-------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission file number 0-13124
WARNER INSURANCE SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-2698053
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
18-01 POLLITT DRIVE, FAIR LAWN, NEW JERSEY 07410
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE (ZIP CODE)
(201)794-4800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE -
NASD OTC BULLETIN BOARD
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT
THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM
10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT AT APRIL 1, 1996 WAS $32,390,550.
NUMBER OF SHARES OUTSTANDING AT APRIL 1, 1996:
15,732,163 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE
- NASD OTC BULLETIN BOARD
THE DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD JUNE 20, 1996, TO BE FILED WITH THE COMMISSION NOT LATER THAN 120 DAYS
AFTER THE CLOSE OF THE REGISTRANT'S FISCAL YEAR, HAS BEEN INCORPORATED
BY REFERENCE IN WHOLE OR IN PART FOR PART III, ITEMS 10, 11, 12 AND 13, OF
THE DECEMBER 31, 1995 FORM 10-K.
-----------------------------------------------------------------------
<PAGE>
ITEM 1. BUSINESS
------ --------
GENERAL
--------
Warner Insurance Services, Inc. (the "Company" or "Warner"), a
Delaware corporation formed in 1971, is a provider of software products for
the property/casualty and health care insurance industries through its
wholly-owned subsidiary, COVER-ALL Systems, Inc. ("COVER-ALL").
Historically, the Company also provided services to the
automobile insurance industry including underwriting, policy maintenance
and claims adjustment which was carried out by its Insurance Services
Division ("ISD"). However, in March 1996, the ISD business was
transferred to a subsidiary of The Robert Plan Corporation, in connection
with the settlement of two lawsuits between the Company and The Robert Plan
Corporation and the release of Warner from its obligations under long-term
processing contracts with the customers of ISD, and therefore the
activities of the ISD are reflected as discontinued operations as more
fully described in Note 1 to the Notes to Consolidated Financial
Statements.
OVERVIEW
--------
COVER-ALL offers standard as well as customized software
application products together with implementation support services to the
property/casualty and health care insurance industries.
In December 1989, the Company purchased, through its wholly-owned
subsidiary, the assets related to the exclusive proprietary rights to a
PC-based software application for policy rating and issuance for
property/casualty insurance companies. This acquired software has been
enhanced and is the Company's "Classic" product line which is one of two
current product lines.
The Classic product line is a self-contained rating, issuance and
transaction management application system utilized in the property/casualty
insurance industry. This software was developed using the Microfocus COBOL
language, and the Company is currently upgrading this product line to be
used in the Windows operating system. The Company believes that this
software product provides cost-effectiveness and flexibility for
self-contained Local Area Network ("LAN") systems. The Classic product
is in use in over 40 property/casualty insurance companies.
Since 1993, COVER-ALL has been developing its second product line
entitled the Total Administrative Solution ("TAS 2000"). TAS 2000 is a
suite of computer applications for property/casualty and health care
insurers designed to enable a client-driven re-engineering of the insurer's
business processes. TAS 2000 applications run on commodity priced open
computer systems and use state-of-the-art client/server software
technology provided by Oracle Corporation.
PRODUCT DESCRIPTION
-------------------
CLASSIC PRODUCT LINE
--------------------
The Classic product line is a set of LAN based PC software
packages designed to automate the rating and issuance tasks in the property
and casualty insurance industry. Functionality includes rating and
issuance for quoting new business, mid-term changes, cancellations,
reinstatements and renewals. Multiple recipient copies of all relevant
documentation for each of these transactions, including quote summaries,
declaration pages and mandatory and optional manuscript forms, are printed
by the system's print engine. This functionality is supported for property
and casualty lines of business in a user friendly system.
The Company believes that the Classic product line brings to the
customer certain useful functions, features and capabilities. Some are
line of business specific and some are line of business independent. These
include:
. Clear and comprehensive data collection
. Various on-line help screens
. On-line ISO Commercial Lines Manual Tables and
Footnotes
. Easy and direct system navigation
. Standard Bureau coverages and rates support
. Company customized coverages and rates support
. Fully automated recipient driven issuance of
declaration pages, worksheets, ID card, etc.
. Help Desk assistance
. Remote diagnostic and fix capabilities
The Classic products were originally brought to the marketplace
in the mid 1980's and subsequently have been enhanced to provide greater
functionality and to better utilize newer technology. The cost
effectiveness of the system rests on an inherent flexibility which can
accommodate specific customer requirements while retaining a single source
integrated core system. The Classic product line is based upon several
specific proprietary design features. COVER-ALL is currently working to
upgrade the Classic product line for use in the Windows operating system.
This will make it a Graphical User Interface ("GUI") application and will
be completed by year-end 1996. This enhancement will increase user
friendliness and provide the customers with an easier integration of
peripheral support applications (e.g., imaging, work flow management,
etc.).
TAS 2000 PRODUCT LINE
---------------------
The TAS 2000 product line was developed to be used as
client/server applications in the property/casualty and health care
insurance industries. COVER-ALL created the TAS 2000 product line to
better position itself to penetrate the larger customer market segment.
The client/server architectural concept allows companies to take advantage
of the power of distributed processing. The TAS 2000 product line includes
the following application modules:
. Client Management
. End User Tools
. Agency Profile Management
. Policy Administration
. Billing Management
. Claims Administration
. Statistical System
The TAS 2000 has Windows compliant GUI to enhance its user
friendliness. The TAS 2000 can be used on many different client/server
hardware platforms and offers capability to process the voluminous
transactions that are common to large scale insurance operations. The TAS
2000 is an architecture of open LAN and Wide Area Network ("WAN")based
modules possessing varying elements of interdependence.
TAS 2000's product design is