of approximately $27.6 million of such
net proceeds to redeem a portion of the Redeemable Preferred Stock.
At June 30, 1996 there was $27.8 million outstanding under the 1994 bank
credit facility (a $22.3 million term loan and a $5.5 million revolving loan).
Loans under the 1994 bank credit facility bear interest at either (i) a base
rate (set by the bank from time to time) plus 1.5%, or (ii) the Eurodollar rate
plus 3.0%, as chosen from time to time by CCC. The average interest rate in
effect during the year ended December 31, 1995 was 9.15% for the term loan and
9.03% for the revolving credit facility; at June 30, 1996, the rates in effect
for these facilities were 8.6% and 8.8%, respectively. The obligations under the
1994 bank credit facility mature in March 1999 (with respect to the term loan)
and in April 1999 (with respect to the revolving loan) and are guaranteed by the
Company.
The Company is considering the refinancing of that portion of the
indebtedness under the 1994 bank credit facility not repaid with the proceeds of
this Offering on or prior to the closing of the Offering by causing CCC to enter
into a new bank credit facility with Signet Bank. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1996, and as adjusted to reflect (i) the net proceeds to
be received by the Company from the sale of Common Stock offered hereby at an
assumed initial public offering price of $11.00 per share and (ii) the
application of the net proceeds of the Offering to redeem a portion of the
Redeemable Preferred Stock (at stated value plus accrued dividends thereon) and
to repay a portion of the Company's existing indebtedness under the 1994 bank
credit facility (including accrued interest).
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt........................................................ $ 8,151 $ 1,151
--------- -----------
Long-term debt:
Term loan.............................................................................. 15,250 --
Revolving credit facility.............................................................. 5,500 572
Other.................................................................................. 636 636
--------- -----------
Total long-term debt................................................................. 21,386 1,208
--------- -----------
Mandatorily redeemable preferred stock................................................. 35,729 11,791
--------- -----------
Stockholders' deficit:
Common stock ($.10 par value, 30,000,000 shares authorized and, 16,526,800 shares
issued and outstanding as of June 30, 1996)(1)........................................ 1,653 2,203
Additional paid-in capital............................................................. 12,370 67,013
Accumulated deficit.................................................................... (64,962) (69,146)
Treasury stock, at cost................................................................ (186) (186)
--------- -----------
Total stockholders' deficit.......................................................... (51,125) (116)
--------- -----------
Total capitalization............................................................... $ 14,141 $ 14,034
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Excludes 2,777,920 shares reserved for issuance under the Stock Option Plan
pursuant to which options have been granted covering 2,579,760 shares and
198,160 shares are available for issuance at a weighted average exercise
price of $2.64 per share.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data presented below as of and for each
of the three years ended December 31, 1995 are derived from the consolidated
financial statements of the Company, which have been audited by Price Waterhouse
LLP, independent certified public accountants. The consolidated financial
statements as of December 31, 1994 and 1995, and for each of the years in the
three years ended December 31, 1995, together with the Price Waterhouse LLP
report thereon, are included elsewhere in this Prospectus. The selected
consolidated financial data presented below as of and for the years ended
December 31, 1991 and 1992, and as of and for the six months ended June 30, 1995
and 1996 are unaudited but have been prepared on the same bases as the audited
financial statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations and financial condition for such
periods. The results of operations presented below are not necessarily
indicative of results to be expected for any future period. The selected
consolidated financial data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
consolidated financial statements and notes thereto, and the unaudited pro forma
consolidated financial data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ---------
1991 1992 1993 1994(1) 1995 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ 38,859 $ 45,805 $ 51,264 $ 91,917 $ 115,519 $ 56,624
Expenses:
Operating expenses.................................... 35,938 41,429 44,233 84,094 104,697 51,507
Purchased research and development.................... -- -- -- 13,791 -- --
Loss on lease termination............................. -- -- 3,802 -- -- --
Litigation settlements................................ -- -- -- 1,750 4,500 4,500
--------- --------- --------- --------- --------- ---------
Operating income (loss)................................. 2,921 4,376 3,229 (7,718) 6,322 617
Equity in loss of Joint Venture......................... (2,057) (6,713) (3,564) (615) -- --
Interest expense........................................ (9,575) (9,606) (6,945) (7,830) (5,809) (3,110)
Other income (expense), net............................. 519 232 (311) 316 482 334
--------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations before income
taxes.................................................. (8,192) (11,711) (7,591) (15,847) 995 (2,159)
Income tax (provision) benefit.......................... 2,246 4,451 1,817 2,688 291 1,052
--------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations................ (5,946) (7,260) (5,774) (13,159) 1,286 (1,107)
Income (loss) from discontinued operations, net of
income taxes........................................... (194) 409 (4,357) 1,006 -- --
--------- --------- --------- --------- --------- ---------
Net income (loss)....................................... (6,140) (6,851) (10,131) (12,153) 1,286 (1,107)
Dividends and accretion on mandatorily redeemable
preferred stock........................................ -- -- -- (1,518) (3,003) (1,455)
--------- --------- --------- --------- --------- ---------
Net income (loss) applicable to common stock............ $ (6,140) $ (6,851) $ (10,131) $ (13,671) $ (1,717) $ (2,562)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Income (loss) from:
Continuing operations................................. $ (0.67) $ (0.78) $ (0.61) $ (0.99) $ 0.08 $ (0.06)
Discontinued operations............................... (0.02) 0.04 (0.47) 0.07 -- --
Dividends and accretion on mandatorily redeemable
preferred stock...................................... -- -- -- (0.11) (0.18) (0.09)
--------- --------- --------- --------- --------- ---------
Net income (loss) applicable to common stock............ $ (0.69) $ (0.74) $ (1.08) $ (1.03) $ (0.10) $ (0.15)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Weighted average common and common equivalent shares
outstanding............................................ 8,819 9,228 9,392 13,237 17,025 16,617
<CAPTION>
1996
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ 63,325
Expenses:
Operating expenses.................................... 53,272
Purchased research and development.................... --
Loss on lease termination............................. --
Litigation settlements................................ --
---------
Operating income (loss)................................. 10,053
Equity in loss of Joint Venture......................... --
Interest expense........................................ (1,982)
Other income (expense), net............................. 293
---------
Income (loss) from continuing operations before income
taxes.................................................. 8,364
Income tax (provision) benefit.......................... (1,673)
---------
Income (loss) from continuing operations................ 6,691
Income (loss) from discontinued operations, net of
income taxes........................................... --
---------
Net income (loss)....................................... 6,691
Dividends and accretion on mandatorily redeemable
preferred stock........................................ (1,604)
---------
Net income (loss) applicable to common stock............ $ 5,087
---------
---------
PER SHARE DATA:
Income (loss) from:
Continuing operations................................. $ 0.38
Discontinued operations............................... --
Dividends and accretion on mandatorily redeemable
preferred stock...................................... (0.09)
---------
Net income (loss) applicable to common stock............ $ 0.29
---------
---------
Weighted average common and common equivalent shares
outstanding............................................ 17,593
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.............................................................. $ 11,320 $ 3,756 $ 375 $ 5,702 $ 3,895
Working capital................................................... 7,692 969 (11,004) (15,549) (17,953)
Total assets...................................................... 61,380 40,423 40,058 52,232 44,093
Current portion of long-term debt................................. 7,887 4,522 7,857 5,340 7,660
Long-term debt, excluding current maturities...................... 60,187 61,585 56,624 35,753 27,220
Mandatorily redeemable preferred stock............................ -- -- -- 31,122 34,125
Stockholders' deficit............................................. (37,368) (43,291) (53,416) (54,729) (56,420)
<CAPTION>
JUNE 30, 1996
----------------------
AS
ACTUAL ADJUSTED(2)
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash.............................................................. $ 4,690 $ 4,774
Working capital................................................... (14,483) (6,631)
Total assets...................................................... 44,609 43,374
Current portion of long-term debt................................. 8,151 1,151
Long-term debt, excluding current maturities...................... 21,386 1,208
Mandatorily redeemable preferred stock............................ 35,729 11,791
Stockholders' deficit............................................. (51,125) (116)
</TABLE>
- ------------------------------
(1) The Company accounted for its interest in the Joint Venture under the equity
method of accounting prior to acquiring the remaining interest in the Joint
Venture, effective March 30, 1994.
(2) Adjusted to reflect (i) receipt by the Company of the net proceeds to be
received from the sale of Common Stock offered hereby at an assumed initial
public offering price of $11.00 per share and (ii) the application of the
net proceeds of the Offering to repay existing indebtedness under the
Company's 1994 bank credit facility in the principal amount of approximately
$27.2 million (or approximately 98% of the principal amount outstanding),
plus accrued interest of approximately $0.4 million and to redeem Redeemable
Preferred Stock with a stated value of approximately $26.1 million (or
approximately 67% of the stated value outstanding), plus accrued dividends
of approximately $1.5 million.
With regard to redemption of the Redeemable Preferred Stock, the adjustments
reflect acceleration of the unaccreted portion of the original preferred
stock discount as a charge to stockholders' equity (deficit). There is no
income tax benefit associated with the accelerated accretion. With regard to
repayment of a portion of the 1994 bank credit facility, the adjustments
reflect deferred debt issue costs, net of related income tax benefits, as a
charge to stockholders' equity (deficit). The deferred debt issue cost
write-off will be charged against earnings, as an extraordinary item, net of
tax, in the period in which a portion of the 1994 bank credit facility is
repaid. Based on an assumed public offering price of $11.00 per share, this
charge is estimated to be $0.9 million before income taxes.
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth statement of operations data and per share
data of the Company for the year ended December 31, 1995 and for the six months
ended June 30, 1995 and 1996, and as adjusted to reflect, as if occurring on
January 1, 1995, (i) receipt by the Company of the net proceeds from the sale of
Common Stock offered hereby at an assumed initial public offering price of
$11.00 per share and (ii) the application of the net proceeds of the Offering to
repay a portion of the Company's existing indebtedness under the 1994 bank
credit facility and to redeem a portion of the Redeemable Preferred Stock.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1995 JUNE 30, 1996
---------------------- ---------------------- ----------------------
PRO PRO PRO
ACTUAL FORMA ACTUAL FORMA ACTUAL FORMA
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ 115,519 $ 115,519 $ 56,624 $ 56,624 $ 63,325 $ 63,325
Expenses:
Operating expenses............................. 104,697 104,697 51,507 51,507 53,272 53,272
Litigation settlement(1)....................... 4,500 4,500 4,500 4,500 -- --
---------- ---------- ---------- ---------- ---------- ----------
Operating income................................. 6,322 6,322 617 617 10,053 10,053
Interest expense(2).............................. (5,809) (2,914) (3,110) (1,665) (1,982) (578)
Other income, net................................ 482 482 334 334 293 293
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes....................... 995 3,890 (2,159) (714) 8,364 9,768
Income tax (provision) benefit(3)................ 291 (352) 1,052 617 (1,673) (2,248)
---------- ---------- ---------- ---------- ---------- ----------
Net income....................................... 1,286 3,538 (1,107) (97) 6,691 7,520
Dividends and accretion on mandatorily redeemable
preferred stock(4).............................. (3,003) (991) (1,455) (480) (1,604) (529)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to common stock..... $ (1,717) $ 2,547 $ (2,562) $ (577) $ 5,087 $ 6,991
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
PER SHARE DATA:
Net income....................................... $ 0.08 $ 0.16 $ (0.06) $ (0.01) $ 0.38 $ 0.32
Dividends and accretion on mandatorily redeemable
preferred stock................................. (0.18) (0.05) (0.09) (0.02) (0.09) (0.02)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to common stock..... $ (0.10) $ 0.11 $ (0.15) $ (0.03) $ 0.29 $ 0.30
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Weighted average common and common equivalent
shares outstanding.............................. 17,025 22,525 16,617 22,117 17,593 23,093
</TABLE>
- ------------------------------
(1) The litigation settlement had an after tax value of $2.8 million.
(2) Pro forma interest expense gives effect to the Offering as of January 1,
1995 and the associated elimination of interest expense of $2.5 million,
$1.2 million and $1.2 million for the periods ending December 31, 1995, June
30, 1995 and June 30, 1996, respectively, resulting from the repayment of a
portion of the Company's existing indebtedness under the 1994 bank credit
facility of $27.6 million. Pro forma interest expense also reflects the
elimination of amortization associated with the write-off of deferred debt
issue costs as a result of the early retirement of debt amounting to $0.4
million, $0.2 million and $0.2 million respectively, for such periods.
(3) Pro forma income taxes gives effect to the tax effect of the interest rate
adjustments described in Note 2.
(4) Pro forma dividends and accretion on Redeemable Preferred Stock reflects the
pro rata elimination of such dividends and accretion.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
The Company's results from continuing operations, for the periods indicated,
are set forth below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................................................. $ 51,264 $ 91,917 $ 115,519 $ 56,624 $ 63,325
Expenses:
Operating Expenses:
Production and customer support...................... 15,108 25,123 32,261 16,346 15,520
Commissions, royalties and license fees.............. 1,091 7,153 11,720 5,559 6,660
Selling, general and administrative.................. 22,908 33,426 36,279 17,730 19,043
Depreciation and amortization........................ 2,158 8,331 9,572 4,854 3,972
Product development and programming.................. 2,968 10,061 14,865 7,018 8,077
Purchased research and development..................... -- 13,791 -- -- --
Loss on lease termination.............................. 3,802 -- -- -- --
Litigation settlements................................. -- 1,750 4,500 4,500 --
--------- --------- ---------- --------- ---------
Operating income (loss).................................. 3,229 (7,718) 6,322 617 10,053
Equity in loss of Joint Venture.......................... (3,564) (615) -- -- --
Interest expense......................................... (6,945) (7,830) (5,809) (3,110) (1,982)
Other income (expense), net.............................. (311) 316 482 334 293
--------- --------- ---------- --------- ---------
Income (loss) from continuing operations before income
taxes................................................... (7,591) (15,847) 995 (2,159) 8,364
Income tax (provision) benefit........................... 1,817 2,688 291 1,052 (1,673)
--------- --------- ---------- --------- ---------
Income (loss) from continuing operations................. $ (5,774) $ (13,159) $ 1,286 $ (1,107) $ 6,691
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
</TABLE>
OVERVIEW
The Company is a leading supplier of automobile claims information and
processing, claims management software and value-added communication services.
The Company's customers include each of the 50 largest U.S. automobile insurance
companies, over 250 other automobile insurance companies and more than 8,500
collision repair facilities. The Company's technology-based services and
products improve efficiency, manage costs and increase consumer satisfaction in
the management of automobile claims and restoration.
The Company sells its products to two primary customer markets: insurance
companies (approximately 70% of revenue in 1995) and collision repair
facilities. In addition, certain Company products and services are aimed at
improving the efficiency of both markets by enabling the two groups to
communicate electronically. The Company's principal products for the insurance
market are its TOTAL LOSS vehicle valuation services, used to estimate the value
of unrepairable vehicles, and its EZEST collision estimating software, used to
estimate the cost of repairing vehicles. The Company also offers insurers access
to EZNET, its communications network. The Company has recently introduced its
PATHWAYS workflow management software, which integrates the Company's
information and software products into a total workflow management solution for
insurance field appraisal staffs. The Company offers insurers its ACCESS claims
service, an integrated appraisal and restoration management service. The
Company's principal product for collision repair facilities is its EZEST
collision estimating software.
TOTAL LOSS services, generally obtained through direct dial-up access to the
Company's host-based valuation system, are billed to insurance companies on a
per valuation basis or under contract terms that specify fixed fees for a
prescribed number of transactions. Volume discounts affect pricing. PATHWAYS
collision estimating and EZEST customer subscriptions are billed monthly in
advance. EZNET communication services are generally priced on a per transaction
basis. ACCESS services are billed monthly to insurance companies and collision
repair facilities on a per transaction basis. Monthly subscription and
transaction rates for all products and
20
<PAGE>
services are established under negotiated contracts or pricing agreements. In
general, customer account balances are settled monthly. Under the terms of
certain contracts involving quarterly or annual prepayments, deferred revenues
are recorded and subsequently recognized over the periods in which related
revenues are earned.
For the year ended December 31, 1995, approximately $59.8 million, or 52%,
of the Company's revenues were earned under contracts with customers that
specify minimum purchase requirements. Contracts are generally for two to three
years. A substantial portion of the Company's remaining revenue represented
sales to customers that have been doing business with the Company for more than
10 years. Use of multi-year contracts is common practice within the industry,
making it difficult to take customers from competitors during the contract term.
A substantial portion of the Company's production and customer support and
general and administrative expense is fixed in nature. Sales commissions,
royalties, license fees and certain selling expenses generally vary with
revenue.
As a result of debt incurred in connection with the Company's 1988
acquisition of CCC, the Company became highly leveraged. The Company's ability
to invest in new product development and conduct its business in accordance with
its business plan was constrained by the limitations imposed by its acquisition
borrowings. The Company formed CCCDC to develop the EZEST collision estimating
software. To finance EZEST development and marketing efforts, the Company relied
on the sale of revenue streams from certain end-user collision estimating
contracts. These contract funding transactions provided essential liquidity
until June 1994, when the Company completed a recapitalization. In connection
with this recapitalization, White River acquired $39 million of Redeemable
Preferred Stock, and 7,050,850 shares of Common Stock, and CCC entered into the
1994 bank credit facility which is guaranteed by the Company. White River
immediately resold $1,462,000 of the Redeemable Preferred Stock (3.8% of the
outstanding Redeemable Preferred Stock) and 264,407 shares of the Common Stock
(1.4% of the total outstanding Common Stock) to two investment partnerships
affiliated with Hambrecht & Quist LLC. See "Underwriting." Prior to April 1994
the Company accounted for its interest in CCCDC under the equity method. In
1994, the Company acquired the 50% of CCCDC that it did not previously own.
Since the acquisition, the Company has consolidated CCCDC.
The Redeemable Preferred Stock includes certain rights set forth in detail
in "Description of Capital Stock--The Redeemable Preferred Stock" and "--The
Series E Preferred Stock." In particular, the Series C Preferred Stock includes
the rights (i) to elect a majority of directors of the Company in the event of a
default in a redemption or dividend payment obligation, if White River and its
affiliates then own at least 50% of the outstanding Series C Preferred Stock
(neither of which has occurred to date) and (ii) in the event that the Company
or a subsidiary fails to pay when due or during any applicable grace period or
in the event that notice of acceleration of the maturity or required prepayment
and demand for payment is received by the Company or any subsidiary, in either
case with respect to indebtedness in the aggregate amount in excess of $500,000,
the right on the part of the holders of a majority of the then outstanding
Series C Preferred Stock to determine in their sole discretion the action to be
taken on behalf of the Company with respect to such indebtedness. The Series E
Preferred Stock, if and when issued to and held by White River and its
affiliates, will permit White River to cast 51% of the votes to be cast on any
matter to be voted on by the holders of Common Stock, subject to reductions in
the event that either the Company redeems part of the outstanding Series E
Preferred Stock or White River and its affiliates no longer hold all of such
stock.
The principal payment obligations and the restrictive covenants of the 1994
bank credit facility have continued to constrain the Company's operating
activities. During the first half of 1996, the Company did not incur certain
operating expenditures and make certain investments that it would have made in
the absence of the 1994 bank credit facility covenants. As a result of these
delayed expenditures, the Company believes that its operating income increased
during the first half of 1996 by between $0.8 million and $1.0 million. As a
result, the Company postponed until later in the year its plans to enhance
internal functions and capabilities (including improvements to customer tracking
software, additional staff hiring and training, and certain sales and marketing
activities).
21
<PAGE>
Depreciation expense includes depreciation attributable to certain software
acquired through the Company's acquisition of the joint venture interest in
CCCDC. In the purchase price allocation for the CCCDC acquisition, $5.2 million
was assigned to purchased software with a two year life, $13.8 million was
assigned to in-process research and development software projects, $6.6 million
was assigned to acquired tangible assets and the balance of $3.7 million was
assigned to goodwill. The amount assigned to in-process research and development
was charged against operating results at the time of the acquisition. As a
result of expiration of the purchased software's two year life as of March 31,
1996, purchased software depreciation of approximately $2.6 million in 1995 will
decline to approximately $0.7 million in 1996.
Research and development expense, which is principally the design and
development of new software and information products, is expensed as incurred.
Software development costs, if material, are capitalized when sufficient
evidence exists that technological feasibility has been established. There were
no significant software development costs subject to capitalization during the
three years ended December 31, 1995 or during the six months ended June 30,
1996. The Company believes that its future success depends on its ability to
enhance its current services and products and to develop new services and
products that address the needs of its customers. As a result, the Company has
in the past and intends to continue to commit substantial resources to product
development and programming. Over the past two years ended December 31, 1995 the
Company expended approximately $24.9 million for product development and
programming.
The Company has offset the income tax benefit attributable to a portion of
the Company's future income tax deductions with tax valuation allowances because
of the Company's recent history of operating losses and an inability to project
future taxable income with certainty. This treatment increased the Company's
overall effective income tax rate in the years the deferred income tax valuation
allowances were provided. Such valuation allowances, $5.0 million at December
31, 1995, have been and will continue to be released to income and therefore
reduce the effective tax rate if and to the extent the Company is able to
successfully achieve a recapitalization through the Offering and demonstrate a
predictable pattern of profitablity.
Despite its accumulated deficit, as of December 31, 1995, the Company's net
operating loss carryforwards totaled only $0.3 million. This disparity is
attributable to the lack of tax basis for certain past operating charges. Since
inception, the Company has charged against earnings: (i) goodwill amortization
related to acquired businesses in the amount of approximately $32.5 million,
(ii) purchased in-process research and development software projects of
approximately $13.8 million and (iii) purchased software amortization of
approximately $4.6 million. The Offering will not result in a change in control
for income tax purposes that would limit the use of the net operating loss
carryforwards. In addition, as of December 31, 1995, the Company had no research
investment credit carryforwards.
22
<PAGE>
RESULTS OF CONTINUING OPERATIONS AS A PERCENTAGE OF REVENUE
The Company's results from continuing operations, as a percentage of revenue
for the periods indicated, are set forth below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues...................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Expenses:
Operating Expenses:
Production and customer support........................... 29.5 27.3 27.9 28.9 24.5
Commissions, royalties and license fees................... 2.1 7.8 10.1 9.8 10.5
Selling, general and administrative....................... 44.7 36.4 31.4 31.3 30.1
Depreciation and amortization............................. 4.2 9.1 8.3 8.6 6.3
Product development and programming....................... 5.8 10.9 12.9 12.4 12.7
Purchased research and development.......................... -- 15.0 -- -- --
Loss on lease termination................................... 7.4 -- -- -- --
Litigation settlements...................................... -- 1.9 3.9 7.9 --
----- ----- ----- ----- -----
Operating income (loss)....................................... 6.3 (8.4) 5.5 1.1 15.9
Equity in loss of Joint Venture............................... (7.0) (0.7) -- -- --
Interest expense.............................................. (13.5) (8.5) (5.0) (5.5) (3.1)
Other income (expense), net................................... (0.6) 0.3 0.4 0.6 0.4
----- ----- ----- ----- -----
Income (loss) from continuing operations before income
taxes........................................................ (14.8) (17.2) 0.9 (3.8) 13.2
Income tax (provision) benefit................................ 3.5 2.9 0.3 (1.8) (2.6)
----- ----- ----- ----- -----
Income (loss) from continuing operations...................... (11.3)% (14.3)% 1.1% (2.0)% 10.6%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
REVENUES. Total revenues increased by $6.7 million, or 11.8%, due primarily
to higher revenues from collision estimating software licensing, from EZNET and
from ACCESS claims services which offset lower revenues from the Company's TOTAL
LOSS services. Collision estimating software licensing revenue increased
primarily because of an increase in the number of software licenses principally
to collision repair facilities. This volume increase more than offset a
reduction in prices caused by competitive pressures. The increase in EZNET
revenue was due to additional EZNET network and recycled part locator
transactions, both at a slightly higher average price per transaction. The
increase in ACCESS claims services was due primarily to higher transaction
volume. The decrease in TOTAL LOSS revenue resulted from a reduction in
transaction volume offset in part by a higher average price per transaction.
PRODUCTION AND CUSTOMER SUPPORT. Production and customer support decreased
from $16.3 million, or 28.9% of revenues, to $15.5 million, or 24.5% of
revenues, due primarily to the Company's efforts to reduce production costs.
COMMISSIONS, ROYALTIES AND LICENSE FEES. Commissions, royalties and license
fees increased from $5.6 million, or 9.8% of revenues, to $6.7 million, or 10.5%
of revenues. The increase in such expenses as a percent of revenues was due
primarily to higher revenues from the licensing of collision estimating software
which generates both a sales commission and a data royalty.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
increased from $17.7 million, or 31.3% of revenues, to $19.0 million, or 30.1%
of revenues. In the first half of 1996, the Company incurred a charge of
approximately $0.9 million related to the severance of a former senior
executive. During this same period, the Company did not incur certain operating
expenditures and make certain investments that it would have made in the absence
of the 1994 bank credit facility covenants. These actions substantially offset
the recorded severance charge.
23
<PAGE>
PRODUCT DEVELOPMENT AND PROGRAMMING. Product development and programming
increased from $7.0 million, or 12.4% of revenues, to $8.1 million, or 12.7% of
revenues. The increase was due primarily to greater investment in product
development and wage pressure associated with hiring and retaining software
engineers.
INTEREST EXPENSE AND INCOME TAXES. Interest expense declined from $3.1
million to $2.0 million, due primarily to lower average borrowings outstanding.
The effective income tax rate for the 1996 period was 20.0%, resulting primarily
from the release of certain deferred income tax valuation allowances. See Note 6
to the Consolidated Financial Statements.
1995 COMPARED WITH 1994
REVENUES. Total revenues increased by $23.6 million, or 25.7%. The total
revenue increase includes the effect of consolidating CCCDC for a full year in
1995, versus use of the equity method during the first quarter of 1994 when
CCCDC recorded revenues of $11.4 million. Had CCCDC been consolidated for all of
1994, the 1995 over 1994 revenue increase would have been $13.3 million, or
13.0%. This increase in revenue was primarily attributable to higher revenues
from collision estimating software licensing, from EZNET and from ACCESS claims
services. Collision estimating software licensing revenue increased primarily
because of an increase in the number of software licenses, particularly in the
collision repair facility market. TOTAL LOSS valuation service revenues were
down slightly, reflecting lower volume. In addition, sales of other products
increased, reflecting new product introductions. The increase in EZNET revenues
was due to additional EZNET network and recycled part locator transactions, with
EZNET at a slightly higher average price per transaction. The increase in
revenues for ACCESS claims services was due primarily to higher transaction
volume.
COMMISSIONS, ROYALTIES AND LICENSE FEES. Commissions, royalties and license
fees increased from $7.2 million, or 7.8% of revenues, to $11.7 million, or
10.1% of revenues. This increase in such expenses as a percent of revenues was
due primarily to a change in the mix of products sold, including higher revenues
from the licensing of collision estimating software, which generates both a
sales commission and a data royalty. The increase in revenue from licenses of
collision estimating software resulted from higher volume together with the
effect of consolidating CCCDC for all of 1995.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
increased from $33.4 million, or 36.4% of revenues, to $36.3 million, or 31.4%
of revenues. This increase is attributable primarily to higher salaries and
travel expense associated with the Company's sales force. The decline in expense
as a percentage of revenue is due to the increase in revenues, including the
effect on revenues of consolidating CCCDC for all of 1995, and the fixed nature
of certain general and administrative expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$8.3 million, or 9.1% of revenues, to $9.6 million, or 8.3% of revenues, due
primarily to the acquisition of CCCDC, effective March 30, 1994. As a result of
the acquisition, purchased software amortization, goodwill amortization and
depreciation expense increased $0.7 million, $0.1 million and $1.1 million,
respectively.
PRODUCT DEVELOPMENT AND PROGRAMMING. Product development and programming
increased from $10.1 million, or 10.9% of revenues, to $14.9 million, or 12.9%
of revenues. The increase was due predominantly to greater investment in product
development, relating in large part to the Company's PATHWAYS software, and wage
pressure associated with hiring and retaining software engineers. The increase
in these expenses as a percent of revenues also reflects the effect of
consolidating CCCDC for all of 1995.
PURCHASED RESEARCH AND DEVELOPMENT. In the CCCDC purchase price allocation,
$13.8 million was assigned to in-process research and development projects. The
amount assigned to in-process research and development software projects was
charged against operating results at the time of the acquisition. See Note 4 to
the Consolidated Financial Statements.
INTEREST EXPENSE AND INCOME TAXES. Interest expense declined from $7.8
million to $5.8 million, due primarily to lower average borrowings outstanding,
reflecting the Company's June 1994 recapitalization, including the White River
transaction. The income tax benefit attributable to continuing operations
declined from $2.7 million to $0.3 million, due primarily to improvements in
results from continuing operations. See Note 6 to the Consolidated Financial
Statements.
24
<PAGE>
LITIGATION SETTLEMENT. The litigation settlement charge of $4.5 million was
recorded to provide for resolution of litigation involving a corporate publisher
of used car valuation books. This matter was settled in April 1996, however, the
original settlement charge was sufficient to provide for the ultimate
settlement. In June 1994 litigation involving an independent corporate provider
of guidebook data was settled. Under the settlement agreement the Company agreed
to pay the provider $1.75 million. See Note 15 to the Consolidated Financial
Statements.
1994 COMPARED WITH 1993
REVENUES. Total revenues increased by $40.7 million, or 79.3%, due
primarily to higher revenues from collision estimating software licensing and
the effect of consolidating CCCDC for the last three quarters of 1994. CCCDC
revenues for the last three quarters of 1994 totaled $39.3 million, of which
$31.3 million was attributable to collision estimating software licensing.
Increased volume in collision estimating software licensing was offset in part
by continuing competitive price pressures. In addition, revenues from total loss
valuation services increased, reflecting increased volume. Increased revenues
from sales of other products also contributed to growth in revenues.
PRODUCTION AND CUSTOMER SUPPORT. Production and customer support increased
from $15.1 million, or 29.5% of revenues, to $25.1 million, or 27.3% of
revenues. The increase in these expenses reflects principally the effect of
consolidating CCCDC for the last three quarters of 1994.
COMMISSIONS, ROYALTIES AND LICENSE FEES. Commissions, royalties and license
fees increased from $1.1 million, or 2.1% of revenues, to $7.2 million, or 7.8%
of revenues. This increase was due primarily to a change in the mix of products
sold, including higher revenues from the licensing of collision estimating
software and the effect of consolidating CCCDC. Collision estimating revenue
generates both a sales commission and a data royalty.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
increased from $22.9 million, or 44.7% of revenues, to $33.4 million, or 36.4%
of revenues, reflecting primarily the growth in the Company's revenues,
including the effect of consolidating CCCDC revenues for the last three quarters
of 1994.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$2.2 million, or 4.2% of revenues, to $8.3 million or 9.1% of revenues, due
primarily to the acquisition of CCCDC, effective March 30, 1994. As a result of
the acquisition, purchased software amortization, goodwill amortization and
depreciation expense increased $2.0 million, $0.4 million and $3.4 million,
respectively.
PRODUCT DEVELOPMENT AND PROGRAMMING. Product development and programming
increased from $3.0 million, or 5.8% of revenues, to $10.1 million, or 10.9% of
revenues. The increase was due primarily to expenditures related to the
Company's PATHWAYS product line, and wage pressure associated with retaining
software engineers. This increase also reflected the effect of consolidating
CCCDC during the last three quarters of 1994.
PURCHASED RESEARCH AND DEVELOPMENT. In the CCCDC purchase price allocation,
$13.8 million was assigned to in-process research and development projects. The
amount assigned to in-process research and development software projects was
charged against operating results at the time of the acquisition. See Note 4 to
the Consolidated Financial Statements.
LOSS ON LEASE TERMINATION. Loss on lease termination represents the present
value of future minimum lease payments under the Company's prior corporate
office lease and other related expenses.
LITIGATION SETTLEMENT. In June 1994 the litigation involving an independent
corporate provider of guidebook data was settled. Under the settlement agreement
the Company agreed to pay the provider $1.75 million. See Note 15 to the
Consolidated Financial Statements.
EQUITY IN LOSS OF CCCDC. Equity in loss of CCCDC declined from $3.6 million
to $0.6 million. This decrease reflects both the effect of consolidating CCCDC
for the last three quarters of 1994 and improvements in results of operations of
CCCDC.
25
<PAGE>
INTEREST EXPENSE AND INCOME TAXES. Interest expense increased from $6.9
million to $7.8 million, due primarily to higher average borrowings outstanding.
This increase results primarily from interest expense attributable to contract
funding operations by CCCDC which was consolidated for the last three quarters
of 1994, offset in part by lower average borrowings reflecting the Company's
June 1994 recapitalization, including the White River transaction. The income
tax benefit attributable to continuing operations increased from $1.8 million to
$2.7 million, due primarily to an increase in losses from continuing operations.
See Note 6 to the Consolidated Financial Statements.
SELECTED QUARTERLY FINANCIAL RESULTS
The following table sets forth unaudited consolidated statements of
operations for the ten quarters ended June 30, 1996, as well as such data
expressed as a percentage of the Company's total revenues for the periods
indicated. These quarterly statements of operations have been prepared on a
basis consistent with the audited financial statements contained elsewhere in
this Prospectus. They include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the quarterly
results of operations, when such results are read in conjunction with the
audited financial statements and notes thereto appearing elsewhere in this
Prospectus. The operating results for any quarter are not necessarily indicative
of results for any future period.
<TABLE>
<CAPTION>
1994 1995 1996
-------------------------------------- ----------------------------------- -------
FIRST (1) SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
--------- -------- ------- ------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................... $13,344 $ 24,652 $26,712 $27,209 $28,012 $28,612 $28,817 $ 30,078 $31,369
Expenses:
Operating expenses........................ 13,056 23,148 24,036 23,854 25,106 26,401 26,394 26,796 27,031
Purchased research and development (2).... -- 13,791 -- -- -- -- -- -- --
Litigation settlements (3)................ 1,750 -- -- -- -- 4,500 -- -- --
--------- -------- ------- ------- ------- ------- ------- -------- -------
Operating income (loss)..................... (1,462) (12,287) 2,676 3,355 2,906 (2,289) 2,423 3,282 4,338
Equity in loss of Joint Venture............. (615) -- -- -- -- -- -- -- --
Interest expense (4)........................ (1,855) (2,499) (1,778) (1,698) (1,610) (1,500) (1,422) (1,277) (1,032)
Other income (expense), net................. 373 (248) 11 180 82 251 68 81 53
--------- -------- ------- ------- ------- ------- ------- -------- -------
Income (loss) from continuing operations
before income taxes........................ (3,559) (15,034) 909 1,837 1,378 (3,538) 1,069 2,086 3,359
Income tax (provision) benefit.............. 383 3,377 (318) (754) (511) 1,564 (243) (519) (775)
--------- -------- ------- ------- ------- ------- ------- -------- -------
Income (loss) from continuing operations.... (3,176) (11,657) 591 1,083 867 (1,974) 826 1,567 2,584
Income (loss) from discontinued operations,
net of income taxes........................ (1,427) (1,214) 3,647 -- -- -- -- -- --
--------- -------- ------- ------- ------- ------- ------- -------- -------
Net income (loss)........................... (4,603) (12,871) 4,238 1,083 867 (1,974) 826 1,567 2,584
Dividends and accretion on mandatorily
redeemable preferred stock................. -- (106) (698) (714) (715) (740) (765) (783) (793)
--------- -------- ------- ------- ------- ------- ------- -------- -------
Net income (loss) applicable to common
stock...................................... $(4,603) $(12,977) $ 3,540 $ 369 $ 152 $(2,714) $ 61 $ 784 $ 1,791
--------- -------- ------- ------- ------- ------- ------- -------- -------
--------- -------- ------- ------- ------- ------- ------- -------- -------
<CAPTION>
SECOND
-------
<S> <C>
Revenues.................................... $31,956
Expenses:
Operating expenses........................ 26,241
Purchased research and development (2).... --
Litigation settlements (3)................ --
-------
Operating income (loss)..................... 5,715
Equity in loss of Joint Venture............. --
Interest expense (4)........................ (950)
Other income (expense), net................. 240
-------
Income (loss) from continuing operations
before income taxes........................ 5,005
Income tax (provision) benefit.............. (898)
-------
Income (loss) from continuing operations.... 4,107
Income (loss) from discontinued operations,
net of income taxes........................ --
-------
Net income (loss)........................... 4,107
Dividends and accretion on mandatorily
redeemable preferred stock................. (811)
-------
Net income (loss) applicable to common
stock...................................... $ 3,296
-------
-------
</TABLE>
- ------------------------------
(1) The Company accounted for its interest in the Joint Venture under the equity
method of accounting prior to acquiring the remaining interest, effective
March 30, 1994.
(2) See Note 4 to the Consolidated Financial Statements.
(3) See Note 15 to the Consolidated Financial Statements.
(4) Interest expense in the second quarter of 1994 includes loan origination
points of $0.3 million related to the bridge loan used to acquire the Joint
Venture interest.
26
<PAGE>
<TABLE>
<CAPTION>
1994 1995
--------------------------------------------- ---------------------------------
FIRST(1) SECOND THIRD FOURTH FIRST SECOND THIRD
--------- --------- --------- --------- --------- --------- ---------
(IN PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................... 100.0 % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Operating expenses................... 97.8 93.9 90.0 87.7 89.6 92.3 91.6
Purchased research and development
(2)................................. -- 55.9 -- -- -- -- --
Litigation settlements (3)........... 13.1 -- -- -- -- 15.7 --
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)................ (11.0 ) (49.8) 10.0 12.3 10.4 (8.0) 8.4
Equity in loss of Joint Venture........ (4.6 ) -- -- -- -- -- --
Interest expense (4)................... (13.9 ) (10.1) (6.7) (6.2) (5.7) (5.2) (4.9)
Other income (expense), net............ 2.8 (1.0) 0.0 0.7 0.3 0.9 0.2
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations before income taxes........ (26.7 ) (61.0) 3.4 6.8 4.9 (12.4) 3.7
Income tax (provision) benefit......... 2.9 13.7 (1.2) (2.8) (1.8) 5.5 (0.8)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations............................ (23.8 ) (47.3) 2.2 4.0 3.1 (6.9) 2.9
Income (loss) from discontinued
operations, net of income taxes....... (10.7 ) (4.9) 13.7 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)...................... (34.5 ) (52.2) 15.9 4.0 3.1 (6.9) 2.9
Dividends and accretion on mandatorily
redeemable preferred stock............ -- (0.4) (2.6) (2.6) (2.6) (2.6) (2.7)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) applicable to common
stock................................. (34.5 )% (52.6)% 13.3% 1.4% 0.5% (9.5)% 0.2%
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
1996
---------------------
FOURTH FIRST SECOND
--------- --------- ---------
<S> <C> <C> <C>
Revenues............................... 100.0% 100.0% 100.0%
Expenses:
Operating expenses................... 89.1 86.2 82.1
Purchased research and development
(2)................................. -- -- --
Litigation settlements (3)........... -- -- --
--------- --------- ---------
Operating income (loss)................ 10.9 13.8 17.9
Equity in loss of Joint Venture........ -- -- --
Interest expense (4)................... (4.2) (3.3) (3.0)
Other income (expense), net............ 0.3 0.2 0.7
--------- --------- ---------
Income (loss) from continuing
operations before income taxes........ 6.9 10.7 15.6
Income tax (provision) benefit......... (1.7) (2.5) (2.8)
--------- --------- ---------
Income (loss) from continuing
operations............................ 5.2 8.2 12.8
Income (loss) from discontinued
operations, net of income taxes....... -- -- --
--------- --------- ---------
Net income (loss)...................... 5.2 8.2 12.8
Dividends and accretion on mandatorily
redeemable preferred stock............ (2.6) (2.5) (2.5)
--------- --------- ---------
Net income (loss) applicable to common
stock................................. 2.6% 5.7% 10.3%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------------
(1) The Company accounted for its interest in the Joint Venture under the equity
method of accounting prior to acquiring the remaining interest, effective
March 30, 1994.
(2) See Note 4 to the Consolidated Financial Statements.
(3) See Note 15 to the Consolidated Financial Statements.
(4) Interest expense in the second quarter of 1994 includes loan origination
points of $0.3 million related to the bridge loan used to acquire the Joint
Venture interest.
The increase in quarterly operating expenses as a percentage of revenues
over the last two quarters of 1995 versus the same quarters in 1994 is
attributable primarily to an increase in systems development and programming and
a change in mix of products sold. The decline in operating expenses as a
percentage of revenues in the first half of 1996 versus the first half of 1995
is attributable to higher revenues and deferral of certain planned operating
expenditures that the Company would have made in the absence of the 1994 bank
credit facility covenants.
The Company's revenues and operating results have fluctuated in the past and
are expected to continue to fluctuate in the future, on both an annual and
quarterly basis. This fluctuation is attributable to a number of factors,
including, but not limited to: demand for the Company's products and services,
including new and enhanced products and services, the mix of products and
services sold, the hiring and compensation of employees, the timing of
promotional expenditures and competitive conditions. Many of these factors are
beyond the Company's control.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements are for working capital to
fund investments in equipment and software, and to repay indebtedness. For the
six months ended June 30, 1996, net cash provided by operating activities was
$8.7 million. This amount was net of $2.3 million of contract funding revenue
amortization. The Company applied $1.8 million to purchase equipment and
software and $6.4 million to reduce outstanding debt. For the year ended
December 31, 1995, net cash provided by operating activities was $7.7 million.
This amount was net of $10.1 million of net contract funding revenue
amortization. The Company applied $3.0 million to purchase equipment and
software and $7.1 million to reduce debt. For the year ended December 31, 1994,
net cash provided by continuing operations was nominal, net of $8.0 million of
net contract funding revenue amortization. Net cash proceeds from borrowing were
$15.0 million. The Company applied
27
<PAGE>
cash from these sources to purchase $5.2 million of equipment and software. The
Company's proceeds from the sale of discontinued operations, net of cash used by
discontinued operations, was $1.6 million. In connection with the acquisition of
the 50% joint venture interest in CCCDC that it did not previously own, the
Company used $4.5 million in cash, net of cash acquired, and assumed liabilities
in the amount of $22.4 million. For the year ended December 31, 1993, net cash
provided by continuing operations was $6.0 million. The Company applied cash
from continuing operations to principal payments of long-term debt of $4.5
million and the balance of $1.5 million to advances to the Joint Venture. The
remainder of the Joint Venture advances were funded from available cash
balances. The Company anticipates that its purchase of equipment and software
will be approximately $6.1 million in 1996.
CCC entered into a bank credit facility arrangement with Canadian Imperial
Bank of Commerce as agent in June 1994 in connection with a recapitalization of
the Company. The Company has guaranteed CCC's obligations under the 1994 credit
facility, which is secured by a lien on CCC's assets and stock. The 1994 bank
credit facility is structured as a $30 million term loan and a $10 million
revolving credit facility. The interest rate under the 1994 bank credit facility
is a base rate (approximating the prime rate) plus 1.5% or the Eurodollar rate
plus 3.0%, as selected by the borrower. The Company is negotiating a new credit
facility with Signet Bank to replace the 1994 bank credit facility. The new
credit facility would provide CCC with the ability to borrow under a $20 million
revolving line of credit and give CCC the option to borrow up to $15 million
under a term loan, provided that the gross proceeds of this Offering are not
less than $50 million nor greater than $70 million. The Company intends to use
the proceeds of this borrowing to repay a portion of the 1994 credit facility.
If the new credit facility is not consummated by CCC, the 1994 bank credit
facility will remain in place. The Company will guarantee CCC's obligations
under the new credit facility, which will be secured by a lien on CCC's assets
and stock. The interest rate under the new bank credit facility is the prime
rate from time to time in effect or the LIBOR rate plus 1.5%, as selected by
CCC.
In 1994 White River acquired $39.0 million of the Company's Redeemable
Preferred Stock in connection with the Company's recapitalization. A portion of
the Redeemable Preferred Stock will be redeemed from the proceeds of this
Offering at its stated value plus accrued dividends.
The Company continues to review various financing alternatives. The Company
believes that cash flows from operations and available bank lines of credit will
be sufficient to meet its liquidity needs in the next year. There can be no
assurance, however, that the Company will be able to satisfy its liquidity needs
in the future without engaging in financing activities beyond those described
above. See "Risk Factors -- Financial Position; Negative Working Capital;
Potential Financing Needs."
28
<PAGE>
BUSINESS
GENERAL
The Company is a leading supplier of automobile claims information and
processing, claims management software and value-added communication services.
The Company's customers include each of the 50 largest U.S. automobile insurance
companies, over 250 other automobile insurance companies and more than 8,500
collision repair facilities. The Company's technology-based services and
products improve efficiency, manage costs and increase consumer satisfaction in
the management of automobile claims and restoration. The Company believes that
its core competencies include the efficient collection and processing of claims
and automobile valuation and repair data, development of advanced client-server,
object-oriented claims software products, management of a value-added
communications network, understanding the workflow processes of automobile
claims and marketing through a customer-oriented field sales and service
organization.
The Company's services and products automate the process of evaluating and
settling both total loss and repairable automobile claims. The Company's TOTAL
LOSS services and products provide insurance companies the ability to effect
total loss settlements on the basis of market-specific vehicle values. The
Company's collision estimating services and products provide insurance
appraisers and collision repair facilities with up-to-date pricing, interactive
decision support and computer-assisted logic to produce accurate collision
repair estimates. Communication services offered by the Company connect
insurers, appraisers and collision repair facilities, providing the information
required to make appropriate and timely decisions. The Company also provides a
wide variety of related services and products intended to facilitate the overall
management of the automobile claims process. The Company's PATHWAYS workflow
management software is designed to integrate each of the Company's product
offerings on a common platform with a common graphical user interface,
facilitating the learning of new applications while providing the Company's
customers with a broader tool set for claims completion. The Company's services
and products are an integrated solution that combines reliable information,
advanced claims management software and value-added, secure communication
systems to improve the efficiency of the automobile claims process.
The Company markets its services and products to the key participants in the
automobile claims industry, including over 400 insurance companies and
approximately 20,000 to 25,000 collision repair facilities. The Company sells
its services and products to insurance companies through a 125 person direct
sales force. The Company contracts with 85 independent sales representatives to
sell its products to collision repair facilities. Over half of the Company's
revenue for 1995 was for services and products sold pursuant to contracts, which
generally have a two to three year term. A substantial portion of the Company's
remaining revenue represented sales to customers that have been doing business
with the Company for at least ten years. The Company's services and products are
sold either on a monthly subscription or a per transaction basis.
OVERVIEW OF THE AUTOMOBILE INSURANCE CLAIMS PROCESS
Insurance premiums for U.S. private passenger automobiles totalled
approximately $98 billion in 1994. The Company estimates that about 11 percent
of automobile and light truck policy holders file claims each year on a total of
approximately 20 million vehicles. In 1994 these claims resulted in payments
totalling approximately $75 billion. Of this amount, approximately $35 billion
was paid for automobile damage and loss claims, of which the Company estimates
that $19 billion was paid to collision repair facilities, $13 billion was paid
for total loss claims, and the remainder was paid for other comprehensive
losses, for damage to other property and for settlement costs. These claims also
resulted in payments for personal injuries of approximately $40 billion,
including medical costs, lost wages, compensation for pain and suffering,
attorney fees and settlement costs.
Automobile claims generally involve three types of participants: automobile
insurance companies, service providers such as collision repair facilities and
attorneys, and consumers. The interaction among these parties in the processing
of a claim is referred to in this Prospectus as the "automobile claims
industry." The Company believes that the claims process has historically been
inefficient and contentious for the participating parties due in part to the
lack of independently verifiable claims data and inefficient communications
networks.
29
<PAGE>
THE AUTOMOBILE INSURANCE INDUSTRY
Of the approximately 400 companies offering private passenger automobile
insurance in the United States, the twenty largest providers account for over
60% of all automobile insurance premiums. Insurance companies compete
principally on the basis of price, marketing, consumer satisfaction and claims
paying ability. State agencies closely regulate the product offerings, claims
processes and the premium structure of insurance companies. In addition, the
laws of many states require motorists to carry liability insurance at specified
minimum levels.
The automobile insurance industry is changing rapidly. The automobile
insurance marketplace is experiencing price constraints as a result of
increasing competition and regulatory activity. At the same time, policy holders
are demanding ever higher levels of customer service. The growing complexity and
sophistication of automobile design and engineering is increasing the actual
repair cost (referred to in the industry as "severity") of collision claims. In
addition, the personal injury component of automobile insurance claims is rising
in part as a result of the increasing frequency of, and magnitude of, claims
involving alleged bodily injury, including soft-tissue claims. Competitive
pressures and resistance by policy holders and regulators to premium increases
are causing insurance companies to focus on managing costs.
The Company believes that the insurance industry's focus on cost management
has been accompanied by an increasing recognition that it is easier and more
cost effective to retain an existing policy holder than to lure a new customer
away from a competitor. Dissatisfaction with the claims handling process is a
frequently cited cause of policy non-renewal.
THE COLLISION REPAIR INDUSTRY
The collision repair industry, which historically has been extremely
fragmented, is consolidating. Approximately 63,500 collision repair facilities
were listed in telephone book advertisements in 1995, down from 71,000 such
listings in 1992. Most collision repair facilities are owner-operated,
single-location businesses which focus on a local market. The Company estimates
that 20,000 to 25,000 collision repair facilities have annual revenues in excess
of $300,000. These facilities tend to be larger, better capitalized and
increasingly rely on professional and sophisticated management who are adopting
new technology and wholesale marketing techniques to compete.
The costs to operate a collision repair facility have risen substantially
over the past decade. Modern automobile designs coupled with extensive
environmental regulations are forcing repair facilities to make significant
capital investments in increasingly sophisticated equipment and better training.
At the same time, insurance companies are looking to collision repair facilities
to assist in cost containment.
Of the approximately $22 billion in total revenue earned by U.S. collision
repair facilities in 1995, $19 billion, or 86%, was paid by insurance companies.
Because so much of their revenue is derived from insurers, collision repair
facility owners are increasingly shifting their marketing efforts from
consumer-oriented advertising to wholesale marketing and insurance company
referrals. For example, many collision repair facilities are seeking to
capitalize on insurance industry-driven trends such as the growth in direct
repair programs. A direct repair program, or DRP, allows an insured whose
automobile is involved in a collision to have the repair performed within a
pre-screened network of approved repair facilities. In order to participate in
DRPs with major insurance companies, collision repair facilities must meet
minimum standards for equipment, training and facilities. To ensure continued
satisfaction at both the referring insurance company and consumer level,
collision repair facilities must seek ways to improve productivity and optimize
the workflow of the automobile repair process. In order to achieve these goals,
collision repair facilities are making substantial investments in capital
equipment and computer technology.
THE AUTOMOBILE CLAIMS PROCESS
Insurance companies generally handle automobile physical damage claims in
one of three ways: through in-house staff appraisals, through direct repair
programs and through independent adjustments.
STAFF APPRAISAL. The insurance industry employs staff appraisers and claims
representatives who, the Company estimates, handle 70% to 75% of all automobile
claims. The estimates are based on the Company's claims experience, as well as
interviews with its large insurance customers. Staff appraisers handle a broad
range
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of claims tasks, including appraisal, claims supplements, police reporting,
total loss files, salvage processing and settlement payments. Based on the
Company's internal estimates, staff appraisers typically handle twelve or more
claims per day when in a drive-in facility and three to five claims per day when
in the field. The Company believes that approximately 90% of insurance company
staff appraisers use collision estimating software to prepare collision repair
estimates. Based on the Company's experience with its insurance customers, the
Company estimates that the cost of a staff appraisal ranges from $50 to $65 and
that the average severity of a staff-appraised claim in 1995 was $1,990.
DIRECT REPAIR PROGRAMS. Sixteen of the top twenty automobile insurers,
including each of the five largest, offer a direct repair program. Based on the
Company's interviews with its insurance customers, the Company estimates that 8%
to 12% of all automobile claims are handled through a DRP, the fastest-growing
method for handling automobile claims. The Company believes that DRPs present
significant opportunities to both insurance companies and collision repair
facilities to increase the satisfaction of their customers. Surveys demonstrate
that DRPs result in higher consumer satisfaction than either of the other claims
handling methods. In addition, by eliminating several days from the claims
process, insurers utilizing DRPs reduce replacement rental car expense and
eliminate the costs associated with dispatching an adjuster to appraise each
vehicle. An automated DRP ensures accurate estimates, facilitates the use of
alternate replacement parts and increases the productivity of auditors and
reinspectors. The Company estimates that adjusters who formerly completed only
three to five estimates per day under a staff appraisal program can review 20 to
25 claims per day under a DRP. Participating collision repair facilities gain
volume and efficiency and reduce disputes with consumers and insurance
companies. Based on the Company's experience with its insurance customers, the
Company believes that the cost of a DRP appraisal ranges from $10 to $15 and
that the average severity of a DRP-appraised claim in 1995 was $2,030.
INDEPENDENT ADJUSTMENT. Based on the Company's interviews with its
insurance customers, the Company estimates that independent claims adjusters
handle 15% to 22% of all automobile claims. Independent adjusters offer their
appraisal skills to a variety of insurance companies in a specific geographic
location. Insurers typically outsource claims to independent adjusters where
their market coverage does not justify hiring local staff or when the volume of
work exceeds local capacity. The Company estimates that fewer than 10% of
independent adjusters use automated collision estimating systems. The absence of
automation, coupled with the lack of management reports and efficient inspection
processes among independent adjusters, typically results in both the highest
average severity per claim and the highest average claims handling expense.
Based on the Company's experience with its insurance customers, the Company
estimates that the cost of an independent appraisal ranges from $70 to $95 and
that the average severity of an independently-appraised claim in 1995 was
$2,320.
NEEDS AND OPPORTUNITIES IN THE AUTOMOBILE CLAIMS PROCESS
The Company believes trends in the automobile insurance industry create
several identifiable needs. First, automobile insurers need to increase consumer
satisfaction through faster, more efficient claims handling procedures. Second,
insurance companies need to improve working relationships with their primary
service providers through the exchange of auditable data and improved
communication. Third, insurers need to integrate emerging technologies into
their legacy mainframe hardware and software systems. Finally, smaller insurance
companies need to become cost competitive with the major insurers by adopting
solutions which provide benefits of economies of scale.
Trends in the collision repair industry also present collision repair
facilities with several needs and opportunities. First, repair facilities need
to secure a steady supply of customers through efficient marketing and greater
connectivity to insurance companies. Second, repair facilities need to improve
their operating efficiency, business management and repair processing through
affordable information and decision making tools.
The Company believes there is also a need and market opportunity for
improved management of bodily injury claims, the largest component of automobile
claims settlement. In 1994 the cost of the 8.3 million claims for personal
injuries totalled approximately $40 billion. These claims resulted in
approximately 1.6 million lawsuits, of which 640,000 involved claims for soft
tissue damage.
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The Company believes that improvements in the automobile claims process will
require that participants have ready access to data, decision making tools and
efficient communications. As a result, there is a need for integrated, efficient
solutions in the appraisal, repair and settlement processes which will speed
repairs, assure consumer satisfaction and save money.
THE CCC SOLUTION
The Company's services and products are an integrated solution that combines
proprietary information, advanced claims management software and value-added,
secure communication systems to improve the efficiency of the automobile claims
process. The Company's customers use its services and products to improve
efficiency, control costs and increase consumer satisfaction in the handling of
automobile claims. Connecting people, processes and information, the Company's
technology-based services and products facilitate decision making among more
than 300 insurance companies, more than 8,500 collision repair facilities and a
wide range of business partners in the claims settlement process, including
approximately 4,000 automobile dealers, 100 independent appraisal companies,
parts suppliers, rental car agencies, fraud prevention agencies, salvage pools
and recyclers. The Company's services and products aid claims industry
participants in satisfying the consumer wherever settlement takes place, however
the workflow is designed and whoever is managing the task. The Company provides
these benefits through:
- efficient collection and processing of proprietary claims data
- advanced client-server architecture and object-oriented software
applications
- value-added communications through its flexible network
- comprehensive knowledge of workflow processes in the automobile claims
industry
- an aggressive market-driven field sales and service organization
INSURANCE INDUSTRY SOLUTIONS
The Company offers innovative solutions that provide insurance companies
with decision control information and workflow tools to manage the process of
adjusting and settling total losses and repairable collision claims. These
solutions reduce claims costs, streamline claims processing and increase
consumer satisfaction. The Company believes it is the leading provider of
computerized claims-handling data and software to the insurance company total
loss valuation and automobile physical damage collision estimating markets.
The Company's solutions automate each of the three major claims handling
methods. To improve the staff appraisal process, the Company offers workflow
management software which allows the insurance company to integrate any or all
of the Company's specific claims management applications with the insurer's own
legacy applications. To improve the direct repair process, the Company offers a
suite of software and communication tools that automate the fastest-growing
claims handling methodology and provide insurers management control of their
DRPs. To improve the outsourced appraisal process, the Company offers an
alternative to independent adjusters which automates the assignment, collision
estimate and management of the entire claims and restoration process.
COLLISION REPAIR INDUSTRY SOLUTIONS
The Company offers the collision repair industry a value-added, secure
communications network which connects insurance companies and collision repair
facilities in a cooperative and efficient partnership to satisfy consumer needs.
The Company believes that its communication services and collision estimating
software permit its customers to increase business flow, improve decision
making, and increase operating efficiency. The process-control applications in
the Company's network, which processed more than $2 billion in repairable
automobile claims in 1995, improves and streamlines the automobile repair
process. The Company also offers modular collision repair facility management
software applications which enhance productivity and improve asset utilization.
THE CCC STRATEGY
The Company's objective is to enhance its position as a leading provider of
business solutions to the automobile claims industry by pursuing the following
business strategies:
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GROW AND LEVERAGE INSTALLED USER BASE. The Company intends to enhance its
leadership in the physical damage segment of the automobile insurance industry.
The Company plans to increase market share by integrating new and existing
applications into its workflow management software and by the continued emphasis
on proactive field service and customer support.
The Company also intends to grow its presence in the collision repair
industry by continuing to develop service and product offerings tailored to the
needs of collision repair facilities. Specifically, the Company plans to enhance
and expand its connectivity tools to facilitate the collision repair process and
to grow the volume of repairs settled through both insurance company DRPs and
through the Company's own claims management programs.
FOCUS ON LEADING INSURANCE COMPANIES. The Company believes that the leading
automobile insurance carriers drive new product innovation and influence the
buying decisions of participants in the claims process. Therefore the Company
focuses resources on twenty of the leading automobile insurance carriers, which
account for over 60% of total automobile insurance premiums and which have
different needs from those of smaller insurers. The Company believes that the
extent to which its services and products are widely accepted among the leading
insurance companies will grow the Company's network of collision repair facility
customers, which in turn will enhance the Company's relationships with other
insurance companies.
CAPITALIZE ON TECHNOLOGY LEADERSHIP. The Company has made a substantial
investment during the past two years in the development of an object-oriented
software framework which includes several hundred reusable business and system
objects. The PATHWAYS application suite is built on this framework. The Company
intends to maintain its technology leadership in the claims adjustment and
collision repair markets by continuing the evolution of its released
applications into object-oriented software modules and by maintaining the
quality and independence of its proprietary databases.
OFFER ALTERNATIVE TO INDEPENDENT ADJUSTER CLAIMS PROCESS. The Company
believes that independent claims adjustment, which carries the highest severity
and loss adjustment costs, presents a significant opportunity for an outsourced
claims management solution. The Company intends to offer its appraisal and
restoration management outsourcing solution as an alternative to independent
adjustment to insurers seeking higher levels of consumer satisfaction, together
with process and severity benefits.
BROADEN SCOPE OF CLAIMS MANAGEMENT SOLUTIONS. The Company intends to
capitalize on its strong network of insurance company relationships, proprietary
databases and technology tools by expanding the scope of its services to other
areas of the automotive claims industry, including the processing and management
of litigation alleging bodily injury arising from automobile collisions.
OFFER TOTAL OUTSOURCING SOLUTION. The Company intends to use its claims
process management tools, together with the Company's growing network of service
providers, to create an outsourced claims solution for insurance companies. The
Company intends to offer its total outsourcing solution to small insurers which
lack the size and scale to process claims efficiently.
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SERVICES AND PRODUCTS
The Company's services and products are organized into the following product
families: Insurance, Collision Repair and Other. The Company's services and
products are integrated for use with one another across multiple platforms. The
Company's services and products are designed for ease of use by the thousands of
people involved in the automobile claims process on a daily basis. Approximately
70% of the Company's consolidated revenue for 1995 was from the sale of services
and products to insurance companies with the remainder sold to collision repair
facilities and other customers. Sales of total loss and related services and
products accounted for 38.2%, and sales of collision estimating services and
products accounted for 43.0%, of the Company's consolidated 1995 revenue.
<TABLE>
<CAPTION>
SERVICES AND
PRODUCTS DESCRIPTION TARGET MARKET BENEFITS
<S> <C> <C> <C>
INSURANCE SERVICES AND PRODUCTS
TOTAL LOSS (1980) - Local market, passenger - Independent valuation with
and light truck valuation speed of automation, more
based on inspected local accurate values, fraud
market dealer inventory protection and regulatory
compliance
COMMERCIAL/ - Local market, vehicle -Physical damage claims
RECREATIONAL valuation of heavy departments
VEHICLE VALUATION equipment, small marine
(1985) craft, mobile homes and
motor cycles
COMPUTERIZED - Replacement rental car - Consolidates rental
AUTOMOBILE RENTAL reservation, management providers for volume contract
SYSTEM (1994) and billing system negotiation, controls
unauthorized rental
extension and
consolidates/audits billing
ACCESS (1995) - Outsourced appraisal and - Insurance companies - Fast, economical
vehicle restoration with heavy independent appraisal/repair process with
management services appraiser usage high customer satisfaction
utilizing a network of
Company-certified,
fully-equipped repair
facilities
PATHWAYS WORKFLOW - Integration software for - Rapid learning and
MANAGER (1996) a variety of claims introduction of new
applications, with a applications; more
workflow orientation to efficient claims processing
assist in managing all
aspects of a field
appraiser's duties
PATHWAYS - Windows-based collision - Insurance field - Accurate estimates based on
COLLISION estimating software appraisers better decisions
ESTIMATING (1996) using P-page logic which -Increases and eases the
Upgrade: provides up-to-date selection of more economical
RECYCLED PART pricing; interactive recycled/salvaged parts
VALUATION decision support;
automated forms
-Provides statistically
valid, local market
pricing of available
recycled parts that can
be automatically inserted
into an estimate
GUIDEPOST (1996) - Executive information - Physical damage claims - Management information
system departments
ACCLAIM (1996) - Outsourced soft-tissue - Bodily injury claims -Lower legal and indemnity
litigation defense departments costs
management
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
SERVICES AND
PRODUCTS DESCRIPTION TARGET MARKET BENEFITS
<S> <C> <C> <C>
INSURANCE & COLLISION REPAIR SERVICES AND PRODUCTS
EZEST (1991) - Interactive PC-based - Insurance field - Provides a complete,
collision estimating appraisers and collision professional estimate.
software using P-page repair facilities Automatically defaults to
logic which provides agreed-upon estimating
Upgrade: up-to-date pricing, guidelines when used in
marketing letters and conjunction with EZNet
interactive decision
support
RECYCLED PART - Provides statistically - Insurance field - Increases and eases the
VALUATION (1993) valid, local market appraisers selection of more economical
pricing of available recycled/salvage parts
recycled parts that can
be automatically
inserted into an
estimate
EZFOCUS (1996) - Software based, digital - Insurance companies - Economical documentation of
imaging system and collision repair vehicle damage that speeds
facilities repair approval, increases
process control and reduces
reinspections
EZNET (1992) -A value-added -Insurance companies -Process control and
communications network to utilizing automated management information
send claim assignment staff appraisers and
Upgrades: information and retrieve DRPs and collision
completed file data repair facilities
ELECTRONIC -A file-by-file electronic -Insurance companies -Real-time exception
APPRAISAL REVIEW audit of DRP estimates utilizing DRP networks reporting to target
(1993) re-inspections and improve
management control of DRP
networks
RECYCLED PART -Location of all available -Insurance companies -Increases and eases the
LOCATION (1994) recycled parts for a utilizing DRP networks selection of more economical
particular vehicle in a recycled/salvaged parts
local market
COLLISION REPAIR SERVICES AND PRODUCTS
EZWORKS (1996) - Job costing, job - Improves workflow,
scheduling, accounting and increases financial control,
payroll software labor efficiency and asset
utilization
PATHWAYS WORK - Integration software for - Collision repair - Rapid learning and
FLOW MANAGER a variety of applications, facilities introduction of new
(expected late with a workflow applications; more
1996) orientation efficient management
process
PATHWAYS - Windows-based collision - Provides a complete,
COLLISION estimating software professional estimate.
ESTIMATING--COLLISION using P-page logic which Automatically defaults to
REPAIR (expected provides up-to-date agreed-upon estimating
late 1996) pricing marketing guidelines when used in
letters capability and conjunction with EZNet
interactive decision
support
OTHER SERVICES AND PRODUCTS
AUTOSEARCH (1981) - Used vehicle location - Consumers - Fast location of
and pricing service replacement vehicle
CONSUMER PRODUCTS - Local market passenger - Market data for use in
(1989) and light truck valuation buying or selling a new or
used car
DEALER - Advertising for car - New/used car dealers - Highly targeted advertising
SERVICES--TAIL dealers to consumers
(1990) recently involved in a
total loss
</TABLE>
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<PAGE>
TOTAL LOSS SERVICE. The Company's TOTAL LOSS service provides insurance
companies the ability to effect total loss settlements on the basis of
market-specific values based upon physically inspected used car inventories. The
Company believes that its up-to-date vehicle database, which contains detailed
information about millions of vehicles physically inventoried on over 4,000
dealer lots, or recently advertised, is the most comprehensive in North America.
The Company uses its proprietary database and valuation software to provide
insurance companies with independent, current, local, market-values and vehicle
identification data. Each total loss valuation includes a vehicle identification
search under VINGUARD, the Company's vehicle identification number fraud
protection program which matches current claims against the Company's database
of 15.5 million previously totaled or stolen vehicles. The Company processes
about 1.5 million TOTAL LOSS claims per year.
EZEST COLLISION ESTIMATING. EZEST was the first stand-alone, PC-based
collision estimating system utilizing P-page logic to automate the process of
eliminating repair activity overlaps and automating all included operations and
ancillary repair work in preparing an estimate. EZEST provides automobile
insurers with fast and reliable estimates at a low cost. EZEST runs on any
IBM-compatible laptop or desktop computer and contains all nine volumes of the
Motor Crash Estimating Guide and other data necessary to build a quality
estimate. The Company licenses the Motor Crash Estimating Guide data from a
subsidiary of The Hearst Corporation. A unique feature of EZEST is its recycled
part valuation upgrade which will display and can automatically insert into the
estimate a predicted price of those recycled or salvage automotive parts
statistically known to be available in the local market in which the estimate is
written. Approximately two-thirds of EZEST'S insurance users have purchased this
upgrade. The EZEST software, Motor Crash Estimating Guide database and other
associated databases are updated via a monthly CD-ROM. EZEST is sold on a
monthly subscription basis to both insurers and collision repair facilities
under multi-year contracts. The Company has approximately 13,000 units
installed.
EZNET COMMUNICATIONS NETWORK. EZNET connects insurers with their appraisers
and repair network partners. EZNET'S process management capabilities provide the
information required to make appropriate and timely decisions, regardless of
location or settlement process. EZNET is used principally for the complete
electronic communication of work files and estimates to staff appraisers or DRP
partners and for the receipt of auditable estimate data. EZNET is the only
secure communications network tailored to provide value-added automated
communication service to participants in the automobile physical damage claim
process, including: mailboxing, library, messaging, intelligent routing,
assignment tracking and third party gateways. A unique feature of EZNET is the
electronic appraisal review feature which provides real-time exception reporting
to target re-inspections and improves management control of DRP networks. EZNET
also facilitates the management of car rental and salvage disposition. EZNET
processes approximately 400,000 automobile physical damage claims each month.
EZNET is sold both on a per transaction basis and on a monthly subscription
basis.
PATHWAYS APPRAISER WORKSTATION SOFTWARE. In April 1996, the Company began
delivery of PATHWAYS, its Windows-based appraiser workstation software designed
to better serve the overall workflow needs of insurance field staffs. PATHWAYS
offers a common, graphical user interface across all applications which
organizes claims in tabbed, electronic workfiles and reduces the time required
to learn or develop new software functions or applications. PATHWAYS includes a
workflow manager which assists users in managing all aspects of their day-to-day
activities, including receipt of new assignments, communication of completed
activity, electronic file notes and reports as well as the automatic logging of
key events in the claims process. The Company intends to integrate all of its
existing field applications into this platform and develop all future field
applications on PATHWAYS. PATHWAYS is fully integrated with the Company's
value-added communications network, allowing adjusters to operate in the field,
and thereby reduce office and other expenses. The initial PATHWAYS application
is PATHWAYS COLLISION ESTIMATING which provides all of the functionality of the
EZEST product while adding the functionality of total loss and settlement
processing, claim payment, salvage disposal and custom electronic forms. The
Company believes that the PATHWAYS system can reduce the field handled
automobile claims process by about one day. The Company currently has 140
installations. PATHWAYS is sold on a monthly subscription basis under multi-year
contracts.
ACCESS CLAIMS SERVICES. ACCESS is an outsourced vehicle appraisal and
restoration management service. Insurance companies use ACCESS to appraise and
settle claims without hiring either additional staff or independent appraisers.
ACCESS uses a network of Company certified, fully equipped repair facilities and
the
36
<PAGE>
Company's claims management tools to provide fast, low cost claims settlement
with high customer satisfaction. In addition, the Company provides reinspection
and restoration management staff for quality assurance. ACCESS is sold on a per
claim basis under multi-year agreements. The Company is currently processing
5,000 ACCESS claims per month.
EZFOCUS DIGITAL IMAGING. The EZFOCUS computerized digital photo imaging
system allows automobile insurers and collision repairers to visually document
vehicle damage and electronically communicate the image. This reduces claims
cycle time while eliminating film cost and saving travel and overnight delivery
expense.
GUIDEPOST DECISION SUPPORT. The Company recently added GUIDEPOST, an
executive information and data navigation software package to its tool set.
GUIDEPOST allows managers to electronically evaluate results, format reports,
drill down for subject or personnel review and compare performance to industry
and regional indices. GUIDEPOST is offered on a monthly CD and development for
network delivery is underway. While introduced as an element of the Company's
suite of electronic DRP and collision estimating tools, GUIDEPOST will be made
available for all the Company's products, extending the integration of a
multi-channel claims process.
ACCLAIM LITIGATION MANAGEMENT. ACCLAIM is an outsourcing service offered to
insurance companies for the processing and management of defined soft-tissue
bodily injury claims. ACCLAIM uses the Company's licensed case management
software and information management tools in connection with a national network
of lawyers to defend and dispose of lawsuits filed against insureds. ACCLAIM
services are sold to insurance companies on a fixed fee, per claim basis.
ACCLAIM is currently in pilot program status.
CUSTOMERS
The Company's business is based on establishing close long-term
relationships with the two primary users of the Company's services: automobile
insurance companies and collision repair facilities. Over 300 automobile
insurance carriers, including each of the top 50 insurance companies in the
United States, are customers of the Company. Most of the Company's insurance
customers are large, well capitalized businesses. State Farm, the Company's
largest customer, accounted for 12.4%, 16.1% and 27.1% of the Company's total
revenues for the three years ended December 31, 1995, 1994 and 1993,
respectively.
Since first entering the collision repair market in 1992, the Company has
secured over 8,500 collision repair facility customers. The Company has
collision repair customers in all 50 states and in most major metropolitan
markets. Many of these customers use the Company's services and products as a
means to participate in insurance DRP programs, thereby making the use of the
Company's services and products important to the customer's business growth.
Over half of the Company's revenue for 1995 was for services and products
sold pursuant to contracts, which generally have a two to three year term. A
substantial portion of the Company's remaining revenue represented sales to
customers that have been doing business with the Company for at least ten years.
The Company's services and products are sold either on a monthly subscription or
a per transaction basis.
SALES AND MARKETING
The Company utilizes four different sales organizations to market and sell
its services and products.
STRATEGIC CLIENT DIVISION. The Strategic Client Division comprises 34
national account managers ("NAMs") and 31 client service managers ("CSMs") who
focus on the Company's overall relationships with the home and regional offices
of twenty leading insurance companies. NAMs are experienced sales professionals
charged with meeting customers' business needs with a consultative approach.
NAMs are responsible for home office relationships through which most major and
all company-wide contracts are signed and renewed. The CSMs were recruited from
a variety of major consulting firms with backgrounds in workflow/process
management and business systems analysis. The CSMs play a critical role in
reviewing customer business practices to benchmark current operations and to
identify opportunities for improvement. This serves the dual role of assisting
customers in the operation of their businesses, while concretely validating the
value of the Company's services and products when they are implemented. CSMs
often work closely with customer MIS staffs to assure smooth implementation of
more technically complicated and customized service offerings.
37
<PAGE>
NATIONAL SALES GROUP. The 26 national sales account managers in the
National Sales group market the Company's services and products to the home
offices of large and medium-sized insurance companies outside of the top 20
ranking. Managers in the National Sales group typically call on the president or
claims vice president and director of management information services of the
customer. The sales cycle for transactions in this division is normally shorter
than in the Strategic Client Division. Most ACCESS sales are made in the
National Sales division.
CLAIMS OFFICE ACCOUNT EXECUTIVES. A total of 78 claims office account
executives are deployed geographically with responsibility for individual claims
offices of all of the Company's insurance company clients. These employees are
charged with on-going field training and support for the Company's
transaction-based businesses. The Company believes that its field service
organization is a competitive strength as its account executives assist claim
managers with the training of high turnover personnel, program result analysis
and problem resolution.
COLLISION REPAIR REPRESENTATIVES. The Company contracts with 85 independent
sales representatives to sell its products to collision repair facilities across
the country. These representatives are assigned geographic territories and often
employ sub-reps to increase presence in particular areas. The Company's
representatives are charged with calling on the approximately 20,000 to 25,000
targeted repair facilities with annual revenue over $300,000. The
representatives are highly experienced within the collision repair industry and
typically assist customers in dealing with a variety of business issues. The
Company also employs 5 sales managers who manage the sales representatives.
The Company's marketing efforts for the automobile insurance market are
conducted through three principal means. The Company believes that most claims
executives and managers learn about new technologies and solutions through sales
personnel, so the majority of the Company's insurance marketing dollars is
devoted to developing professional collateral materials for use by the sales
force. The Company sponsors an annual industry conference for senior claims
industry executives. The Company's senior managers are frequent speakers at
industry gatherings and are frequent authors of articles published in industry
and national print media.
The Company's marketing efforts for the automobile repair market are
conducted through participation in national and regional trade shows, lead
generating direct marketing programs, collateral materials and trade
advertising.
TRAINING AND SUPPORT
Field appraisers, claim representatives and collision repair facility owners
are dependent upon the Company's tools and information to make proper decisions
at the right time for high consumer satisfaction and managed restoration costs.
The Company believes its customer support is a competitive advantage in the
marketplace. The Company addresses its customer service needs through a customer
support staff which provides centralized hotline telephone support and field
implementation and training. The Company's support staff consists of individuals
with technical knowledge and experience relating not only to application
software, operating systems and network communications but also to the new and
used car automobile markets and collision repair. As of May 31, 1996, the
Company had 165 employees engaged in field and central customer support.
In addition to its customer support staff, the Company maintains the
industry's largest staff of professional field trainers who implement every new
sale. The Company's collision estimating support staff can diagnose most
software issues over the telephone and has the ability to download an
appraiser's entire hard drive telephonically if the problem proves significant.
The Company's total loss support staff can make modifications to claims, provide
regulatory information or additional backup for a valuation to facilitate
settlement. The Company routinely analyzes call type to modify products or
training and, whenever necessary, will dispatch a field representative to
provide process assistance.
TECHNOLOGY
Underlying each of the Company's principal services and products are
value-added databases which customers access using workflow-oriented software
and the Company's value-added communications network.
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<PAGE>
TOTAL LOSS SERVICES AND PRODUCTS. The Company's proprietary database of
valuation data used in connection with its TOTAL LOSS services and products is
built through the Company's own data collection network. This network includes
detailed used car inventory and sales data from 4,000 automobile dealers in 192
metropolitan areas throughout the United States and Canada, as well as data from
local newspaper advertisements and prior transactions. The database includes
more than 15 million prior valuations, including theft data. The Company
maintains its total loss database on a mainframe computer which customers
directly access using the Company's proprietary communications network or by
telephone or facsimile.
PATHWAYS ENVIRONMENT. Over the past two years, the Company has built and
completed class libraries consisting of approximately 1,000 business and system
objects that serve as the foundation of its PATHWAYS product line. These objects
were designed with a work flow orientation and are used in a framework to manage
databases, maintain model persistence, create electronic workfiles, and
facilitate communications. These elements are used in conjunction with a common
graphical user interface for all applications. This approach is intended to
offer many advantages to the Company's customers, including ease of integration
of complementary systems and legacy applications. In addition, the graphical
user interface and object-oriented foundation of these services and products is
designed to enable faster introduction of additional application modules with
greater product quality assurance as well as easy integration with
customer-developed software applications. It is the Company's intent to build
all new products within this framework and to migrate existing products to it.
The Company believes this environment provides a competitive development
advantage.
COLLISION ESTIMATING SERVICES AND PRODUCTS. The Company offers its
collision estimating services and products through a personal computer-based,
open systems approach using its object-oriented design. The Company's principal
database for its collision estimating products is the Motor Crash Estimating
Guide published by a subsidiary of The Hearst Corporation. The Company licenses
this database under an agreement that grants to the Company a license to publish
the database electronically. This agreement includes the exclusive license for
P-page logic, the integral component of collision estimating software.
EZNET COMMUNICATIONS NETWORK. The Company's communications network, EZNET,
transmits and processes both staff and direct repair claims data. EZNET'S
Transport Layer provides reliable, secure data transmission. EZNET'S Workflow
Layer routes claims information and status updates to multiple recipients
according to insurance company preference and provides storage through network
mailboxes maintained by the Company. EZNET supports all major communications
protocols, including X25, SNA, ISDN and TCP/IP, as well as industry standards
such as CIECA.
PRODUCT DEVELOPMENT AND PROGRAMMING
The Company recognizes that its ability to maintain and grow its position in
the claims industry is dependent upon expansion of its products and services.
Investments in development are therefore critical to obtaining new customers and
renewals from existing customers. The Company's product development and
programming efforts principally consist of software development, development of
enhanced communication protocols and custom user interfaces, and database design
and enhancement. The Company employs approximately 160 people in its product
development organization. This group is comprised of database analysts, software
engineers, business systems analysts, product managers and quality assurance
employees responsible for client systems, server systems, data warehousing and
distribution systems. Product engineering activities focus on improving speed to
market of new products, services, and enhancements, adding new business
functions without affecting existing services and products, and reducing
development costs. The Company uses its class library of objects, knowledge of
its clients' workflows and its automated testing tools to deliver quality
workflow-oriented solutions to the marketplace quickly. These efforts provide a
significant competitive advantage to the Company in the development of new
services and products. The Company develops products in close collaboration with
its clients based on specific needs. The Company's total product development and
programming expense was $3.0 million, $10.1 million and $14.9 million for the
twelve months ended December 31, 1993, 1994 and 1995, respectively.
INTELLECTUAL PROPERTY
The Company relies primarily on a combination of contracts, intellectual
property laws, confidentiality agreements and software security measures to
protect its proprietary technology. The Company distributes its
39
<PAGE>
products under written license agreements, which grant end-users a license to
use the Company's services and products and which contain various provisions
intended to protect the Company's ownership and confidentiality of the
underlying technology. The Company also requires all of its employees and other
parties with access to its confidential information to execute agreements
prohibiting the unauthorized use or disclosure of the Company's technology.
The Company has trademarked virtually all of its services and products.
These marks are used by the Company in the advertising and marketing of the
Company's services and products. EZEST and CCC are well-known marks within the
automobile insurance and collision repair industries. The Company has patents
for its collision estimation product pertaining to the comparison and analysis
of the "repair or replace" and the "new or used" parts decisions. While the
total loss calculation process is not patented, the methodology and processes
are trade secrets of the Company and are essential to the Company's total loss
business. Despite these precautions, the Company believes that existing laws
provide only limited protection for the Company's technology and that it may be
possible for a third party to misappropriate the Company's technology or to
independently develop similar technology.
Certain data used in the Company's services and products is licensed from
third parties for which they receive royalties. The Company does not believe
that the Company's services and products are significantly dependent upon
licensed data, other than the Motor Crash Estimating Guide data, because the
Company believes it can find alternative sources for such data. The Company does
not believe that it has access to an alternative database that would provide
comparable information. Any interruption of the Company's access to the Motor
Crash Estimating Guide data could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company is not engaged in any material disputes with other parties with
respect to the ownership or use of the Company's proprietary technology.
However, the Company has been involved previously in intellectual property
litigation, the resolution of which resulted in substantial payments by the
Company. There can be no assurance that other parties will not assert technology
infringement claims against the Company in the future. The litigation of such a
claim may involve significant expense and management time. In addition, if any
such claim were successful, the Company could be required to pay monetary
damages and may also be required to either refrain from distributing the
infringing product or obtain a license from the party asserting the claim (which
license may not be available on commercially reasonable terms).
COMPETITION
The market for the Company's products is highly competitive. The Company
competes primarily on product differentiation, customer service and price. The
Company's principal competitors are small divisions of two well capitalized,
multinational firms, ADP and Thomson. ADP offers both a PC-based collision
estimating system and a total loss product to the insurance industry. It offers
a different collision estimating system and a hardware-based digital imaging
system to the collision repair industry. Thomson publishes crash guides for both
the insurance and automobile collision repair industries and markets collision
estimating, shop management and imaging products. In addition, there are several
very small, collision estimating programs sold into the market which do not use
P-page logic. The Company has experienced steady competitive price pressure,
particularly in the collision estimating market, over the past few years and
expects that trend to continue. The strength of this trend may cause the Company
to alter its mix of services, features and prices.
The Company intends to address competitive price pressures by providing high
quality, feature enhanced products and services to its clients. The Compay
intends to continue to develop user friendly claims products and services
incorporating its comprehensive proprietary inventory of data. The Company
expects that the PATHWAYS workflow manager will provide the necessary position
with its insurance customers to effectively compete against competitive price
pressures.
At times, insurance companies have entered into agreements with service
providers (including ADP, Thomson and CCC) wherein the agreement provides, in
part, that the insurance company will either use the product or service of that
vendor on an exclusive basis or designate the vendor as a preferred provider of
that product or service. If it is an exclusive agreement, the insurance company
mandates that collision repair
40
<PAGE>
facilities, independent appraisers and regional offices use the particular
product or service. If the vendor is a preferred provider, the collision repair
facilities, appraisers and regional offices, are encouraged to use the preferred
product, but may still choose another vendor's product or service. Additionally,
some insurance companies mandate that all products be tested and approved at the
companies' national level before regional levels can purchase such products. The
benefits of being an endorsed product or on the approved list of an insurance
company include immediate customer availability and a head start over
competitors who may not be so approved. With respect to those insurance
companies that have endorsed ADP or Thomson, but not CCC, the Company will be at
a competitive disadvantage.
In connection with the Company's strategy to provide outsourced claims
processing services, the Company will compete with other third-party service
providers, some of whom may have more capital and greater resources than the
Company.
The Company currently processes the vast majority of insurer-to-collision
repair facility repair assignment and estimate retrieval for DRPs through its
EZNET communications network. The Company believes there is a wide range of
prospective competitors in this service area, many of which have greater
resources than the Company.
EMPLOYEES
As of May 31, 1996, the Company had 878 full-time employees of whom 192 were
employed in sales and marketing functions, 164 were employed in customer support
functions, 165 in product development and quality assurance functions, 208 in
operations and 95 in finance and administration. The Company regularly seeks to
identify skilled software engineers and other potential employee candidates, and
has found that competition for personnel in the software industry is intense.
The Company believes its ability to recruit and retain highly skilled technical
and other management personnel will be critical to execute its business plans.
The Company's employees are not represented by any collective bargaining
agreement or organization. The Company believes that its relationships with its
employees are good.
FACILITIES
The Company's corporate headquarters are located in Chicago, Illinois where
the Company leases approximately 125,000 square feet of a multi-tenant facility
under a lease expiring in November, 2008. The Company also leases approximately
30,000 square feet in Glendora, California where a satellite development center
is housed, under a lease expiring in April, 1999. The Company believes that its
existing facilities and additional or alternative space available to it are
adequate to meet its requirements for the foreseeable future.
LEGAL PROCEEDINGS
There are no pending legal proceedings other than routine litigation arising
in the ordinary course of business. The Company does not believe that the
results of such litigation, even if the outcome were unfavorable to the Company,
would have a material adverse effect on its financial position.
GLOSSARY OF TERMS
BUSINESS AND SYSTEM OBJECT LIBRARIES -- Objects are reuseable pieces of
software that perform specific programming functions. Business objects perform
business tasks such as check writing, transfer of customer information, etc.
System objects perform computer tasks such as opening a file, adding data to a
particular field, etc. Objects are stored or housed in libraries.
CIECA -- The Collision Industry Electronic Commerce Association is a group
of information companies, repair facility owners and insurance company
management information systems professionals. CIECA's role is to promote data
communication standards for electronic commerce between collision repair
facilities and insurance companies.
DATA NAVIGATION SOFTWARE -- Software written to facilitate organizing,
selecting, viewing, finding or analyzing a portion of a larger volume of
electronic data or information.
DATA WAREHOUSING -- The function of storing vast amounts of electronic data
or information that can be accessed by software.
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<PAGE>
DIRECT REPAIR PROGRAM (DRP) -- An automobile insurance settlement process
whereby an insurer offers a consumer the option of bringing their vehicle
directly to a particular repair facility who will fix the car and bill the
insurer directly, without the involvement or need of an insurance adjuster.
GRAPHICAL USER INTERFACE -- The type of screen used for computer programs
that relies on pictures and images, in addition to character-based text.
LEGACY APPLICATIONS -- Pre-existing computer systems, dated in both
technology and functionality.
OBJECT ORIENTED SOFTWARE -- Software written with pieces of reuseable
software that perform specific programming functions. Business objects perform
business tasks such as check writing, transfer of customer information, etc.
System objects perform computer tasks such as opening a file, adding data to a
particular field, etc.
P-PAGE LOGIC -- Crash estimating guides contain procedure pages, known as
p-pages, that detail the steps involved in repairing various parts of a damaged
vehicle depending on where and how extensive the damage is. When automated in
software form, they are often referred to as computer assisted P-page logic.
SEVERITY -- An insurance term of art referring to actual cost of fixing a
vehicle, replacing a vehicle, medical bills or legal fees that do not include
the administrative expenses of settling the claim.
SOFT TISSUE CLAIM -- A claim arising from a non-verifiable injury to a
person's soft tissue (muscles, skin, nervous system).
SOFTWARE PLATFORM -- A term used to describe the underlying design of a
computer system that links together various processing applications.
TRANSPORT LAYER -- A term used to describe the collection of functions in a
data network that includes the movement of information as opposed to a workflow
layer, which refers to the management of information.
WORKFLOW MANAGEMENT SOFTWARE -- Computer programs written to facilitate the
defined steps of a particular process.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- -------------------------------------------------------------------------------
<S> <C> <C>
David M. Phillips 57 Chairman, President and Chief Executive Officer
J. Laurence Costin, Jr. 55 Vice Chairman
Githesh Ramamurthy 35 Chief Technology Officer and President--Strategic Client Division
John Buckner 50 President--Sales and Services Division
Blaine R. Ornburg 50 Executive Vice President--New Market Development
Leonard L. Ciarrocchi 43 Executive Vice President--Chief Financial Officer
Donald J. Hallagan 37 Vice President--Controller
Gerald P. Kenney 44 Vice President, Secretary and General Counsel
John J. Byrne(1) 64 Director
Morgan Davis(1) 45 Director
Thomas L. Kempner(1) 69 Director
Gordon S. Macklin(1) 68 Director
Robert T. Marto(1) 50 Director
Michael R. Stanfield(1) 46 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee and Compensation Committee.
DAVID M. PHILLIPS has served as Chairman, President and Chief Executive
Officer since founding the Company in 1983. Prior to joining the Company, Mr.
Phillips served in a number of capacities at Citicorp including Senior Vice
President from 1975 to 1982. During his tenure he was controller of the
operating group; he was responsible for Citicard implementation; he led a team
that developed a national consumer strategy; and implemented the credit card
portion of the consumer strategy increasing the consumer card holders from
approximately 200,000 to over 10 million. Subsequently, he was responsible for
the Latin American Consumer Businesses that included banks; life insurance
companies; finance companies and credit cards. Mr. Phillips previously served as
Director of Special Markets and Division Controller at Polaroid Corporation.
J. LAURENCE COSTIN, JR. joined the Company in February 1983 as Executive
Vice President responsible for the Company's sales and client field service
organization. He currently serves as Vice Chairman, a position he has held since
May 1993. Prior to joining the Company, Mr. Costin was Senior Vice President and
General Manager for the Midwest region of Seligman & Latz, Inc., a Fortune 500
company which managed department store concessions.
GITHESH RAMAMURTHY joined the Company in July 1992 as Executive Vice
President-Product Engineering and Chief Technology Officer. In January 1996, he
assumed the position of President-Strategic Client Division while retaining the
position of Chief Technology Officer. Prior to joining the Company, Mr.
Ramamurthy was a founding member of Sales Technologies, Inc., a field sales
automation software company. Sales Technologies sold to a long list of Fortune
100 clients in the United States and Europe before it was acquired by Dun &
Bradstreet in 1989. Mr. Ramamurthy directed product development activities for
that company.
JOHN BUCKNER joined the Company in January 1994 as Senior Vice
President-AutoBody Division. Mr. Buckner was promoted to Executive Vice
President-Sales and Services Division and currently serves as President-Sales
and Services Division. Prior to joining the Company, Mr. Buckner was Vice
President and General Manager of U.S. Automotive Operations at Sun Electric
Corporation. Previously, Mr. Buckner held a variety of senior sales and new
market development positions at Reynolds & Reynolds.
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<PAGE>
BLAINE R. ORNBURG joined the Company in April 1995 as Executive Vice
President-New Market Development. In January 1996, he assumed the additional
responsibilities of Acting Chief Financial Officer, a position he held until
June, 1996. Prior to joining the Company, Mr. Ornburg served as Senior Vice
President of First Data Corporation. Mr. Ornburg joined First Data Corporation
upon its purchase of Anasazi, Inc., a software and networking company Mr.
Ornburg founded in 1987. Previously, Mr. Ornburg was Vice President-Point of
Transaction Systems for VISA International.
LEONARD L. CIARROCCHI joined the Company in June 1996 as Executive Vice
President and Chief Financial Officer. Prior to joining the Company, Mr.
Ciarrocchi was Vice President and Treasurer of White River Corporation from 1993
to 1996 and Manager of Finance of Fund American Enterprises, Inc. from 1991 to
1993. Mr. Ciarrocchi was Manager of Finance for Fund American Enterprises
Holdings, Inc. ("Fund American") from 1989 to 1991.
DONALD J. HALLAGAN joined the Company in August 1993 as Controller and was
promoted to Vice President--Controller in June 1996. Prior to joining the
Company he spent two years as Controller for Pollenex Corporation and two years
on the corporate staff of Santa Fe Pacific Corporation as Assistant Controller.
Previously, Mr. Hallagan served eight years on the professional staff of Price
Waterhouse LLP.
GERALD P. KENNEY joined the Company in March 1995 as Vice President,
Secretary and General Counsel. Prior to joining the Company, he served eleven
years as General Counsel for NEC Technologies Inc. Mr. Kenney's primary areas of
concentration are intellectual property law, sales and distribution and other
matters relating to the high-tech and information industries. He is the past
chair of the Electronic Industries Association (EIA), Government Affairs Counsel
and former member of the Board of Directors of the Consumer Electronics Group of
EIA.
JOHN J. BYRNE has served as a Director of the Company since 1994. Mr. Byrne
has been Chairman of the Board of Directors and Chief Executive Officer of Fund
American since 1985 and President of Fund American since 1990. Mr. Byrne has
also been Chairman of the Board of Directors and a director of Financial
Security Assurance Holdings Ltd. since May 1994. From 1989 through 1990, Mr.
Byrne was Chairman of the Board of Directors of Fireman's Fund Insurance
Company. Prior to joining Fireman's Fund Insurance Company, Mr. Byrne was
Chairman and Chief Executive Officer of GEICO Corporation from 1976 to 1985. Mr.
Byrne is an advisory director of Lehman Brothers Holdings, Inc.
MORGAN DAVIS has served as a Director of the Company since 1995. He has also
served since 1995 as the President and Chief Executive Officer of White
Mountains Insurance Company, a wholly owned subsidiary of Fund American. From
1992 to 1994, Mr. Davis was self-employed as a private investor in a number of
entrepreneurial enterprises. From 1987 to 1992, he served as President of
Fireman's Fund Commercial Insurance. Mr. Davis is currently a Director of White
Mountain Holdings and Valley Insurance Group.
THOMAS L. KEMPNER has served as a Director of the Company since 1983. Since
1979 he has served as Chairman and Chief Executive Officer of Loeb Holding
Corporation, an investment banking, registered broker/ dealer and registered
investment advisory firm. He also serves as a director of the following
companies: Alcide Corporation; The Arlen Corporation; Energy Research
Corporation; IGENE BioTechnology, Inc.; Intermagnetics General Corporation;
Northwest Airlines, Inc.; and Silent Radio, Inc.
GORDON S. MACKLIN has served as a Director of the Company since 1994. Mr.
Macklin has been Chairman of White River Corporation since 1993. From 1987 to
1992, he was Chairman of Hambrecht & Quist, LLC. Mr. Macklin served as President
of The National Association of Securities Dealers, Inc. from 1970 to 1987, and
was formerly a partner and Member of the Executive Committee of McDonald &
Company, an investment banking firm, from 1950 to 1970. Mr. Macklin is a
director, trustee, or managing general partner, as the case may be, of 53 of the
investment companies in the Franklin/Templeton Group, and a Director of Fund
American, MCI Communications Corporation, Fusion Systems Corp., MedImmune, Inc.,
Source One Mortgage Services Corp. and Shoppers Express Inc.
ROBERT T. MARTO has served as a Director of the Company since 1994. He
currently serves as President and Chief Executive Officer of White River
Corporation. From 1990 to 1993, he was President of Fund American Enterprises,
Inc., and an Executive Vice President and Chief Financial Officer of Fund
American. From 1977 to
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<PAGE>
1989, he held executive officer positions with Fireman's Fund Corporation and
Fireman's Fund Life Insurance Company. Mr. Marto is also a director of Vicorp
Restaurants, Inc., White River Corporation and Zurich Reinsurance Centre, Inc.
MICHAEL R. STANFIELD has served as a Director of the Company since 1995. He
has been Managing Director of Loeb Partners Corporation since 1993. From 1990 to
1993, Mr. Stanfield was self-employed as an independent consultant.
For their services as directors, the members of the Board of Directors who
are not employees of the Company, White River or affiliates of White River
(other than Mr. Byrne) are paid $5,000 per meeting. All directors are reimbursed
for reasonable expenses associated with their attendance at meetings of the
Board of Directors. All directors are elected by the stockholders at the annual
meeting and serve as directors until the next annual meeting.
All of the directors were elected pursuant to provisions of the Stockholders
Agreement. Pursuant to this agreement, Messrs. Phillips, Kempner and Stanfield
were designated directors by the Management Stockholders, Messrs. Marto and
Macklin were designated directors by White River and Messrs. Byrne and Davis
were nominated by White River subject to the approval of the Management
Stockholders. See "Principal Stockholders--Stockholders Agreement."
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Mr. Buckner,
Mr. Ramamurthy, Mr. Ornburg, Mr. Ciarrocchi and Mr. Costin. Mr. Buckner's
employment agreement provides for an annual salary of $250,000 plus bonus, and
terminates April 30, 2001. Mr. Ramamurthy's employment agreement provides for an
annual salary of $275,000 plus bonus and terminates June 30, 2001. Mr. Ornburg's
employment agreement provides for an annual salary of $200,000 plus bonus and
terminates June 30, 2001. Mr. Ciarrocchi's employment agreement provides for an
annual salary of $200,000 plus bonus and terminates June 30, 2001. Mr. Costin's
employment agreement provides for an annual salary of $230,000 and terminates
April 30, 1999. Messrs. Buckner's, Ramamurthy's, Ciarrocchi's and Ornburg's
employment agreements each contain a non-compete and a change of control
provision and are subject to board of directors' ratification.
OTHER SIGNIFICANT MANAGEMENT PERSONNEL
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ----------------------------------------------------------------------------
<S> <C> <C>
Stephen E. Applebaum.......... 51 Senior Vice President--ACCLAIM Litigation Management
Samuel B. Barash.............. 58 Executive Vice President--New Product Development
Nancy T. Borghesi............. 48 Senior Vice President--Consulting Services
Michael J. D'Onofrio.......... 39 Vice President--Treasurer
William R. Geen............... 43 Senior Vice President--Total Loss Operations
T. Scott Leisher.............. 37 Senior Vice President--Strategic Accounts
Rick L. Mansel................ 43 Senior Vice President--Product Management
Martin G. McGrath............. 38 Senior Vice President--Marketing and Planning
Jack Rozint................... 41 Senior Vice President--ACCESS Claims Services
Richard L. Rumple............. 41 Senior Vice President--Product Engineering
</TABLE>
STEPHEN E. APPLEBAUM joined the Company in July 1987 as Vice
President-Business Development, was promoted to Senior Vice President-Business
Development, and currently serves as Senior Vice President-- ACCLAIM Litigation
Management, a position he has held since October 1994. Prior to joining the
Company, Mr. Applebaum was a management consultant and venture capitalist in
Toronto, Canada.
45
<PAGE>
SAMUEL B. BARASH joined the Company in August 1985 as Chief Operating
Officer and served in that capacity until 1987. Since that time, he has served
as Executive Vice President of New Product Development. Prior to joining the
Company, Mr. Barash was President of Diversified Food Services, a national food
service provider within the retail industry.
NANCY T. BORGHESI joined the Company in January 1986 as Vice
President-Systems. She became Vice President-Product Engineering and currently
serves as Senior Vice President-Consulting Services, a position she has held
since March 1995. Prior to joining the Company, Ms. Borghesi was a Systems and
Business Process Consultant for Arthur Young & Co.
MICHAEL J. D'ONOFRIO joined the Company in November 1992 as Treasurer and
was promoted to Vice President--Treasurer in June 1996. Prior to joining the
Company he spent six years as Group Manager of Claims Processing for Central
States Health and Welfare and Pension Funds. Mr. D'Onofrio previously served
four years on the professional staff of Arthur Young & Co.
WILLIAM R. GEEN joined the Company in March 1981 as Director of Operations.
He was promoted to Vice President--Dealer Services and currently serves as
Senior Vice President--Total Loss Operations, a position he has held since
August 1989. Prior to joining the Company, Mr. Geen worked seven years in the
retail auto industry.
T. SCOTT LEISHER began his career with the Company in January 1986 as an
Account Executive. He advanced through the sales ranks of the Company as a
Region Manager, Group Vice President-East Zone and Group Vice President-National
Accounts. Mr. Leisher currently serves as Senior Vice President-Strategic
Accounts, a position he has held since February 1995.
RICK L. MANSEL joined the Company in April 1995 as Senior Vice
President-Product Management. Prior to joining the Company he was Manager of
Worldwide Market Development for SSA, a financial and manufacturing systems
software company. Mr. Mansel previously served as Director of North American
Operations for Wang Laboratories.
MARTIN G. MCGRATH joined the Company in September 1992 as Director-New
Business Development. He was promoted to Vice President-Product Management and
currently serves as Senior Vice President-Marketing and Planning, a position he
has held since February 1995. Prior to joining the Company, Mr. McGrath was
General Manager of AT&T's Network Management Services Group.
JACK ROZINT joined the Company in April 1992 as Director-Product Planning
for the AutoBody Division. He was promoted to Vice President-AutoBody Sales and
Marketing and currently serves as Senior Vice President-ACCESS Claims Services,
a position he has held since October 1994. Prior to joining the Company, Mr.
Rozint was Director of Software Development at Akzo Systems Inc., a division of
Akzo Nobel.
RICHARD L. RUMPLE joined the Company in July 1990 as Manager-Product
Engineering. He was promoted to Vice President-Product Engineering and currently
serves as Senior Vice President-Product Engineering, a position he has held
since October 1995. Prior to joining the Company, Mr. Rumple served as Manager
of Distribution Systems at Baxter Healthcare.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation paid during 1995 to the Company's Chief Executive Officer and the
other four most highly compensated executive officers (collectively, the "Named
Executive Officers") whose total salary and bonus in 1995 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------
COMMON STOCK
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION(1) SALARY BONUS COMPENSATION OPTIONS(2)
- ----------------------------------------------------- ---------- --------- ------------- --------------------
<S> <C> <C> <C> <C>
David M. Phillips.................................... $ 448,008 -- -- --
Chairman, President and Chief
Executive Officer
J. Laurence Costin, Jr............................... 259,031 $ 75,000 -- --
Vice Chairman
Githesh Ramamurthy................................... 231,180 -- -- 133,600
Chief Technology Officer and President-- Strategic
Client Division
John Buckner......................................... 208,340 31,625 -- 104,000
President--Sales and Services Division
Blaine R. Ornburg.................................... 131,046 -- $ 50,000 80,000
Executive Vice President--New Market Development
</TABLE>
- ------------------------------
(1) This table excludes Edward J. Cheskis, former President--Claims Service
Division, whose 1995 salary, bonus and other compensation was $273,292,
$45,142 and $0, respectively.
(2) Represents the number of shares of Common Stock issuable upon exercise of
options granted pursuant to the Stock Option Plan.
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<PAGE>
The following tables set forth certain information regarding options/stock
appreciation rights granted to the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF TOTAL STOCK PRICE
SECURITIES OPTIONS/ SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM (1)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION --------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ------------------------------------- --------------- ----------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
David M. Phillips.................... -- -- -- -- -- --
Chairman, President and Chief
Executive Officer
J. Laurence Costin, Jr............... -- -- -- -- -- --
Vice Chairman
Githesh Ramamurthy................... 73,600 5.9 $ 1.75 2/1/00 $ 35,590 $ 78,630
Chief Technology Officer and
President-- 60,000 4.8 4.375 12/12/00 72,520 160,260
Strategic Client Division
John Buckner......................... 20,000 1.6 1.75 2/1/00 9,670 21,370
President--Sales and Services
Division 24,000 1.9 2.125 6/28/00 14,090 31,140
60,000 4.8 4.375 12/12/00 72,520 160,260
Blaine R. Ornburg.................... 80,000 6.4 1.75 4/17/00 38,680 85,470
Executive Vice President--New Market
Development
</TABLE>
- ------------------------------
(1) The potential realizable value is calculated based on the term of the option
at its time of grant (5 years) and is calculated by assuming that the stock
price on the date of grant as determined by the Board of Directors
appreciates at the indicated annual rate compounded annually for the entire
term of the option and that the option is exercised and sold on the last day
of its term for the appreciated price. The 5% and 10% assumed rates of
appreciation are derived from the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future Common Stock price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY OPTIONS
UNDERLYING UNEXERCISED AT FY-END ($)
SHARES ACQUIRED VALUE REALIZED OPTIONS AT FY-END (#) EXERCISABLE/UNEXERCISABLE
NAME ON EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE (1)
- ------------------------- --------------- ---------------- ----------------------- --------------------------
<S> <C> <C> <C> <C>
David M. Phillips........
Chairman, President and
Chief Executive Officer -- -- -- --
J. Laurence Costin,
Jr......................
Vice Chairman -- -- 134,176/57,584 $1,291,444/$554,246
Githesh Ramamurthy.......
Chief Technology Officer
and President--Strategic
Client Division -- -- 138,880/168,320 $1,295,200/$1,454,000
John Buckner.............
President--Sales and
Services Division -- -- 27,200/92,800 $220,700/$728,800
Blaine R. Ornburg........
Executive Vice
President-- New Market
Development -- -- 16,000/64,000 $148,000/$592,000
</TABLE>
- ------------------------------
(1) At an assumed offering price of the Common Stock of $11 per share, minus the
exercise price, multiplied by the number of shares underlying the option.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Each member of the Board of Directors (except David M. Phillips) served as a
member of the Compensation Committee of the Company in 1995. The Company has
entered into certain transactions with the Loeb Entities, of which Thomas L.
Kempner is an affiliate, and with White River, of which Messrs. Byrne, Macklin
and Marto are affiliates. For further discussion of such transactions, see
"Certain Transactions."
The Compensation Committee has established salary and bonus levels for the
executive officers of the Company, including the Chief Executive Officer, based
on a combination of objective and subjective criteria. With respect to salary
levels, such levels are set subsequent to the Committee's determination of the
executive officer's contribution, progress and development. Bonuses, which may
be up to 50% of an officer's salary, are awarded based on profit growth of the
Company (calculated using an EBIT formula) and based on the subjective criteria
used in establishing salary levels.
STOCK OPTION PLAN
The Stock Option Plan was adopted by the Board of Directors in 1988 and was
most recently amended in November 1994 in order to advance the interests of the
Company by affording key executives and employees an opportunity to acquire a
proprietary interest in the Company and thus to stimulate increased personal
interest in such persons in the success and future growth of the Company. The
Stock Option Plan is administered by the Compensation Committee of the Board of
Directors. Pursuant to stock option agreements executed in connection with the
Stock Option Plan, Messrs. Ramamurthy, Buckner, Ornburg and Costin, were granted
stock options (the "Options") to purchase shares of Common Stock of the Company
pursuant to the terms set forth in the various stock option agreements. A total
of 2,777,920 shares of Common Stock have been reserved for issuance pursuant to
all options issued under the Stock Option Plan. The Options are exercisable at
per share prices ranging from $1.38 to $11.20. The Options are exercisable
annually in 20% increments beginning on the date of issuance. Messrs.
Ramamurthy, Buckner, Ornburg and Costin have been granted Options to purchase
307,200, 170,000, 130,000 and 191,760 shares of Common Stock, respectively. The
Options may be exercised solely by the grantees, or in the case of such
grantee's death or incapacity, by the grantee's executors, administrators,
guardians or other legal representatives and are not assignable or transferable
by such grantee.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the number and percentage (if more than 1%)
of the outstanding shares of Common Stock owned beneficially as of the date of
the Offering by (i) each director of the Company, (ii) each Named Executive
Officer, (iii) all directors and executive officers as a group, and (iv) each
person who, to the knowledge of the Company, beneficially owned more than 5% of
the Common Stock as of the date of this Prospectus.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF COMMON STOCK OF COMMON STOCK
PRIOR TO THE OFFERING (1) AFTER THE OFFERING (1)
--------------------------- ---------------------------
NO. OF PERCENT NO. OF PERCENT
NAME OF BENEFICIAL OWNER SHARES OF CLASS SHARES OF CLASS
- --------------------------------------------------------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
David M. Phillips(2)........................................... 927,760 5.6 927,760 4.2
J. Laurence Costin, Jr.(3)..................................... 185,728 1.0 185,728 *
Blaine R. Ornburg(4)........................................... 54,000 * 54,000 *
Githesh Ramamurthy(5).......................................... 233,600 1.4 233,600 1.1
John Buckner(6)................................................ 60,920 * 60,920 *
John J. Byrne(7)............................................... -- -- -- --
Morgan Davis(8)................................................ -- -- -- --
Thomas L. Kempner(9)........................................... 3,724,674 22.6 3,724,674 17.0
Gordon S. Macklin(10).......................................... 8,584,564 51.9 8,584,564 39.0
Robert T. Marto(11)............................................ 8,584,564 51.9 8,584,564 39.0
Michael R. Stanfield(12)....................................... -- -- -- --
Loeb Entities(13).............................................. 3,457,315 21.0 3,457,315 15.7
61 Broadway
24th Floor
New York, New York 10006
White River Ventures, Inc...................................... 8,584,564 51.9 8,584,564 39.0
777 Westchester Ave.
Suite 201
White Plains, New York 10604
All directors and executive officers as a group (11 persons)... 13,088,558 80.1 13,088,558 59.5
</TABLE>
- ------------------------------
* Less than one percent of the outstanding Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities.
(2) Includes 400,000 shares of Common Stock held by Ruth Ann Phillips, Mr.
Phillips' wife. Mr. Phillips is a director of the Company and his address is
444 Merchandise Mart, Chicago, Illinois 60654.
(3) Includes 164,528 shares of Common Stock issuable upon exercise of
outstanding options which are exercisable within 60 days of August 1, 1996.
(4) Includes 26,000 shares of Common Stock issuable upon exercise of outstanding
options which are exercisable within 60 days of August 1, 1996.
(5) Includes 173,600 shares of Common Stock issuable upon exercise of
outstanding options which are exercisable within 60 days of August 1, 1996.
(6) Includes 49,200 shares of Common Stock issuable upon exercise of outstanding
options which are exercisable within 60 days of August 1, 1996.
(7) Mr. Byrne is a director of the Company.
(8) Mr. Davis is a director of the Company.
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(9) Includes 3,457,315 shares of Common Stock held by the Loeb Entities. Mr.
Kempner, a director of the Company, is the managing general partner or the
general partner of the general partner of each of the Loeb Entities. Mr.
Kempner disclaims beneficial ownership of the shares held by the Loeb
Entities, except to the extent of his pecuniary interests therein. Also
includes 267,360 shares of Common Stock issuable upon exercise of
outstanding options which are exercisable within 60 days of August 1, 1996.
(10) Includes 8,584,564 shares of Common Stock held by White River. Mr. Macklin,
a director of the Company, is Chairman of the Board of Directors of White
River and disclaims beneficial ownership of the shares held by White River,
except to the extent of his pecuniary interests therein.
(11) Includes 8,584,564 shares of Common Stock held by White River. Mr. Marto, a
director of the Company, is President and Chief Executive Officer of White
River and disclaims beneficial ownership of the shares held by White River,
except to the extent of his pecuniary interests therein.
(12) Mr. Stanfield is a director of the Company.
(13) Includes Loeb Investors Co. XV, Loeb Investors Co. XIII and Loeb Investors
Co. 108.
STOCKHOLDERS AGREEMENT
David M. Phillips and the Loeb Entities, of which Thomas L. Kempner is an
affiliate (collectively, the "Management Stockholders"), White River and the
Company have entered into a Stockholders Agreement dated June 16, 1994, pursuant
to which the Management Stockholders and White River have agreed to certain
provisions regarding the corporate governance of the Company, including the
election of directors. The Stockholders Agreement terminates upon the first to
occur of (i) the written agreement of the parties, (ii) the liquidation or
dissolution of the Company, (iii) the Redemption Date (as defined below) or (iv)
June 16, 1999.
After completion of the Offering, White River and its affiliates will hold
1,589 shares of Series C Preferred Stock and 10,794 shares of Series D Preferred
Stock. From the date of the closing of the Offering until the first day on which
there are no shares of Series C, or Series D, or Series E Preferred Stock
outstanding (the "Redemption Date"), the following provisions are in effect,
among others:
The Management Stockholders and White River shall take all actions necessary
to cause the nomination and election to the board of directors of (i) a number
of persons (which shall not be less than two) designated by White River which
the board of directors determines to be appropriate taking into account the
aggregate voting power and economic interest of White River and its affiliates
in the Company and (ii) three persons designated by a majority of shares of
Common Stock held by the Management Stockholders. The number of directors shall
be seven while the Stockholders Agreement is in effect. The Management
Stockholders and White River shall act to cause vacancies on the board of
directors to be filled by successors designated by the stockholder group that
designated the prior incumbent and shall not act to remove a director without
the consent of the stockholder group that designated such director except after
consultation with such stockholder group and after a determination that the
director to be removed has breached his fiduciary duties to the Company.
In addition, the Management Stockholders and White River have agreed that,
prior to the voluntary resignation from the board of directors, disability or
death of David M. Phillips, a majority of the directors designated by the
Management Stockholders shall be delegated, to the extent permitted by
applicable law, the authority of the board to determine the timing, price and
other terms of certain business combinations where the consideration to be
received is cash, cash equivalents or publicly traded securities, subject to the
fiduciary duties of the directors not designated by the Management Stockholders
and subject to the receipt of a fairness opinion from one of a list of specified
investment banks (which includes Hambrecht & Quist and Lazard Freres). Following
the voluntary resignation from the board of directors, death or disability of
David M. Phillips, the Management Stockholders and White River have agreed to
cause the directors respectively elected by them to approve certain business
combinations recommended by the other party, subject to receipt of a fairness
opinion and subject to the fiduciary duties of such directors.
The Management Stockholders and White River have also agreed that a majority
of the directors designated by the Management Stockholders shall be delegated,
to the extent permitted by applicable law and subject to the fiduciary duties of
the other directors, the authority of the board of directors with respect to the
timing, price, and other terms of each offering of Common Stock subsequent to
the Offering, provided, however, that the Company shall not consummate any such
subsequent offering (i) unless the Company can demonstrate to the reasonable
satisfaction of White River that after giving effect to such subsequent offering
the Company
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<PAGE>
would have funds legally available to redeem shares of the Redeemable Preferred
Stock in accordance with its terms and (ii) without the unanimous approval of
the members of the board of directors in the event that David M. Phillips shall
voluntarily resign from the board of directors, die, or become disabled.
Pursuant to the Stockholders Agreement, the directors elected by the
Management Stockholders have been delegated the authority of the board to
determine the timing, price and other terms of this Offering, subject to the
fiduciary duties of the other members of the board of directors not designated
by the Management Stockholders provided that the Company has been required to
demonstrate to the reasonable satisfaction of White River that after giving
effect to the Offering, the Company will have funds legally available to redeem
shares of the Redeemable Preferred Stock in accordance with its terms.
CERTAIN TRANSACTIONS
In connection with a reorganization agreement (the "Reorganization
Agreement") dated as of June 16, 1994, White River contributed to the Company
all of its right, title and interest in, to and under (i) the Company's 12%
Subordinated Notes due October 31, 1996, (ii) the Company's 12% Subordinated
Payment-in-Kind Notes due October 31, 1996, (iii) the Company's 12% Junior
Subordinated Payment-in-Kind Notes due October 31, 1996 and (iv) the Company's
Series A, Series B, and Series C Warrants. White River had previously acquired
all of such notes and warrants from the holders thereof for net cash
consideration of $39 million. Pursuant to the Reorganization Agreement, the
Company issued White River 5,000 shares of the Series C Preferred Stock, 34,000
shares of the Series D Preferred Stock, and 7,050,340 shares of the Common
Stock. The Company and White River also entered into certain other agreements,
including the Stockholders Agreement. See "Principal Stockholders" and
"Description of Capital Stock". White River also entered into a registration
rights agreement providing White River up to two demand registrations after June
16, 1999.
In July 1993, a subsidiary of the Company, Phone Base Systems, Inc. ("Phone
Base") repaid Mr. Phillips and the Loeb Entities (of which Mr. Kempner is an
affiliate) a total of $1.65 million that had been previously loaned to Phone
Base by them. Phone Base continued thereafter to experience liquidity problems,
and Mr. Phillips and the Loeb Entities advanced a further $1.5 million to Phone
Base, which has not been repaid. White River also advanced $150,000 to Phone
Base. All of these advances were secured by a royalty participation agreement
with Phone Base. White River also loaned Phone Base $200,000 represented by a
promissory note bearing interest at the rate of 9% per annum. In May 1994, White
River purchased for $550,000 from Sprint Communications L.P. ("Sprint") all of
Sprint's right, title and interest in a purchase agreement between Sprint and
Phone Base relating to certain telecommunications equipment supplied to Phone
Base by Sprint. In late 1994, White River transferred to the Company all of its
right, title and interest in the Sprint purchase agreement, the royalty
participation agreement, and the $200,000 promissory note for $900,000 in cash
plus interest at the rate of 9% per annum.
In November 1994, a subsidiary of the Company transferred for $500 all of
the stock of Phone Base to Loeb Investors Co. 119 ("Loeb 119") of which Mr.
Kempner is an affiliate. In addition, the Company transferred to Loeb 119 all of
its right, title and interest in certain obligations of Phone Base to the
Company. In consideration of these transfers, Loeb 119 paid the Company $124,500
in cash and a subsidiary of Phone Base issued an installment note in the
principal amount of $550,000. As of the date of this Prospectus, $222,000 in
principal amount remains outstanding with respect to the promissory note.
In March 1994, White River acquired from a third party a 50% joint venture
interest in CCCDC for a purchase price of $6.8 million. In connection therewith,
White River entered into a call agreement with the Company pursuant to which the
Company had the right to purchase the joint venture interest from White River at
its cost plus interest at the rate of 9% per annum. The Company exercised its
right to purchase in 1994 for an aggregate price of $6.9 million in cash.
During 1993 and 1994, the Loeb Entities, which own 21.0% of the shares of
Common Stock prior to the Offering and with which Mr. Kempner is affiliated,
purchased certain contracts from CCCDC at prices determined by discounting the
anticipated cash flow from these contracts. The gross proceeds and related
discount values for contracts purchased in 1993 were $5.2 million and $0.7
million, respectively, and for
52
<PAGE>
contracts purchased in 1994 were $0.9 million and $0.2 million, respectively. In
addition, the Loeb Entities advanced $3.1 million of the bridge loan proceeds
used to acquire the remaining interest in CCCDC, effective March 30, 1994. See
Note 4 to the Consolidated Financial Statements.
The Company has agreed to reimburse White River for the reasonable legal
costs and expenses incurred by White River in connection with the Offering.
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 30,000,000 shares of Common Stock, par value $.10 per share
of which 22,026,800 shares shall be outstanding following the Offering, and
100,000 shares of Preferred Stock, $1.00 par value per share (the "Preferred
Stock") of which 12,870 shares shall be outstanding immediately following the
Offering. Of the Preferred Stock, 5,000 shares have been designated as Series C
Cumulative Redeemable Preferred Stock, par value $1.00 per share (the "Series C
Preferred Stock"), 34,000 shares have been designated as Series D Cumulative
Redeemable Preferred Stock, par value $1.00 per share (the "Series D Preferred
Stock"), and 500 shares have been designated as Series E Cumulative Redeemable
Preferred Stock, par value $1.00 per share (the "Series E Preferred Stock"). The
following summary of the Company's capital stock is qualified in its entirety by
reference to the Company's Amended and Restated Certificate of Incorporation and
Bylaws, each of which is filed as an exhibit to the registration statement of
which this Prospectus is a part.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors. The
holders of a majority of the outstanding Common Stock have agreed to certain
provisions regarding corporate governance, including the election of directors,
in the Stockholders Agreement, which will remain in effect after the completion
of the Offering. See "Principal Stockholders--Stockholders Agreement."
Subject to the rights of any then outstanding shares of Preferred Stock, the
holders of the Common Stock are entitled to such dividends as may be declared in
the discretion of the Board of Directors out of funds legally available
therefor. See "Dividend Policy." Holders of Common Stock are entitled to share
ratably in the net assets of the Company upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of the
Preferred Stock then outstanding. The holders of Common Stock have no preemptive
rights to purchase shares of stock in the Company. Shares of Common Stock are
not subject to any redemption provisions and are not convertible into any other
securities of the Company. All outstanding shares of Common Stock are, and the
shares of Common Stock to be issued by the Company pursuant to the Offering will
be, upon payment therefor, fully paid and non-assessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Amended and Restated Certificate of Incorporation and
limitations prescribed by law, the Board of Directors is expressly authorized to
adopt resolutions to issue the shares, to fix the number of shares and to change
the number of shares constituting any series, and to provide for or change the
voting powers, designations, preferences and relative, participating, optional
or other special rights, qualifications, limitations or restrictions thereof,
including dividend rights (including whether dividends are cumulative), dividend
rates, terms of redemption (including sinking fund provisions), redemption
prices, conversion rights and liquidation preferences of the shares constituting
any class or series of the Preferred Stock, in each case without any further
action or vote by the stockholders. The Company has no current plans to issue
any additional shares of Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights
53
<PAGE>
and may be convertible into shares of Common Stock. Accordingly, the issuance of
shares of Preferred Stock may discourage bids for the Common Stock or may
otherwise adversely affect the market price of the Common Stock.
THE REDEEMABLE PREFERRED STOCK
In June 1994, the Company issued 5,000 shares of the Series C Preferred
Stock and 34,000 shares of the Series D Preferred Stock to White River. The
terms of the Series C Preferred Stock and the Series D Preferred Stock are
generally the same, except as provided below in "Redemption" and "Series C
Default Rights." Each share of the Redeemable Preferred Stock has a stated value
of $1,000.
DIVIDENDS. On the first dividend payment date (defined as November 30,
February 28, May 31, and August 31 of each year) following June 16, 1998 (the
fourth anniversary of the original issue date), the holders of shares of the
Redeemable Preferred Stock shall be entitled to receive cash dividends, when and
as declared, at the dividend rate applicable from time to time as set forth
below, PROVIDED, HOWEVER, in the event the Company fails to redeem shares of the
Redeemable Preferred Stock as required following the consummation of the
Company's initial public offering of Common Stock, dividends shall be payable
commencing on the first dividend payment date following the 90th day following
the consummation of such initial public offering. Dividends on parity stock must
be declared to be paid either in full or else PRO RATA among all shares of
parity stock issued and outstanding. While any shares of Redeemable Preferred
Stock are outstanding, no dividends or distributions may be declared or paid
with respect to any stock (including the Common Stock) junior to the Redeemable
Preferred Stock, nor may any junior stock or parity stock (other than the Series
E Preferred Stock) be redeemed, purchased, or otherwise acquired for
consideration by the Company.
Dividends accrue from June 16, 1994 (the original issue date). The dividend
rate is applicable to the stated value of each outstanding share of the
Redeemable Preferred Stock. The dividend rate is 2.75% per annum from the
original issue date to and including the earlier of the date of consummation of
this Offering or June 16, 1998, and shall be 8.0% per annum thereafter, subject
to the following adjustments: (i) if the Company makes the required redemptions
of the Redeemable Preferred Stock from the proceeds of this Offering, then the
dividend rate shall be 0% from the date of the consummation of this Offering to
June 16, 1998; and (ii) if prior to the date of mandatory redemption of the
Redeemable Preferred Stock, the Company makes a good faith offer to purchase all
or any of the Redeemable Preferred Stock at a price equal to the stated value
plus accrued but unpaid dividends to and including the date set for repurchase,
and the holders of shares of Redeemable Preferred Stock refuse such offer with
respect to any shares subject to such offer, then the applicable dividend rate
with respect to such shares of the Redeemable Preferred Stock shall, after the
date fixed for repurchase, be the lesser of 1% per annum and the rate applicable
to such shares pursuant to clause (i) above.
REDEMPTION. Unless earlier redeemed pursuant to the redemption provisions
described below, the Redeemable Preferred Stock shall be redeemed on June 16,
1999 at the stated value plus all accrued and unpaid dividends to (and
including) the redemption date. Redemptions are to be made PRO RATA between the
Series C, Series D and Series E Preferred Stock and any other parity stock.
Concurrently with the consummation of an initial public offering of Common
Stock having proceeds to the Company in excess of $40,000,000, the Company is
obligated to redeem the lesser of (i) the number of shares of Redeemable
Preferred Stock then outstanding or (ii) the number of shares of Redeemable
Preferred having an aggregate stated value plus accrued but unpaid dividends
equal to 50% of the net proceeds to the Company from the initial public offering
of Common Stock. Similar provisions apply if the Company is required to make
loan payments from the proceeds or if the Company fails to make the required
redemptions.
The Company also may be required to redeem the Redeemable Preferred Stock
(i) in the event that the Company or a subsidiary fails to pay any principal or
interest on indebtedness when due or during an applicable grace period or (ii)
in the event that notice of acceleration of the maturity or required prepayment
and demand for payment is received, in either case with respect to indebtedness
in an aggregate amount in excess of $500,000. In such event, the holders of a
majority of the then outstanding Series C Preferred Stock shall have the sole
discretion to determine the action to be taken on behalf of the Company with
respect to such indebtedness.
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<PAGE>
For so long as White River or its affiliates own any shares of the Series C
Preferred Stock, the Company may not engage in certain business combinations
unless all of the shares of the Series C Preferred Stock have been redeemed.
VOTING. Except as described below in "Series C Default Rights" and except
as required by the Delaware General Corporation Law, none of the holders of
issued and outstanding Redeemable Preferred Stock shall have voting rights,
PROVIDED, HOWEVER, that the affirmative vote of the holders of at least 66 2/3%
of each series of the Redeemable Preferred Stock, voting separately as a class,
shall be necessary (i) to authorize, create or increase the authorized or issued
number of shares of, or issue any shares of any class or series of parity stock
or senior stock or (ii) amend, alter or repeal any of the provisions of the
Certificate of Incorporation of the Company or the applicable certificate of
designations that would materially and adversely affect any right, preference,
privilege or voting power of the respective series of Redeemable Preferred Stock
or the holders thereof. In the event of an issuance of shares of Series E
Preferred Stock in exchange for shares of Series D Preferred Stock as described
in "The Series E Preferred Stock" below, shares of the Series E Preferred Stock
would have the voting rights described below.
SERIES C DEFAULT RIGHTS. So long as White River or its affiliates
beneficially own at least 50% of the issued and outstanding Series C Preferred
Stock, if the Company shall fail (i) to discharge its obligation to redeem
shares of Series C Preferred Stock (a "Redemption Default") or (ii) to declare
and pay in full the dividends on the Series C Preferred Stock within 90 days
after the Company is required to do so (a "Dividend Default") the number of
directors shall be increased by the number of directors necessary to constitute
a majority of the directors of the Company, and the holders of the Series C
Preferred Stock, voting separately as a class, shall be entitled to elect
directors to fill such newly created directorships. In the case of a Redemption
Default, such directors and voting rights shall continue until White River and
its affiliates shall cease to own at least 50% of the shares of issued and
outstanding Series C Preferred Stock. In the case of a Dividend Default, such
additional directors and voting rights shall continue until such time as the
Dividend Default no longer exists. Neither a Redemption Default nor a Dividend
Default has occurred to date. If the number of directors cannot be increased as
provided above, the Company shall take all actions necessary to implement the
intent of these provisions, including causing the resignation of directors to
create vacancies to be filled by the action of the holders of the outstanding
Series C Preferred Stock.
THE SERIES E PREFERRED STOCK
The Company and White River have entered into the White River Agreement that
provides that the Company, within three days following receipt of written
notification from White River to the effect that the number of shares of Common
Stock owned by White River represents less than a majority of the issued and
outstanding shares of Common Stock, will issue to White River 500 shares of the
Series E Preferred Stock in exchange for 500 Shares of the Series D Preferred
Stock. The White River Agreement was entered into in connection with the
recapitalization of the Company in 1994 and to help ensure that White River
Corporation avoid registration as an investment company under the Investment
Company Act of 1940. White River has informed the Company of its present
intention to exchange 500 shares of Series D Preferred Stock for 500 shares of
Series E Preferred Stock sometime after the consummation of the Offering. When
properly notified in writing of such request, the Company will issue, within
three business days, such 500 shares of Series E Preferred Stock to White River.
The terms of the Series E Preferred Stock and the Series D Preferred Stock
are generally the same, except that outstanding shares of the Series E Preferred
Stock carry certain voting rights if they are beneficially owned by White River
or any of its affiliates. In such circumstances, White River and its affiliates
that own any shares of Series E Preferred Stock shall be entitled to vote
together with the holders of Common Stock and all other securities entitled to
vote on all matters voted on by holders of Common Stock. The number of votes
which each share of Series E Preferred Stock may cast is determined according to
a formula, the effect of which is to cause White River and its affiliates,
through their ownership of shares of Series E Preferred Stock, to have 51% of
the votes to be cast on any matter to be voted upon by the holders of the Common
Stock for so long as all of the shares of Series E Preferred Stock are issued,
outstanding and held by White River and its affiliates. Therefore, for so long
as all of the outstanding shares of the Series E Preferred Stock were held by
White River or its
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<PAGE>
affiliates, White River would be able to control 51% of the votes cast with
respect to any matter to be voted upon by holders of the Common Stock regardless
of the actual number of shares of Common Stock held by White River. To the
extent White River also owns shares of Common Stock, such Series E Preferred
Stock will only provide an additional voting percentage that, when added
together with the vote from White River's shares of Common Stock, will provide
White River with a maximum of 51% of the votes.
Pursuant to the terms of the Certificate of Designations for the Series E
Preferred Stock, the voting power of the outstanding shares of Series E
Preferred Stock is reduced according to a formula to the extent that outstanding
shares of Series E Preferred Stock are either redeemed by the Company or no
longer owned by White River and its affiliates. If White River and its
affiliates were to continue to hold 39.0% of the outstanding shares of Common
Stock, the Series E Preferred Stock voting power combined with the voting power
of the Common Stock held by White River would be less than a majority when 393
(or 78.6%) of the 500 shares of Series E Preferred Stock had been so redeemed or
are no longer so owned. The outstanding shares, if any, of Series E Preferred
Stock are redeemable pro rata with the outstanding shares of Series C and Series
D Preferred Stock and other parity stock, if any.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
The Certificate of Incorporation provides that no director of the Company
shall be personally liable to the Company or its stockholders for monetary
damages for breach of duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
Delaware Law or (iv) for any transaction from which the director derived an
improper personal benefit. The effect of these provisions is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of fiduciary duty as a director (including breaches resulting from
grossly negligent behavior), except in the situations described above.
The Bylaws provide that the Company will indemnify its directors and
officers to the fullest extent permissible under the Delaware Law. These
indemnification provisions require the Company to indemnify such persons against
certain liabilities and expenses to which they may become subject by reason of
their service as a director or officer of the Company. The provision also set
forth certain procedures, including the advancement of expenses, that apply in
the event of a claim for indemnification.
DELAWARE ANTI-TAKEOVER LAW. The Company will not be subject to the
provisions of Section 203 of the Delaware Law ("Section 203"). Section 203
provides, with certain exceptions, that a Delaware corporation may not engage in
any of a broad range of business combinations with a person or an affiliate, or
associate of such person, who is an interested stockholder for a period of three
years from the date that such person became an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, by action of
its stockholders to exempt itself from coverage, provided that such bylaw or
certificate of incorporation amendment shall not become effective until twelve
months after the date it is adopted. In its amended and restated Certificate of
Incorporation to be filed upon the completion of this Offering, the Company will
exclude itself from the coverage of Section 203.
TRANSFER AGENT AND REGISTRAR
The Company's transfer agent and registrar for the Common Stock is Harris
Trust and Savings Bank.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time.
Several of the Company's principal stockholders hold a significant portion of
the Company's outstanding Common Stock, including White River which holds
8,584,564 shares representing 39.0% of the outstanding shares of the Common
Stock after the Offering (37.6% if the Underwriters' over-allotment option is
exercised in full) and a decision by one or more of these stockholders to sell
their shares could adversely affect the market price of the Common Stock. The
Stockholders Agreement provides that in connection with a public offering
subsequent to this Offering the Management Stockholders may not sell more than a
number of shares of Common Stock which exceeds either 10% of the then total
number of shares of Common Stock outstanding or 50% of the total shares of
Common Stock then being offered without the written consent of the White River
Stockholders.
Upon completion of this Offering, the Company will have outstanding
22,026,800 shares of Common Stock (22,851,800 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the shares sold in
this offering will be freely tradeable without restriction under the Securities
Act, unless purchased by "affiliates" of the Company as that term is defined in
Rule 144 under the Securities Act. Of the remaining 16,526,800 shares, 808,000
shares which are not held by affiliates and not subject to the lock-up
agreements described below will also be freely tradeable under the federal
securities laws.
The remaining 15,718,800 shares held by existing stockholders will be
"restricted securities" as that term is defined in Rule 144 under the Securities
Act ("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered under the Securities Act or if they qualify for an exemption
from registration under Rule 144 promulgated under the Securities Act, which is
summarized below. Sales of the Restricted Shares in the public market, or the
availability of such shares for sale, could adversely affect the market price of
the Common Stock.
Holders of 14,911,500 shares of Common Stock of the Company have entered
into contractual lock-up agreements providing that they will not sell, contract
to sell or grant any option to purchase or otherwise dispose of the shares of
Common Stock owned by them or that could be purchased by them through the
exercise of options to purchase Common Stock of the Company for 180 days after
the effective date of this Prospectus without the prior written consent of
Hambrecht & Quist LLC. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rule 144, shares subject to lock-up agreements will not be saleable until the
agreements expire. In addition, a total of 5,962,885 shares are subject to right
of first refusal agreements with the Company.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years (including the holding period of any prior owner except an
affiliate) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) one percent of the number of
shares of Common Stock then outstanding (approximately 220,300 shares
immediately after this Offering), or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the filing of a Form
144 with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about the Company. Under Rule 144(k), a person who is
not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least three years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
Shortly after this Offering, the Company intends to file a registration
statement on Form S-8 under the Securities Act covering shares of Common Stock
reserved for issuance under the Company's Stock Option Plan. Based on the number
of shares reserved for issuance, such registration statement would cover
approximately 2,777,900 shares. Such registration statement will automatically
become effective upon filing. Accordingly,
57
<PAGE>
shares registered under such registration statement will, subject to Rule 144
volume limitations applicable to affiliates, be available for sale in the open
market, unless such shares are subject to vesting restrictions with the Company
or the lock-up agreements described above.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC,
Lazard Freres & Co. LLC, and Raymond James & Associates, Inc., have severally
agreed to purchase from the Company the following respective numbers of shares
of Common Stock:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Hambrecht & Quist LLC.............................................................
Lazard Freres & Co. LLC ..........................................................
Raymond James & Associates, Inc...................................................
----------
Total.............................................................................
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. The
Underwriters have informed the Company that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 825,000
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent the Underwriters exercise this option, each of the Underwriters will have
a firm commitment to purchase approximately the same percentage thereof which
the number of shares of Common Stock to be purchased by it shown in the above
table bears to the total number of shares of Common Stock offered hereby. The
Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
58
<PAGE>
The Company and certain stockholders, including all of the Company's
executive officers and directors, who own in the aggregate 14,911,500 shares of
Common Stock, have agreed that they will not, without the prior written consent
of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of
Common Stock, options, rights or warrants to acquire shares of Common Stock, or
securities exchangeable for or convertible into shares of Common Stock during
the 180-day period commencing on the date of this Prospectus, except that the
Company may grant additional options under its Stock Option Plan, provided that,
without the prior written consent of Hambrecht & Quist LLC, such additional
options shall not be exercisable during such period.
Two entities affiliated with Hambrecht & Quist LLC, H&Q CCC Investors L.P.
("Investors L.P.") and H&Q London Ventures (together with Investors L.P., the
"Hambrecht & Quist Stockholders") are stockholders of the Company. The Hambrecht
& Quist Stockholders currently hold 1,462 shares of Redeemable Preferred Stock
(3.8% of the total outstanding Redeemable Preferred Stock) and 264,407 shares of
Common Stock (1.4% of the total outstanding Common Stock). The Hambrecht & Quist
Stockholders acquired these shares in June 1994 contemporaneously with the
investment in the Company by White River. The predecessor of Hambrecht & Quist
LLC acted as financial advisor to the Company in connection with that
transaction and received a fee of $1.8 million. A portion of the shares of
Redeemable Preferred Stock held by the Hambrecht & Quist Stockholders will be
redeemed from the proceeds of the Offering on the same terms as will those of
White River. Further, a Managing Director of Lazard Freres & Co. LLC, one of the
Representatives, is the son of a member of the Company's Board of Directors and
beneficially owns indirectly 45,778 shares of Common Stock of the Company.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. Pursuant to the terms
of the Stockholders Agreement Messrs. Kempner, Phillips and Stanfield have been
delegated authority of the board of directors of the Company to negotiate the
timing, price and other terms of this Offering. See "Principal Stockholders --
Stockholders Agreement." Among the factors to be considered in determining the
initial public offering price are prevailing market and economic conditions,
revenues and earnings of the Company, market valuations of other companies
engaged in activities similar to the Company, estimates of the business
potential and prospects of the Company, the present state of the Company's
business operations, the Company's management and other factors deemed relevant.
The estimated initial public offering price range set forth on the cover of this
Prospectus is subject to change as a result of market conditions and other
factors.
LEGAL MATTERS
The validity of the shares of securities offered hereby will be passed upon
for the Company by Winston & Strawn, Chicago, Illinois. Certain matters will be
passed upon for the Underwriters by Heller Ehrman White & McAuliffe, San
Francisco, California.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries at
December 31, 1995 and 1994, and for each of the three years in the period ended
December 31, 1995 included in this Prospectus have been audited by Price
Waterhouse LLP, independent public accountants, and are included in reliance
upon the report of Price Waterhouse LLP given on their authority as experts in
accounting and auditing. The financial statements of CCCDC for the year in the
period ended December 31, 1993 included in this Prospectus have been audited by
Price Waterhouse LLP, independent public accountants, and are included in
reliance upon the report of Price Waterhouse LLP, given on their authority as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 under the Securities Act
with respect to the shares of Common Stock offered hereby. This Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and such Common Stock, reference is made to the Registration Statement
and to the exhibits and schedules filed therewith. Statements contained in
59
<PAGE>
this Prospectus as to the contents of any contracts or other document referred
to are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected by anyone
without charge at the Commission's principal office in Washington, D.C., and
copies of all or any part of the Registration Statement may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W. Washington,
D.C. 20549, upon payment of certain fees prescribed by the Commission. The
Commission maintains an internet world wide web site that contains reports,
proxy and information reports and other materials that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval System. The site
can be accessed at http:\\www.sec.gov.
The Company intends to distribute to the holders of its shares of Common
Stock annual reports containing consolidated financial statements audited by
independent accountants and quarterly reports containing unaudited consolidated
financial information for the first three quarters of each year.
60
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE(S)
-----------------
<S> <C>
Report of Independent Accountants................................................................... F-2
Consolidated Financial Statements:
Consolidated Statement of Operations.............................................................. F-3
Consolidated Balance Sheet........................................................................ F-4
Consolidated Statement of Cash Flows.............................................................. F-5
Consolidated Statement of Stockholders' Deficit................................................... F-6
Notes to Consolidated Financial Statements........................................................ F-7 to F-19
</TABLE>
CCC DEVELOPMENT COMPANY
<TABLE>
<CAPTION>
PAGE(S)
-----------------
<S> <C>
Report of Independent Accountants................................................................. F-20
Financial Statements:
Statement of Operations......................................................................... F-21
Statement of Cash Flows......................................................................... F-22
Statement of Partners' Deficit.................................................................. F-23
Notes to Financial Statements................................................................... F-24-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
CCC Information Services Group Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of CCC
Information Services Group Inc. (formerly known as InfoVest Corporation) (a
subsidiary of White River Ventures, Inc.) and its subsidiaries at December 31,
1995 and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
January 30, 1996, except for Note 17
which is as of August 13, 1996
Chicago, Illinois
F-2
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................................. $ 51,264 $ 91,917 $ 115,519 $ 56,624 $ 63,325
Expenses:
Production and customer support........................ 15,108 25,123 32,261 16,346 15,520
Commissions, royalties and license fees................ 1,091 7,153 11,720 5,559 6,660
Selling, general and administrative.................... 22,908 33,426 36,279 17,730 19,043
Depreciation and amortization.......................... 2,158 8,331 9,572 4,854 3,972
Product development and programming.................... 2,968 10,061 14,865 7,018 8,077
Purchased research and development..................... -- 13,791 -- -- --
Loss on lease termination.............................. 3,802 -- -- -- --
Litigation settlements................................. -- 1,750 4,500 4,500 --
--------- --------- ---------- --------- ---------
Operating income (loss).................................. 3,229 (7,718) 6,322 617 10,053
Equity in loss of Joint Venture.......................... (3,564) (615) -- -- --
Interest expense......................................... (6,945) (7,830) (5,809) (3,110) (1,982)
Other income (expense), net.............................. (311) 316 482 334 293
--------- --------- ---------- --------- ---------
Income (loss) from continuing operations before income
taxes................................................... (7,591) (15,847) 995 (2,159) 8,364
Income tax (provision) benefit........................... 1,817 2,688 291 1,052 (1,673)
--------- --------- ---------- --------- ---------
Income (loss) from continuing operations................. (5,774) (13,159) 1,286 (1,107) 6,691
Income (loss) from discontinued operations, net of income
taxes................................................... (4,357) 1,006 -- -- --
--------- --------- ---------- --------- ---------
Net income (loss)........................................ (10,131) (12,153) 1,286 (1,107) 6,691
Dividends and accretion on mandatorily redeemable
preferred stock......................................... -- (1,518) (3,003) (1,455) (1,604)
--------- --------- ---------- --------- ---------
Net income (loss) applicable to common stock............. $ (10,131) $ (13,671) $ (1,717) $ (2,562) $ 5,087
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Income (loss) per common and common equivalent share
from:
Continuing operations.................................. $ (0.61) $ (0.99) $ 0.08 $ (0.06) $ 0.38
Discontinued operations................................ (0.47) 0.07 -- -- --
Dividends and accretion on mandatorily redeemable
preferred stock....................................... -- (0.11) (0.18) (0.09) (0.09)
--------- --------- ---------- --------- ---------
Net income (loss) applicable to common stock............. $ (1.08) $ (1.03) $ (0.10) $ (0.15) $ 0.29
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Weighted average common and common equivalent shares
outstanding............................................. 9,392 13,237 17,025 16,617 17,593
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- --------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Cash.......................................................................... $ 5,702 $ 3,895 $ 4,690
Accounts receivable, net...................................................... 8,627 9,899 11,210
Income taxes receivable....................................................... 118 1,079 --
Other current assets.......................................................... 3,686 2,877 3,288
--------- --------- -----------
Total current assets...................................................... 18,133 17,750 19,188
Equipment and purchased software, net of accumulated depreciation of $16,958,
$23,695 and $20,312 (unaudited) at December 31, 1994 and 1995 and June 30,
1996, respectively........................................................... 11,750 7,310 6,884
Goodwill, net of accumulated amortization of $7,331, $7,548 and $8,220
(unaudited) at December 31, 1994 and 1995 and June 30, 1996, respectively.... 13,921 12,575 11,902
Deferred income taxes......................................................... 5,468 3,810 4,556
Other assets.................................................................. 2,960 2,648 2,079
--------- --------- -----------
Total Assets.............................................................. $ 52,232 $ 44,093 $ 44,609
--------- --------- -----------
--------- --------- -----------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
Accounts payable and accrued expenses......................................... $ 13,749 $ 18,656 $ 16,377
Accrued interest.............................................................. 709 996 879
Income taxes payable.......................................................... -- -- 2,577
Current portion of long-term debt............................................. 5,340 7,660 8,151
Deferred revenues............................................................. 3,751 5,063 4,482
Current portion of contract funding........................................... 10,133 3,328 1,205
--------- --------- -----------
Total current liabilities................................................. 33,682 35,703 33,671
Long-term debt................................................................ 35,753 27,220 21,386
Contract funding.............................................................. 3,430 135 --
Deferred revenue.............................................................. -- 597 1,813
Other liabilities............................................................. 2,974 2,733 3,135
Commitments and contingencies (Note 14)
--------- --------- -----------
Total liabilities......................................................... 75,839 66,388 60,005
--------- --------- -----------
Mandatorily redeemable preferred stock ($1.00 par value, 100,000 shares
authorized, 39,000 designated and outstanding for all periods presented)..... 31,122 34,125 35,729
--------- --------- -----------
Common stock ($0.10 par value, 30,000,000 shares authorized for all periods
presented, 16,297,200, 16,316,400 and 16,526,800 (unaudited) shares issued
and outstanding at December 31, 1994 and 1995 and June 30, 1996,
respectively)................................................................ 1,630 1,632 1,653
Additional paid-in capital.................................................... 11,655 11,679 12,370
Accumulated deficit........................................................... (67,802) (69,519) (64,962)
Treasury stock, at cost....................................................... (212) (212) (186)
--------- --------- -----------
Total stockholders' deficit............................................... (54,729) (56,420) (51,125)
--------- --------- -----------
Total Liabilities, Mandatorily Redeemable Preferred Stock and
Stockholders' Deficit.................................................. $ 52,232 $ 44,093 $ 44,609
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss).......................................... $ (10,131) $ (12,153) $ 1,286 $ (1,107) $ 6,691
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Loss (income) from discontinued operations, net of income
taxes................................................... 4,357 (1,006) -- -- --
Purchased research and development....................... -- 13,791 -- -- --
Equity in loss of Joint Venture.......................... 3,564 615 -- -- --
Depreciation and amortization of equipment and purchased
software................................................ 710 6,770 8,154 4,089 3,281
Amortization of goodwill................................. 1,165 1,380 1,346 673 672
Deferred income taxes.................................... 1,278 (2,885) 1,659 2,683 (746)
Contract funding proceeds................................ -- 4,995 149 157 --
Contract funding revenue amortization.................... -- (12,989) (10,249) (6,594) (2,258)
Other, net............................................... 118 560 559 240 264
Changes in:
Accounts receivable, net............................... (1,489) 185 (1,272) (906) (1,310)
Other current assets................................... 347 853 339 128 (411)
Other assets........................................... (67) (21) (149) 55 (191)
Accounts payable and accrued expenses.................. 3,792 (1,904) 4,907 4,065 (2,277)
Accrued interest....................................... 3,689 1,135 287 18 (117)
Current income taxes................................... (5,567) (827) (961) (3,264) 3,662
Deferred revenues...................................... (77) 971 1,312 875 635
Other liabilities...................................... 4,286 547 356 89 851
--------- --------- --------- --------- ---------
Net cash provided by (used for) operating activities:
Continuing operations...................................... 5,975 17 7,723 1,201 8,746
Discontinued operations, net............................... 488 (4,169) -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used for) operating activities......... 6,463 (4,152) 7,723 1,201 8,746
--------- --------- --------- --------- ---------
Investing Activities:
Purchases of equipment and software........................ (875) (5,220) (3,003) (1,245) (1,827)
Acquisition of Joint Venture, net of cash acquired......... -- (4,519) -- -- --
Purchase of Faneuil ISG stock.............................. -- (530) -- -- --
Proceeds from sale of discontinued operations, net of
expenses.................................................. -- 5,728 500 500 --
Other, net................................................. 198 (643) 48 176 24
--------- --------- --------- --------- ---------
Net cash used for investing activities....................... (677) (5,184) (2,455) (569) (1,803)
--------- --------- --------- --------- ---------
Financing Activities:
Principal payments on long-term debt....................... (4,539) (15,842) (11,101) (3,456) (16,181)
Proceeds from issuance of long-term debt................... -- 30,793 4,000 2,000 9,750
Proceeds from issuance of common stock..................... 2 1 26 1 283
Payment of equity and debt issue costs..................... -- (1,802) -- -- --
Advances (to) from Joint Venture, net...................... (4,635) 1,511 -- -- --
Other, net................................................. 5 2 -- (1) --
--------- --------- --------- --------- ---------
Net cash provided by (used for) financing activities......... (9,167) 14,663 (7,075) (1,456) (6,148)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash.............................. (3,381) 5,327 (1,807) (824) 795
Cash:
Beginning of period........................................ 3,756 375 5,702 5,702 3,895
--------- --------- --------- --------- ---------
End of period.............................................. $ 375 $ 5,702 $ 3,895 $ 4,878 $ 4,690
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
OUTSTANDING
COMMON STOCK TREASURY STOCK
----------------------- ADDITIONAL ---------------------- TOTAL
NUMBER OF PAID-IN ACCUMULATED NUMBER OF STOCKHOLDERS'
SHARES PAR VALUE CAPITAL DEFICIT SHARES COST DEFICIT
------------ --------- ----------- ------------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1992............ 9,244,640 $ 925 $ -- $ (44,000) 111,920 $ (212) $ (43,287)
Stock options exercised...... 1,080 -- 2 -- -- -- 2
Net loss..................... -- -- -- (10,131) -- -- (10,131)
------------ --------- ----------- ------------ ----------- --------- ------------
December 31, 1993............ 9,245,720 925 2 (54,131) 111,920 (212) (53,416)
Stock issuance............... 7,050,840 705 11,652 -- -- -- 12,357
Preferred stock accretion.... -- -- -- (936) -- -- (936)
Preferred stock dividends
accrued..................... -- -- -- (582) -- -- (582)
Stock options exercised...... 640 -- 1 -- -- -- 1
Net loss..................... -- -- -- (12,153) -- -- (12,153)
------------ --------- ----------- ------------ ----------- --------- ------------
December 31, 1994............ 16,297,200 1,630 11,655 (67,802) 111,920 (212) (54,729)
Preferred stock accretion.... -- -- -- (1,931) -- -- (1,931)
Preferred stock dividends
accrued..................... -- -- -- (1,072) -- -- (1,072)
Stock options exercised...... 19,200 2 24 -- -- -- 26
Net income................... -- -- -- 1,286 -- -- 1,286
------------ --------- ----------- ------------ ----------- --------- ------------
December 31, 1995............ 16,316,400 1,632 11,679 (69,519) 111,920 (212) (56,420)
Preferred stock accretion
(unaudited)................. -- -- -- (1,069) -- -- (1,069)
Preferred stock dividends
accrued (unaudited)......... -- -- -- (535) -- -- (535)
Stock options exercised
(unaudited)................. 196,800 20 263 -- -- -- 283
Treasury stock issuance
(unaudited)................. 13,600 1 21 -- (13,600) 26 48
Investment security
distribution (unaudited).... -- -- -- (530) -- -- (530)
Other (unaudited)............ -- -- 407 -- -- -- 407
Net income (unaudited)....... -- -- -- 6,691 -- -- 6,691
------------ --------- ----------- ------------ ----------- --------- ------------
June 30, 1996 (unaudited).... 16,526,800 $ 1,653 $ 12,370 $ (64,962) 98,320 $ (186) $ (51,125)
------------ --------- ----------- ------------ ----------- --------- ------------
------------ --------- ----------- ------------ ----------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESSES AND ORGANIZATION
CCC Information Services Group Inc. (Company) (formerly known as InfoVest
Corporation), through its wholly owned subsidiary CCC Information Services Inc.
(CCC), is a leading supplier of automobile claims information and processing,
claims management software and value-added communication services. The Company's
technology-based services and products enable more than 300 automobile insurance
company customers and more than 8,500 collision repair facility customers to
improve efficiency, manage costs and increase consumer satisfaction in the
management of automobile claims and restoration.
After the disposition of certain subsidiaries, as described in Note 5, and
through April 30, 1995, the Company consisted of two primary operating entities:
CCC and CCC Development Company (Joint Venture). The Company acquired its former
partner's 50% interest in the Joint Venture, through the acquisition of UCOP,
Inc. (UCOP), effective March 30, 1994. As a result of this acquisition, in
combination with its original 50% interest in the Joint Venture, the Company
acquired a 100% equity ownership interest in the Joint Venture. Prior to its
acquisition of UCOP, the Company accounted for its 50% interest in the Joint
Venture under the equity method. CCC also operates a subsidiary in Canada, CCC
of Canada, Ltd. (CCC Canada).
As of December 31, 1995, White River Ventures, Inc. (White River) held
approximately 52% of the total outstanding common stock of the Company. White
River is a wholly owned subsidiary of White River Corporation.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries, all of which are currently wholly owned.
REVENUE RECOGNITION
Revenues are recognized as services are provided. Of total Company revenues
in the years 1993, 1994 and 1995, 88%, 79% and 70%, respectively, were
attributable to revenues from insurance companies. In addition, revenues
attributable to one national multi-line insurance company in the years 1993,
1994 and 1995 totaled $13.9, $14.8 and $14.3 million, respectively.
ACCOUNTS RECEIVABLE
Accounts receivable as presented in the accompanying consolidated balance
sheet are net of reserves for customer credits and doubtful accounts. As of
December 31, 1994 and 1995, and June 30, 1996, reserves of $0.9 million, $1.5
million, and $1.5 million (unaudited), respectively, have been applied as a
reduction of accounts receivable. Of total accounts receivable, net of reserves,
at December 31, 1994 and 1995, $6.9 million and $8.4 million, respectively, were
due from insurance companies.
INTERNAL SOFTWARE DEVELOPMENT COSTS
Research and development expenses, principally the design and development of
software products, are expensed as incurred. Software costs, if material, are
capitalized when sufficient evidence exists that technological feasibility has
been established. Technological feasibility is established upon completion of
both a product design and a working model, and confirmation of the model's
consistency with the design through detailed testing. For the years 1993, 1994
and 1995, research and development expenses of approximately $1.5 million, $2.8
million and $3.5 million, respectively, are reflected in the accompanying
consolidated statement of operations. There were no significant software
development costs subject to capitalization during the three years ended
December 31, 1995.
EQUIPMENT AND PURCHASED SOFTWARE
Equipment is stated at cost, net of accumulated depreciation. Depreciation
of equipment is provided on a straight-line basis over estimated useful lives
ranging from 2 to 15 years.
F-7
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Purchased software to be marketed is stated at cost and amortized in
proportion to anticipated future revenues or on a straight-line basis over the
estimated economic life of the purchased software, whichever provides the
greater rate of amortization. In 1994 and 1995, amortization of purchased
software to be marketed was $2.0 million and $2.6 million, respectively.
GOODWILL
The excess of purchase price paid over the estimated fair value of
identifiable tangible and intangible net assets of acquired businesses is
capitalized and amortized on a straight-line basis over periods of 7 or 20
years. Goodwill is periodically reviewed to determine recoverability by
comparing its carrying value to expected undiscounted future cash flows.
DEBT ISSUE COSTS
Debt issues costs are capitalized and amortized over the life of CCC's
commercial bank debt. As of December 31, 1994 and 1995, deferred debt issue
costs, net of accumulated amortization, of $1.7 million and $1.3 million,
respectively, were included in other assets.
CONTRACT FUNDING
Future revenue streams under certain end-user collision estimating contracts
(Contracts) have been discounted and sold to various investors. Cash proceeds
from a sold Contract equals the Contract's future revenue stream, discounted at
an annual rate of approximately 14%, less, for certain Contracts, investor
reserves for customer nonperformance under the Contracts. Sales proceeds, which
are remitted directly to the investors in these Contracts, and related interest
expense are recognized in the accompanying consolidated statement of operations
as revenue and interest expense, respectively, over the life of the Contract.
PER SHARE INFORMATION
Earnings per share are based on the weighted average number of shares of
common stock outstanding and common stock equivalents using the treasury stock
method for stock options in accordance with Staff Accounting Bulletin No. 83 of
the Securities and Exchange Commission.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1995, the carrying amount of the Company's financial
instruments approximates their estimated fair value based upon market prices for
the same or similar type of financial instruments.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
consolidated financial statements, and that affect the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The interim consolidated financial statements presented as of and for the
six months ended June 30, 1996 and 1995 are unaudited. With respect to the
unaudited interim consolidated financial statements, the Company is of the
opinion that all material adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of the Company's interim results
of operations and financial condition, have been included. The results of
operations for the six months ended June 30, 1996 and 1995 should not be
regarded as necessarily indicative of the results of operations for any future
period.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standard (SFAS) No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" in the first quarter of 1996. This
F-8
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Statement establishes a new standard for accounting for the impairment of
long-lived assets and certain identifiable intangibles. The adoption of SFAS No.
121 was not material to the Company's financial position or results of
operations (unaudited).
The Financial Accounting Standards Board has also issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which became effective January 1,
1996. This Statement establishes an alternative to the Company's current method
of accounting for compensation associated with stock issued to employees.
Management does not intend to adopt the alternative method allowed by SFAS No.
123. Accordingly, adoption of this Statement will only require additional
financial statement footnote disclosures to describe the Company's stock-based
compensation.
NOTE 3 -- NONCASH INVESTING AND FINANCING ACTIVITIES
The Company directly charges accumulated deficit for preferred stock
accretion and preferred stock dividends accrued. During 1993, 1994 and 1995,
these amounts totaled $0.0 million, $1.5 million and $3.0 million, respectively.
In addition to amounts reported as purchases of equipment in the
consolidated statement of cash flows, the Company has directly financed certain
noncash capital expenditures. During 1993, 1994 and 1995, these noncash capital
expenditures totaled $0.5 million, $0.4 million and $0.9 million, respectively.
In June 1994, as part of a reorganization and recapitalization of the
Company, debt and equity issue costs of $1.1 million and $0.5 million,
respectively, were paid on behalf of the Company by its commercial bank. See
Notes 11 and 12.
NOTE 4 -- ACQUISITION OF PARTNER'S INTEREST IN JOINT VENTURE
On March 30, 1994, White River acquired the stock of UCOP. Also on March 30,
1994, the Company entered into a Call Agreement with White River to purchase the
stock of UCOP from White River within 180 days. On May 31, 1994, using cash
generated through a commercial bank bridge loan, the Company completed the
acquisition of UCOP's interest in the Joint Venture by purchasing the stock of
UCOP from White River for $6.9 million.
As of the date of its acquisition, UCOP's only business was its 50%
investment in the Joint Venture. The purchase price of $6.9 million, plus
liabilities assumed of $22.4 million, have been allocated to the estimated fair
value of tangible and intangible assets acquired. In the purchase price
allocation, $5.2 million was assigned to purchased software, $13.8 million was
assigned to in-process research and development software projects, $6.6 million
was assigned to acquired tangible assets and the balance of $3.7 million was
assigned to goodwill. The amount assigned to in-process research and development
was charged against operating results at the time of the acquisition.
F-9
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- ACQUISITION OF PARTNER'S INTEREST IN JOINT VENTURE (CONTINUED)
Pro forma information, as if the acquisition of UCOP had occurred on January
1, 1994, is as follows:
<TABLE>
<CAPTION>
PRO
ACTUAL FORMA
1994 1994
---------- ----------
<S> <C> <C>
Revenues $ 91,917 $ 102,181
Operating expenses
Production and customer support......................................................... 25,123 27,062
Commissions, royalties and license fees................................................. 7,153 8,938
Selling, general and administrative..................................................... 33,426 37,638
Depreciation and amortization........................................................... 8,331 10,198
Product development and programming..................................................... 10,061 11,222
Purchased research and development...................................................... 13,791 --
Litigation settlements.................................................................. 1,750 1,750
---------- ----------
Operating income (loss)................................................................... (7,718) 5,373
Equity in loss of Joint Venture........................................................... (615) --
Interest expense.......................................................................... (7,830) (8,549)
Other income, net......................................................................... 316 16
---------- ----------
Loss from continuing operations before income taxes....................................... (15,847) (3,160)
Income tax (provision) benefit............................................................ 2,688 (823)
---------- ----------
Income (loss) from continuing operations.................................................. $ (13,159) $ (3,983)
---------- ----------
---------- ----------
</TABLE>
The pro forma statement of operations above reflects: (a) additional first
quarter 1994 depreciation and goodwill amortization of $0.8 million arising from
the acquisition, (b) elimination of the charge for purchased research and
development of $13.8 million, (c) elimination of interest expense of $0.3
million related to the bridge loan used to acquire UCOP and (d) adjustment of
income taxes attributable to the pro forma adjustments. The above pro forma
information is not necessarily indicative of what actual results would have been
had the acquisition, in fact, occurred on January 1, 1994.
NOTE 5 -- DISCONTINUED OPERATIONS
On August 25, 1994, the Company sold (a) the net operating assets of Credit
Card Service Corporation, which had previously been accounted for as a
discontinued operation and (b) all the capital stock of Original Research II
Corporation (ORC), GIS Information Systems, Inc. (GIS) and Equitel Corporation.
Net cash proceeds from the sale of these businesses totaled $6.2 million. In
conjunction with the sale, the Company acquired, for $530 thousand, a 4.5%
common equity interest in Faneuil ISG, a Canadian Corporation that will conduct
the future operations of these businesses. As of December 31, 1995, this
investment is carried at cost as a component of other assets. Final cash
proceeds from the sale of $500 thousand were received from escrow in March of
1995. On June 6, 1996, the Board of Directors of the Company approved a
distribution of the Faneuil ISG investment to stockholders. In November 1994,
the Company completed the planned sale of its investment in Phone Base Systems
Inc. Both the gain and cash proceeds from the sale were not material.
F-10
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- DISCONTINUED OPERATIONS (CONTINUED)
Revenues and income from discontinued operations were as follows:
<TABLE>
<CAPTION>
1993 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Revenues......................................................................... $ 36,171 $ 25,137
--------- ---------
--------- ---------
Loss before income taxes......................................................... $ (5,115) $ (5,171)
Income tax benefit............................................................... 758 2,536
--------- ---------
Loss from operations............................................................. (4,357) (2,635)
--------- ---------
Gain on sale..................................................................... -- 4,650
Income tax provision............................................................. -- (1,009)
--------- ---------
Net gain on sale................................................................. -- 3,641
--------- ---------
Income (loss) from discontinued operations..................................... $ (4,357) $ 1,006
--------- ---------
--------- ---------
</TABLE>
NOTE 6 -- INCOME TAX BENEFIT
Income taxes applicable to continuing operations consisted of the following
(provision) benefit:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................................. $ 2,686 $ (193) $ 1,792
State................................................................... 435 73 134
International........................................................... (26) (77) 24
--------- --------- ---------
Total current......................................................... 3,095 (197) 1,950
--------- --------- ---------
Deferred:
Federal................................................................. (1,090) 1,910 (1,668)
State................................................................... (188) 975 9
--------- --------- ---------
Total deferred.......................................................... (1,278) 2,885 (1,659)
--------- --------- ---------
Total income tax benefit................................................ $ 1,817 $ 2,688 $ 291
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's effective income tax rate applicable to continuing operations
differs from the federal statutory rate as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------------------- ---------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Federal income (tax) benefit at statutory rate... $ 2,581 34.0% $ 5,388 34.0% $ (338) (34.0)%
State and local taxes, net of federal benefit and
before deferred tax valuation allowances........ 216 2.8 960 6.1 60 6.0
International taxes.............................. (162) (2.1) (132) (0.8) 12 1.2
Goodwill amortization............................ (186) (2.5) (337) (2.1) (494) (49.6)
Change in valuation allowance.................... (471) (6.2) (2,630) (16.6) 1,260 126.6
Non deductible expenses.......................... (118) (1.6) (48) (--) (242) (24.3)
Other, net....................................... (43) (0.5) (513) (3.6) 33 3.3
--------- --- --------- ----- --------- -----------
Income tax benefit............................... $ 1,817 23.9% $ 2,688 17.0% $ 291 29.2%
--------- --- --------- ----- --------- -----------
--------- --- --------- ----- --------- -----------
</TABLE>
During 1993 and 1994, the Company made income tax payments, net of refunds,
of $2.5 million and $1.6 million, respectively. During 1995, the Company
received income tax refunds, net of payments, of $1.0 million.
F-11
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INCOME TAX BENEFIT (CONTINUED)
The approximate income tax effect of each type of temporary difference
giving rise to deferred income tax assets and deferred income tax liabilities
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Deferred revenue................................................................. $ 6,563 $ 2,394
Litigation settlement............................................................ 439 1,145
Accrued compensation............................................................. 654 1,127
Depreciation and amortization.................................................... 487 990
Rent............................................................................. 385 980
Bad debt expense................................................................. 396 568
Lease termination................................................................ 960 440
Long-term receivable............................................................. 1,003 150
Net operating loss carryforward.................................................. 1,293 110
Other, net....................................................................... 1,652 1,121
--------- ---------
Subtotal......................................................................... 13,832 9,025
Valuation allowance.............................................................. (6,223) (4,963)
--------- ---------
Total deferred income tax asset.................................................... 7,609 4,062
--------- ---------
Deferred income tax liabilities:
Purchased software............................................................... (1,552) (252)
Other, net....................................................................... (589) --
--------- ---------
Total deferred income tax liability................................................ (2,141) (252)
--------- ---------
Net deferred income tax asset.................................................... $ 5,468 $ 3,810
--------- ---------
--------- ---------
</TABLE>
The Company has established deferred income tax asset valuation allowances
because of its history of operating losses and an inability to project future
taxable income with certainty. Such valuation allowances will be released to
income if and to the extent the Company is able to successfully achieve a
recapitalization and demonstrate a predictable pattern of profitability.
Net operating loss carryforwards totaled $322 thousand as of December 31,
1995. These net operating loss carryforwards expire in 2005.
Prior to the current calendar year, the Company's fiscal year-end was April
30. The Internal Revenue Service (IRS) is currently examining the Company's
income tax returns for fiscal years 1992 through 1994. All Company income tax
returns for fiscal years prior to 1992 are closed to further examination by the
IRS.
F-12
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- OTHER CURRENT ASSETS
Other current assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Prepaid data royalties............................................................... $ 1,026 $ 1,138
Computer inventory................................................................... 456 522
Prepaid equipment maintenance........................................................ 748 444
Escrow receivable.................................................................... 500 --
Prepaid commissions.................................................................. 315 259
Unremitted contract funding proceeds................................................. 321 141
Other, net........................................................................... 320 373
--------- ---------
Total.............................................................................. $ 3,686 $ 2,877
--------- ---------
--------- ---------
</TABLE>
Unremitted contract funding proceeds represents investor reserves for
nonperformance under certain contracts that the Company believes will exceed
actual losses.
NOTE 8 -- EQUIPMENT AND PURCHASED SOFTWARE
Equipment and purchased software consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment............................................................... $ 16,674 $ 19,997
Purchased software, licenses and databases....................................... 9,377 8,007
Furniture and other equipment.................................................... 2,612 2,814
Leasehold improvements........................................................... 45 187
--------- ---------
Total, gross................................................................... 28,708 31,005
Less accumulated depreciation.................................................... (16,958) (23,695)
--------- ---------
Total, net..................................................................... $ 11,750 $ 7,310
--------- ---------
--------- ---------
</TABLE>
Purchased software, licenses and databases includes software of $5.2 million
acquired through the acquisition of its former partner's interest in the Joint
Venture. As of December 31, 1994 and 1995, this acquired software had a net
asset value of $3.3 million and $0.7 million, respectively.
As of December 31, 1994 and 1995, computer equipment, net of accumulated
depreciation, that is on lease to certain customers under operating leases of
$4.1 million and $2.5 million, respectively, is included in computer equipment.
Future minimum rentals under noncancelable customer leases aggregate
approximately $2.0 million and $0.6 million in years 1996 and 1997,
respectively.
Furniture and other equipment includes equipment under capital leases as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Capital leases......................................................................... $ 588 $ 574
Less accumulated depreciation.......................................................... (137) (240)
--------- ---------
Total, net........................................................................... $ 451 $ 334
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- GOODWILL
Goodwill consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
LIFE 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CCC acquisition (1988)................................................. 20 years $ 16,458 $ 16,458
UCOP acquisition (1994)................................................ 7 years 3,665 3,665
CCC Canada acquisition (1991).......................................... 3 years 1,129 --
--------- ---------
Total, gross......................................................... 21,252 20,123
Less accumulated amortization.......................................... (7,331) (7,548)
--------- ---------
Total, net........................................................... $ 13,921 $ 12,575
--------- ---------
--------- ---------
</TABLE>
NOTE 10 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable.................................................................. $ 3,757 $ 5,464
Litigation settlement............................................................. -- 2,956
Compensation...................................................................... 3,433 2,799
Professional fees................................................................. 1,369 2,586
Sales tax......................................................................... 1,910 1,501
Lease termination................................................................. 1,061 1,136
Commissions....................................................................... 704 1,015
Health insurance.................................................................. 752 957
Other, net........................................................................ 763 242
--------- ---------
Total........................................................................... $ 13,749 $ 18,656
--------- ---------
--------- ---------
</TABLE>
NOTE 11 -- LONG-TERM DEBT
Term loan and revolving credit facility interest is based on either of two
interest rates selected periodically by the Company: a base rate plus 1.5% or
the Eurodollar Rate plus 3.0%. The base rate must be the highest of three
alternative rates that all generally approximate prime rate. The average
interest rate in effect during the years ended December 31, 1994 and 1995 for
the term loan and revolving credit facility was 8.3% and 8.4%, and 9.15% and
9.03%, respectively. Through a separate transaction, interest on the term loan
has been capped at 12% through May 1996. The timing of interest payments on both
the term loan and revolving credit facility vary depending on the applicable
interest rate selected by the Company. Generally, however, interest payments are
made quarterly. In addition, the Company pays an annual bank agent's fee of $50
thousand and a commitment fee of 0.5% on any unused portion of the revolving
credit facility. The term loan is repayable in installments through 1999. The
revolving credit facility is reduced to $5 million in 1998 and terminates in
1999.
The loans are secured by the stock and assets of CCC. In addition, the
Company has guaranteed CCC's performance under the loan agreement. Effective
April 29, 1995, the loan agreement was amended to adjust certain restrictive
covenants. Under the amended agreement, CCC must, among other things, maintain
quarterly debt service and interest coverage ratios, limit its capital
expenditures. In addition, the Company is prohibited from: (a) declaring cash
dividends, (b) incurring nonpermitted indebtedness and (c) making nonpermitted
investments. In addition, CCC may not absorb more than $1.5 million of corporate
expenses allocated from its parent. Beginning in 1997, CCC would be permitted to
declare cash dividends in an amount
F-14
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- LONG-TERM DEBT (CONTINUED)
sufficient for the Company to pay the preferred stock dividends described in
Note 12 below. Under the term loan, a mandatory principal repayment is required
in an amount equal to: (a) 50% of net proceeds from an initial public offering
of Company common stock (IPO) or (b) excess cash as defined under the loan
agreement.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Senior bank term loan................................................... $ 30,000 $ 25,500
Senior bank revolving credit facility................................... 9,500 8,000
Equipment financing obligations......................................... 1,137 985
Capital lease obligations............................................... 456 395
--------- ---------
Total debt............................................................ 41,093 34,880
Due within one year..................................................... (5,340) (7,660)
--------- ---------
Due after one year...................................................... $ 35,753 $ 27,220
--------- ---------
--------- ---------
</TABLE>
Aggregate minimum principal repayments of long-term debt in each of the five
years subsequent to December 31, 1995 are as follows:
<TABLE>
<S> <C>
(In thousands)
1996............................................................... $ 7,660
1997............................................................... 7,341
1998............................................................... 12,379
1999............................................................... 7,500
2000............................................................... --
---------
Total.............................................................. $ 34,880
---------
---------
</TABLE>
The Company made cash interest payments of $1.7 million, $3.3 million and
$4.1 million during the year ended December 31, 1993, 1994 and 1995.
NOTE 12 -- MANDATORILY REDEEMABLE PREFERRED STOCK
On June 16, 1994, pursuant to a reorganization and recapitalization, the
Company issued: (a) 5,000 shares of its preferred stock, par value $1.00,
designated as Series C Cumulative Redeemable Preferred Stock (Series C Preferred
Stock), (b) 34,000 shares of its preferred stock, par value $1.00, designated as
Series D Cumulative Redeemable Preferred Stock (Series D Preferred Stock) and
(c) 176,271 shares of its common stock, par value $0.10, to White River in
exchange for the Company's subordinated debt and Series A, B and C warrants
acquired from the original subordinated debtholders by White River on April 15,
1994. At the date of exchange, the subordinated debt consisted of a principal
balance of $41.7 million and accrued interest of $2.7 million. In recording the
exchange, $3.9 million and $25.7 million were assigned to the Series C and
Series D Preferred Stock, respectively. The balance of $14.8 million, less
certain transaction costs of $2.4 million, was assigned to common stock and
credited to paid-in capital. During the years ended December 31, 1994 and 1995
and the six months ended June 30, 1996, the original discount on the Series C
and Series D Preferred Stock accreted $0.9 million, $1.9 million and $1.1
million (unaudited), respectively, and dividends of $0.6 million, $1.1 million
and $0.5 million (unaudited), respectively, were accrued.
The Series C Preferred Stock and Series D Preferred Stock (collectively,
Preferred Stock) have a stated value of $1 thousand per share and accrue
cumulative dividends at a rate of 2.75% annually through the earlier of: (a) an
IPO of the Company's common stock or (b) June 16, 1998. If the Company completes
an IPO before June 16, 1998 and redeems Preferred Stock in accordance with its
terms, Preferred Stock dividends from the
F-15
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
IPO through June 16, 1998 would be eliminated. If the Company fails to redeem
Preferred Stock in accordance with its terms, the Preferred Stock dividend rate
would increase to 8%. No dividends are payable in cash until the earlier of (a)
June 16, 1998 or (b) the failure of the Company to meet the prescribed
redemption obligations following consummation of an IPO. The Preferred Stock is
mandatorily redeemable, at stated value plus accrued dividends, on June 16,
1999.
NOTE 13 -- STOCK OPTION PLAN
In May 1988, the Company's Board of Directors adopted a nonqualified stock
option plan. Under the plan, as amended in 1992, options may be granted at a per
share price of not less than the greater of $55 or the fair market value as of
the date of grant, as determined by the Compensation Committee of the Board of
Directors (Committee). Options are generally exercisable within 5 years from the
date of grant, subject to vesting schedules determined at the discretion of the
Committee. In general, however, option grants vest over 4 years. As a result of
the Company's June 1994 reorganization and recapitalization, under an agreement
with White River, the number of incremental options that may be granted under
the plan subsequent to June 16, 1994 has been limited to 3% of outstanding stock
on June 16, 1994 or 488,880 shares.
F-16
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- STOCK OPTION PLAN (CONTINUED)
Option activity during 1993, 1994, 1995 and six months ended June 30, 1996
is summarized below.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES PRICE
---------- -----------
<S> <C> <C>
TOTAL OPTIONS:
Outstanding as of December 31, 1992..................................................... 1,455,320 $ 1.92
Granted................................................................................. 977,360 1.38
Exercised............................................................................... (1,080) 1.38
Surrendered or terminated............................................................... (119,147) 6.25
----------
Outstanding as of December 31, 1993..................................................... 2,312,453 1.46
Granted................................................................................. 269,680 1.38
Exercised............................................................................... (640) 1.38
Surrendered or terminated............................................................... (388,414) 1.75
----------
Outstanding as of December 31, 1994..................................................... 2,193,079 1.40
Granted................................................................................. 1,247,521 2.64
Exercised............................................................................... (19,200) 1.38
Surrendered or terminated............................................................... (465,360) 1.39
----------
Outstanding as of December 31, 1995..................................................... 2,956,040 1.93
----------
----------
Granted (unaudited)..................................................................... 210,800 11.20
Exercised (unaudited)................................................................... (196,800) 1.44
Surrendered or terminated (unaudited)................................................... (390,280) 2.44
----------
Outstanding as of June 30, 1996 (unaudited)............................................. 2,579,760 2.64
----------
----------
VESTED OPTIONS:
Outstanding as of December 31, 1992..................................................... 982,501 $ 1.94
Vested.................................................................................. 345,208 1.40
Exercised............................................................................... (1,080) 1.38
Surrendered or terminated............................................................... (100,027) 7.18
----------
Outstanding as of December 31, 1993..................................................... 1,226,602 1.46
Vested.................................................................................. 507,395 1.39
Exercised............................................................................... (640) 1.38
Surrendered or terminated............................................................... (90,054) 2.90
----------
Outstanding as of December 31, 1994..................................................... 1,643,303 1.43
Vested.................................................................................. 463,936 2.06
Exercised............................................................................... (19,200) 1.38
Surrendered or terminated............................................................... (393,040) 1.38
----------
Outstanding as of December 31, 1995..................................................... 1,694,999 1.60
Vested (unaudited)...................................................................... 173,768 4.02
Exercised (unaudited)................................................................... (196,800) 1.44
Surrendered or terminated (unaudited)................................................... (73,120) 2.47
----------
Outstanding as of June 30, 1996 (unaudited)............................................. 1,598,847 1.85
----------
----------
</TABLE>
F-17
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 -- COMMITMENTS AND CONTINGENCIES
The Company leases facilities, computers, telecommunications and office
equipment under the terms of noncancelable operating lease agreements which
expire at various dates through 2008. As of December 31, 1995, future minimum
cash lease payments were as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1996....................................................... $ 2,802
1997....................................................... 2,045
1998....................................................... 2,469
1999....................................................... 2,933
2000....................................................... 2,234
Thereafter................................................. 18,532
---------
Total.................................................. $ 31,015
---------
---------
</TABLE>
During 1993, 1994 and 1995, operating lease expense was $2.3 million, $3.2
million and $2.9 million, respectively.
In conjunction with the sale of the Faneuil Group, CCC entered into a
contract with GIS, under which GIS is to provide certain computer services to
CCC through June 1999 at approximately market rates. The contract prescribes
that CCC make minimum payments to GIS through June 1997 and provides an option
under which CCC can elect to extend the contract for certain services through
June 1999. As of December 31, 1995, future minimum payments due GIS under the
contract were as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1996........................................................ $ 2,546
1997........................................................ 1,073
---------
Total................................................... $ 3,619
---------
---------
</TABLE>
During 1994 and 1995, CCC incurred charges from GIS for computer services of
$3.7 million and $3.2 million, respectively.
CCC has guaranteed the payment of certain ORC lease obligations. As of
December 31, 1995, future ORC lease payments guaranteed by CCC total $448
thousand in 1996. The Company does not expect to sustain any loss as a result of
these guarantees.
NOTE 15 -- LEGAL PROCEEDINGS
On June 10, 1994, the litigation involving an independent corporate provider
of guidebook data was settled. In this matter, the plaintiff alleged copyright
infringement, among other things. Under the settlement agreement CCC has paid
the plaintiff $1.75 million. The parties also entered into a five year agreement
under which CCC is licensing the guidebook data at market rates. The settlement
charge is reported under litigation settlements in the accompanying consolidated
statement of operations for the year ended December 31, 1994.
In April 1995, the Company recorded a litigation settlement charge of $4.5
million in connection with the litigation involving an independent corporate
publisher of used car valuation books. In December 1995, substantive settlement
discussions were held. As a result of those discussions, the parties
conditionally agreed to a settlement structure that would resolve all
outstanding disputes.
All conditions precedent to the settlement agreement were satisfied in 1996.
As a result, all issues arising out of the litigation between the parties have
been fully and completely settled and each civil action had been dismissed with
prejudice. The settlement amount approximated the settlement charge previously
recorded. In conjunction with the settlement agreement, the Company received a
three year license to the publisher's used car valuation book data at market
rates (unaudited).
F-18
<PAGE>
CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 -- LEGAL PROCEEDINGS (CONTINUED)
The Company is a party to various other legal proceedings in the ordinary
course of business. The Company believes that the ultimate resolution of these
other matters will not have a material effect on the Company's financial
position.
NOTE 16 -- RELATED PARTY TRANSACTIONS
Prior to the June 1994 recapitalization, certain Joint Venture Contracts
were discounted and sold to a major stockholder of the Company. As of December
31, 1994 and 1995, $2.0 million and $0.6 million was payable by Company
customers to the stockholder. The discount rate applied to these Contracts was
approximately the same as the rate applied to Contracts purchased by unrelated
entities.
During May and June 1994, under two separate note agreements, a major
stockholder of the Company loaned Phone Base a total of $375 thousand. The notes
bear interest at 16% and are secured by Phone Base accounts receivable.
Subsequently, Phone Base repaid the stockholder $87 thousand in principal plus
accrued interest. On July 1, 1994, the Company purchased this stockholder's
rights under these notes for a purchase price of $288 thousand.
During June 1993, Phone Base entered into a royalty agreement with a
third-party computer system manufacturer under which Phone Base is to receive
royalties from sales of computer systems incorporating certain Phone Base
software technology. Subsequently, two Company directors, one of whom is also a
Company officer, and White River collectively purchased from Phone Base $1.6
million of participation interests in these royalties. The royalty participation
interests entitle the parties to 64% of all future royalties paid to Phone Base
under the agreement. To date, no royalties have been paid to Phone Base. On
August 26, 1994, the Company acquired the White River royalty participation
interest of $150 thousand at face value plus accrued interest at 9% through the
date of purchase.
On May 5, 1994, under an unsecured promissory note, White River loaned $200
thousand to Phone Base. The note is due upon demand and bears interest at 9%. On
August 26, 1994, the Company purchased the Phone Base indebtedness from White
River at face value plus accrued interest at 9% through the date of purchase.
On May 9, 1994, White River executed an assumption agreement under which it
purchased from a third-party creditor $6.5 million of Phone Base indebtedness
for a purchase price of $550 thousand. On August 26, 1994, the Company purchased
White River's interest under the assumption agreement for $550 thousand plus
accrued interest at 9% through the date of purchase.
In November 1994, Phone Base was sold to a major stockholder of the Company.
On August 25, 1994, the Faneuil Group was sold to an investor group that
included a former Company director and certain former Company employees. See
Note 5 -- Discontinued Operations.
NOTE 17 -- SUBSEQUENT EVENTS
On July 22, 1996, the Company's Board of Directors authorized the filing of
a registration statement with the Securities and Exchange Commission for an
initial public offering of the Company's common stock. In addition, on July 22,
1996, the Company's Board of Directors authorized a 40 for 1 split of the common
stock of the Company, which was effective August 13, 1996. All per share and
stock option information has been restated to reflect the split.
F-19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Partners of
CCC Development Company
In our opinion, the accompanying statement of operations, of partners'
deficit and of cash flows present fairly, in all material respects, the
financial position of CCC Development Company for the year in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
July 22, 1996
Chicago, Illinois
F-20
<PAGE>
CCC DEVELOPMENT COMPANY
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR
ENDED
DECEMBER 31,
1993
------------- QUARTER
ENDED
MARCH 29,
1994
-----------
(UNAUDITED)
<S> <C> <C>
Revenues.............................................................................. $ 34,087 $ 11,358
Expenses:
Production and customer support..................................................... 7,723 1,939
Commissions, royalties and license fees............................................. 9,305 2,879
Selling, general and administrative................................................. 12,577 4,212
Depreciation and amortization....................................................... 4,738 1,084
Product development and programming................................................. 3,753 1,161
------------- -----------
Operating income (loss)............................................................... (4,009) 83
Interest expense...................................................................... (3,239) (1,013)
Other income (expense), net........................................................... 120 (300)
------------- -----------
Net loss.............................................................................. $ (7,128) $ (1,230)
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statemments
F-21
<PAGE>
CCC DEVELOPMENT COMPANY
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1993
------------- QUARTER
ENDED MARCH
29, 1994
-----------
(UNAUDITED)
<S> <C> <C>
Operating Activities:
Net loss............................................................................ $ (7,128) $ (1,230)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of equipment and purchased software................. 5,278 1,655
Contract funding proceeds......................................................... 19,543 6,197
Contract funding revenue amortization............................................. (15,034) (4,964)
Other, net........................................................................ (718) 337
Changes in:
Accounts receivable, net........................................................ 546 501
Other current assets............................................................ (2,280) 102
Other assets.................................................................... -- (31)
Accounts payable and accrued expenses........................................... 1,736 (638)
Accrued interest................................................................ (77) --
Deferred revenues............................................................... 1,134 1,233
------------- -----------
Net cash provided by operating activities............................................. 3,000 3,162
------------- -----------
Investing Activities:
Purchases of equipment and software................................................. (4,812) (1,544)
------------- -----------
Net cash used for investing activities................................................ (4,812) (1,544)
------------- -----------
Financing Activities:
Principal payments on long-term debt................................................ (1,070) (230)
Advances (to) from the Company...................................................... 4,268 (608)
------------- -----------
Net cash provided by (used for) financing activities.................................. 3,198 (838)
------------- -----------
Net increase in cash.................................................................. 1,386 780
Cash:
Beginning of period................................................................. 40 1,426
------------- -----------
End of period....................................................................... $ 1,426 $ 2,206
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
CCC DEVELOPMENT COMPANY
STATEMENT OF PARTNERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
PARTNERS' ACCUMULATED PARTNERS'
CAPITAL DEFICIT DEFICIT
----------- ------------ ---------
<S> <C> <C> <C>
December 31, 1992............................................................. $ 2,000 $ (19,726) $ (17,726)
Net loss...................................................................... -- (7,128) (7,128)
----------- ------------ ---------
December 31, 1993............................................................. 2,000 (26,854) (24,854)
Net loss (unaudited).......................................................... -- (1,230) (1,230)
----------- ------------ ---------
March 29, 1994 (unaudited).................................................... $ 2,000 $ (28,084) $ (26,084)
----------- ------------ ---------
----------- ------------ ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
CCC DEVELOPMENT COMPANY
(AN EQUITY INVESTEE OF CCC INFORMATION SERVICES GROUP INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND DESCRIPTION OF BUSINESS
In September 1989, CCC Information Services Group Inc. (Company) (formerly
InfoVest Corporation), through a wholly owned subsidiary, and UCOP Inc. (UCOP),
an unrelated corporation, formed CCC Development Company (CCCDC or Joint
Venture), a partnership whose purpose was to develop a personal computer based
collision repair estimating system for automobiles. In November 1990, the
Company and UCOP executed a Joint Venture and Distribution Agreement, under
which both partners established their 50% interests in the Joint Venture.
As a result of a series of transactions involving White River Ventures, Inc.
(White River), the Company acquired its former partner's 50% interest in CCCDC,
through the acquisition of UCOP, Inc. (UCOP), effective March 30, 1994. These
transactions are more fully described in Note 4 below. As a result of this
acquisition, in combination with its original 50% interest in CCCDC, the Company
acquired a 100% equity ownership interest in CCCDC and succeeded to all of
CCCDC's former operations and directly assumed all of CCCDC's assets and
liabilities.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenues are recognized as services are provided. Of total Joint Venture
revenues in 1993, and the quarter ended March 29, 1994, 60% and 53% (unaudited),
respectively, were attributable to revenues from insurance companies.
INTERNAL SOFTWARE DEVELOPMENT COSTS
Research and development expenses, principally the design and development of
software products, are expensed as incurred. Software costs, if material, are
capitalized when sufficient evidence exists that technological feasibility has
been established. Technological feasibility is established upon completion of
both a product design and a working model, and confirmation of the model's
consistency with the design through detailed testing. For the year 1993 and the
quarter ended March 29, 1994, research and development expenses, of
approximately $1.0 million and $0.3 million (unaudited), respectively, are
reflected in the accompanying statement of operations. There were no significant
software development costs subject to capitalization during either of these
periods.
EQUIPMENT AND PURCHASED SOFTWARE
Equipment is stated at cost, net of accumulated depreciation. Depreciation
of equipment is provided on a straight-line basis over estimated useful lives
ranging from 2 to 15 years.
CONTRACT FUNDING
Future revenue streams under certain end-user collision estimating contracts
(Contracts) have been discontinued and sold to various investors. Cash proceeds
from a sold Contract equals the Contract's future revenue stream, discounted at
an annual rate of approximately 14%, less, for certain Contracts, investor
reserves for customer nonperformance under the Contracts. Sales proceeds, which
are remitted directly to the investors in these contracts, and related interest
expense are recognized as revenue and interest expense, respectively, over the
life of the Contract.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements, and that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.
F-24
<PAGE>
CCC DEVELOPMENT COMPANY
(AN EQUITY INVESTEE OF CCC INFORMATION SERVICES GROUP INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The information presented for the quarter ended March 29, 1994 is unaudited.
With respect to the unaudited interim financial statements, management is of the
opinion that all material adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation of the Joint Venture's interim
results of operations, have been included. The results of operations for the
quarter ended March 29, 1994 should not be regarded as necessarily indicative of
the results of operations for any future period.
NOTE 3 -- NONCASH INVESTING AND FINANCING ACTIVITIES
In addition to amounts reported as purchases of equipment in the
consolidated statement of cash flow, the Joint Venture has directly financed
certain noncash capital expenditures.
NOTE 4 -- ACQUISITION OF PARTNERS' INTEREST IN JOINT VENTURE
On March 30, 1994, White River acquired the stock of UCOP. Also on March 30,
1994, the Company entered into a call agreement with White River to purchase the
stock of UCOP from White River within 180 days. On May 31, 1994, using cash
generated through a commercial bank bridge loan, the Company completed the
acquisition of UCOP's interest in CCCDC by purchasing the stock of UCOP from
White River. The Company began consolidating Joint Venture operating results
effective March 30, 1994.
NOTE 5 -- INCOME TAXES
Because the Joint Venture was a partnership, taxable income passed through
to its partners. Accordingly, income taxes were not recorded on the books of
CCCDC.
NOTE 6 -- LEGAL PROCEEDINGS
The Joint Venture and the Company were involved in legal proceedings with
the lessor of certain personal computer equipment. When the lessor failed to
fulfill certain financial obligations to the equipment vendors, the Joint
Venture advanced funds to those vendors on the lessor's behalf. In 1993,
uncollectible advances of $1.1 million were charged against Joint Venture
operating results. In October 1993, the lessor filed a legal action against the
Company seeking payments due under certain master license agreements, including:
rents, sales and use tax and interest. In addition, the lessor asserted that it
was the sole owner of all right, title and interest in certain Contracts,
including renewals. This matter was settled in the first quarter of 1994. Under
the settlement agreement, the Company paid the lessor $400 thousand and in
exchange received clear title to certain personal computer equipment.
NOTE 7 -- RELATED PARTY TRANSACTIONS
During 1993 and the first quarter of 1994, Contracts with future sales
proceeds of $5.2 million and $0.3 million, respectively, were discounted and
sold to a major stockholder of the Company. The discount rate applied to these
Contracts was approximately the same as the rate applied to Contracts purchased
by unrelated entities.
F-25
<PAGE>
The inside back cover consists of a drawing depicting nine different
participants in the automobile claims industry with the following caption:
"CCC's Transaction Processing and Outsourcing Services Connect all Partners In
the Auto Claims Process."
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 7
Dividend Policy...................................... 14
Dilution............................................. 14
Use of Proceeds...................................... 16
Capitalization....................................... 16
Selected Consolidated Financial Data................. 17
Unaudited Pro Forma Consolidated Financial Data...... 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 20
Business............................................. 29
Management........................................... 43
Principal Stockholders............................... 50
Certain Transactions................................. 52
Description of Capital Stock......................... 53
Shares Eligible for Future Sale...................... 57
Underwriting......................................... 58
Legal Matters........................................ 59
Experts.............................................. 59
Available Information................................ 59
Index to Consolidated Financial Statements........... F-1
</TABLE>
----------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
5,500,000 SHARES
[LOGO]
CCC INFORMATION
SERVICES GROUP INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
HAMBRECHT & QUIST
LAZARD FRERES & CO. LLC
RAYMOND JAMES &
ASSOCIATES, INC.
AUGUST , 1996
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an itemized statement of all expenses in connection with
the sale and distribution of the securities being registered by this
Registration Statement, other than underwriting discounts and commissions. All
amounts are estimated except the SEC registration fee and the NASD filing fee.
All such expenses shall be paid by the Company:
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 30,344.83
NASD Filing Fee............................................... 9,300.00
NASDAQ Listing Fee............................................ $ 50,000.00
Blue sky fees and expenses.................................... $ 20,000.00
Accounting fees and expenses.................................. $ 200,000.00
Legal fees and expenses....................................... $ 400,000.00
Printing and engraving........................................ $ 250,000.00
Transfer Agent and Registrar Fees............................. $ 15,000.00
Miscellaneous................................................. $ 97,355.17
------------
TOTAL....................................................... $1,072,000.00
------------
------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the Delaware Law ("Section 145") provides that a Delaware corporation may
indemnify any persons who are, or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person was an
officer, director, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines,
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action or proceeding, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action, had no reasonable
cause to believe that his conduct was illegal. A Delaware corporation may
indemnify any persons who are, or are threatened to be made, a party to any
threatened, pending or completed action or suit by or in the right of the
corporation by reason of the fact that such person was a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director has actually and reasonably incurred.
The Company's Certificate of Incorporation and Bylaws provide for the
indemnification of directors and officers of the Company to the fullest extent
permitted by Section 145.
As permitted by Delaware Law, the Certificate of Incorporation provides that
directors of the Company shall have no personal liability to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except (i) for any breach of a director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (iii) under Section 174 of
the Delaware Law, or (iv) for any transaction from which a director derived an
improper personal benefit.
The Company maintains directors' and officers' liability insurance.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1993, the Company has issued the following securities that
were not registered under the Act:
<TABLE>
<CAPTION>
NUMBER OF
DATE PURCHASER SHARES PURCHASED
- --------------------- ------------------------------ ----------------
<C> <S> <C>
8/2/93 Steven L. Telaroli 800
10/30/93 Lewis Ballington 267
6/16/94 White River Ventures, Inc. 7,050,851
12/10/94 Daniel Chen 640
1/18/95 Daniel O'Hara 640
8/31/95 David Wu 160
9/7/95 Glen Tullman 2,000
11/9/95 Jeff Chen 8,400
12/15/95 Peter Urbain 8,000
2/23/96 Robert Millman 6,400
5/1/96 Edward Cheskis 190,400
</TABLE>
The Company believes that all of the foregoing transactions were exempt from
registration pursuant to Section 4(2) of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<S> <C>
1 *Form of Underwriting Agreement
3.1 *Form of Amended and Restated Certificate of Incorporation
3.2 *Form of Amended and Restated By-laws
4.1 *Specimen Common Stock Certificate
4.2 *Stockholders' Agreement dated as of June 16, 1994 by and among the Company,
White River Ventures, Inc. and the other stockholders named therein
4.3 *Regulatory Contingency Agreement dated as of June 16, 1994 by and among the
Company and White River Ventures, Inc.
4.4 *Series C Preferred Stock Designation
4.5 *Series D Preferred Stock Designation
4.6 *Series E Preferred Stock Designation
5 *Opinion of Winston & Strawn re legality
10.1 *Stock Option Plan of the Company adopted May 1988 and amended in November
1994
10.2 *Lease between LaSalle National Trust, N.A., as trustee and CCC dated as of
May 7, 1993
10.3 *License between Motor Books Division, a unit of Hearst Business Publishing,
Inc. and the Company dated as of May 1, 1992
10.4 *Form of Credit Facility Agreement between CCC and Signet Bank
10.5 *Loan Agreement dated April 29, 1994 between CCC, CCC Development Company,
Canadian Imperial Bank of Commerce and the financial institutions party
thereto
10.6 *First Amendment dated as of August 4, 1995 between the Company, CCC,
Canadian Imperial Bank of Commerce and the financial institutions party
thereto
10.7 *Guaranty dated as of April 29, 1994 by the Company in favor of Canadian
Imperial Bank of Commerce
11 Amended Statement re computation of per share earnings
21 *Subsidiaries of the registrant
23.1 Consent of Price Waterhouse LLP, independent accountants
23.2 *Consent of Winston & Strawn (contained in the opinion filed as Exhibit 5)
24 *Powers of attorney
27 *Financial Data Schedule
</TABLE>
- ------------------------
*Previously filed
II-2
<PAGE>
(b) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts (included as Page S-1)
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the consolidated financial
statements and therefore has been omitted.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
The Company hereby undertakes that:
(1) For purpose of determining any liability under the Securities Act, the
information omitted from the form of prospectus files as part of this
registration statement in reliance upon Rule 430(A) and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions set forth in Item 14 above, or otherwise, the
Company has been advised in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and the Company will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 4 to Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, in the City
of Chicago, State of Illinois on August 15, 1996.
CCC INFORMATION SERVICES GROUP INC.
By: /s/ DAVID M. PHILLIPS
-------------------------------------
David M. Phillips
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act, this Amendment No. 4 to
Registration Statement has been signed by the following persons in the
capacities indicated on August 15, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------- ----------------------------------------
<C> <S>
/s/ DAVID M. PHILLIPS Chairman, President and Chief Executive
- -------------------------------------- Officer
David M. Phillips
* Executive Vice President -- Chief
- -------------------------------------- Financial Officer (Principal Financial
Leonard L. Ciarrocchi Officer)
* Vice President -- Controller (Principal
- -------------------------------------- Accounting Officer)
Donald J. Hallagan
*
- -------------------------------------- Director
John J. Byrne
*
- -------------------------------------- Director
Morgan Davis
*
- -------------------------------------- Director
Thomas L. Kempner
*
- -------------------------------------- Director
Gordon S. Macklin
*
- -------------------------------------- Director
Robert T. Marto
*
- -------------------------------------- Director
Michael R. Stanfield
*By: /s/ DAVID M.
PHILLIPS
- --------------------------------------
David M.
Phillips
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
CCC INFORMATION SERVICES GROUP INC.
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGE TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------------------- ------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
1993 Allowance for Doubtful Accounts $ 253 $ 51 -- $ (44)(b) $ 260
1994 Allowance for Doubtful Accounts 260 727 $ 497(a) (541)(b) 943
1995 Allowance for Doubtful Accounts 943 2,257 -- (1,735)(b) 1,465
1993 Deferred Income Tax Valuation Allowances 1,254 2,296 -- -- 3,550
1994 Deferred Income Tax Valuation Allowances 3,550 1,701 972(a) -- 6,223
1995 Deferred Income Tax Valuation Allowances 6,223 -- -- (1,260)(c) 4,963
</TABLE>
- ------------------------------
(a) Purchase of remaining 50% interest in the Joint Venture, effective March
30, 1994.
(b) Accounts receivable write-offs, net of recoveries.
(c) Reversal of deferred tax valuation allowances.
S-1
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1 *Form of Underwriting Agreement
3.1 *Form of Amended and Restated Certificate of Incorporation
3.2 *Form of Amended and Restated By-laws
4.1 *Specimen Common Stock Certificate
4.2 *Stockholders' Agreement dated as of June 16, 1994 by and among the Company, White River
Ventures, Inc. and the other stockholders named therein
4.3 *Regulatory Contingency Agreement dated as of June 16, 1994 by and among the Company and White
River Ventures, Inc.
4.4 *Series C Preferred Stock Designation
4.5 *Series D Preferred Stock Designation
4.6 *Series E Preferred Stock Designation
5 *Opinion of Winston & Strawn re legality
10.1 *Stock Option Plan of the Company adopted May 1988 and amended in November 1994
10.2 *Lease between LaSalle National Trust, N.A., as trustee and CCC dated as of May 7, 1993
10.3 *License between Motor Books Division, a unit of Hearst Business Publishing, Inc. and the Company
dated as of May 1, 1992
10.4 *Form of Credit Facility Agreement between CCC and Signet Bank
10.5 *Loan Agreement dated April 29, 1994 between CCC, CCC Development Company, Canadian Imperial Bank
of Commerce and the financial institutions party thereto
10.6 *First Amendment dated as of August 4, 1995 between the Company, CCC, Canadian Imperial Bank of
Commerce and the financial institutions party thereto
10.7 *Guaranty dated as of April 29, 1994 by the Company in favor of Canadian Imperial Bank of
Commerce
11 Amended Statement re computation of per share earnings
21 *Subsidiaries of the registrant
23.1 Consent of Price Waterhouse LLP, independent accountants
23.2 *Consent of Winston & Strawn (contained in the opinion filed as Exhibit 5)
24 *Powers of attorney
27 *Financial Data Schedule
</TABLE>
- ------------------------
*Previously filed
<PAGE>
EXHIBIT 11
CCC INFORMATION SERVICES GROUP, INC.
STATEMENT RE: COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Actual Year Ended
-----------------------------------------------------------------------
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income (loss) per share from continuing operations:
Net income (loss) from continuing operations ($5,946,000) ($7,260,000) ($5,774,000) ($13,159,000) $1,286,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average common shares outstanding:
Shares attributable to common stock outstanding 8,671,629 9,080,716 9,245,033 13,089,916 16,294,387
Shares to be issued in proposed offering -- -- -- -- --
Shares attributable to common stock equivalents
outstanding -- -- -- -- 582,937
Shares attributable to options pursuant to
Staff Accounting Bulletin No. 83 147,227 147,227 147,227 147,227 147,227
----------- ----------- ----------- ----------- -----------
8,818,856 9,227,943 9,392,260 13,237,143 17,024,551
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per share from continuing
operations ($0.67) ($0.78) ($0.61) ($0.99) $0.08
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per share from discontinued operations:
Net income (loss) from discontinued operations $ (194,000) $ 409,000 ($4,357,000) $1,006,000 --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average common shares outstanding:
Shares attributable to common stock outstanding 8,671,629 9,080,716 9,245,033 13,089,916 --
Shares to be issued in proposed offering -- -- -- -- --
Shares attributable to common stock equivalents
outstanding -- -- -- -- --
Shares attributable to options pursuant to
Staff Accounting Bulletin No. 83 147,227 147,227 147,227 147,227 --
----------- ----------- ----------- ----------- -----------
8,818,856 9,227,943 9,392,260 13,237,143 --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per share from discontinued
operations ($.02) $.04 ($.47) $.07 --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Per share dividends and accretion:
Dividends and accretion -- -- -- ($1,518,000) ($3,003,000)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average common shares outstanding:
Shares attributable to common stock outstanding -- -- -- 13,089,916 16,294,387
Shares to be issued in proposed offering -- -- -- -- --
Shares attributable to common stock equivalents
outstanding -- -- -- -- 582,937
Shares attributable to options pursuant to
Staff Accounting Bulletin No. 83 -- -- -- 147,227 147,227
----------- ----------- ----------- ----------- -----------
-- -- -- 13,237,143 17,024,551
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Per share dividends and accretion -- -- -- ($0.11) ($0.18)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income per share applicable to common stock:
Net income (loss) applicable to common stock ($6,140,000) ($6,851,000) ($10,131,000) ($13,671,000) ($1,717,000)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average common shares outstanding:
Shares attributable to common stock outstanding 8,671,629 9,080,716 9,245,033 13,089,916 16,294,387
Shares to be issued in proposed offering -- -- -- -- --
Shares attributable to common stock equivalents
outstanding -- -- -- -- 582,937
Shares attributable to options pursuant to
Staff Accounting Bulletin No. 83 147,227 147,227 147,227 147,227 147,227
----------- ----------- ----------- ----------- -----------
8,818,856 9,227,943 9,392,260 13,237,143 17,024,551
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per share applicable
to common stock ($.69) ($.74) ($1.08) ($1.03) ($0.10)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
Pro Forma
Pro forma Actual Six Months Ended Six Months Ended
Year Ended -------------------------- -------------------------
12/31/95 6/30/95 6/30/96 6/30/95 6/30/96
----------- ----------- ----------- ----------- -----------
<C> <C> <C> <C> <C>
Net income per share from continuing operations:
Net income (loss) from continuing operations $3,538,000 ($1,107,000) $6,691,000 ($97,000) $7,520,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average common shares outstanding:
Shares attributable to common stock outstanding 16,294,387 16,150,745 16,344,885 16,150,745 16,344,885
Shares to be issued in proposed offering 5,500,000 -- -- 5,500,000 5,500,000
Shares attributable to common stock equivalents
outstanding 582,937 319,272 1,101,240 319,272 1,101,240
Shares attributable to options pursuant to
Staff Accounting Bulletin No. 83 147,227 147,227 147,227 147,227 147,227
----------- ----------- ----------- ----------- -----------
22,524,551 16,617,244 17,593,352 22,117,244 23,093,352
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per share from continuing
operations $0.16 ($0.06) $0.38 ($0.01) $0.32
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income per share from discontinued operations:
Net income from discontinued operations -- -- -- -- --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average common shares outstanding:
Shares attributable to common stock outstanding -- -- -- -- --
Shares to be issued in proposed offering -- -- -- -- --
Shares attributable to common stock equivalents
outstanding -- -- -- -- --
Shares attributable to options pursuant to
Staff Accounting Bulletin No. 83 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
-- -- -- -- --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per share from discontinued
operations -- -- -- -- --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Per share dividends and accretion:
Dividends and accretion ($991,000) ($1,455,000) ($1,604,000) ($480,000) ($529,000)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average common shares outstanding:
Shares attributable to common stock outstanding 16,294,387 16,150,745 16,344,885 16,150,745 16,344,885
Shares to be issued in proposed offering 5,500,000 -- -- 5,500,000 5,500,000
Shares attributable to common stock equivalents
outstanding 582,937 319,272 1,101,240 319,272 1,101,240
Shares attributable to options pursuant to
Staff Accounting Bulletin No. 83 147,227 147,227 147,227 147,227 147,227
----------- ----------- ----------- ----------- -----------
22,524,551 16,617,244 17,593,352 22,117,244 23,093,352
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Per share dividends and accretion ($0.05) ($0.09) ($0.09) ($0.02) ($0.02)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per share applicable to common stock:
Net income (loss) applicable to common stock $2,547,000 ($2,562,000) $5,087,000 ($577,000) $6,991,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average common shares outstanding:
Shares attributable to common stock outstanding 16,294,387 16,150,745 16,344,885 16,150,745 16,344,885
Shares to be issued in proposed offering 5,500,000 -- -- 5,500,000 5,500,000
Shares attributable to common stock equivalents
outstanding 582,937 319,272 1,101,240 319,272 1,101,240
Shares attributable to options pursuant to
Staff Accounting Bulletin No. 83 147,227 147,227 147,227 147,227 147,227
----------- ----------- ----------- ----------- -----------
22,524,551 16,617,244 17,593,352 22,117,244 23,093,352
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per share applicable
to common stock $0.11 ($0.15) $0.29 ($0.03) $0.30
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 30, 1996, except
for Note 17 which is as of August 13, 1996 relating to the consolidated
financial statements of CCC Information Services Group Inc., which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the three years ended December 31, 1995 listed
under Item 16(b) of this Registration Statement when such schedule is read in
conjunction with the consolidated financial statements referred to in our
report. The audits referred to in such report also included this schedule. We
also consent to the use of our report dated July 22, 1996 relating to the
financial statements of CCC Development Company which appears in the Prospectus
constituting part of this Registration Statement on Form S-1. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such Prospectus. However, it should be noted that Price Waterhouse LLP has
not prepared or certified such "Selected Financial Data."
Price Waterhouse LLP
Chicago, Illinois
August 15, 1996
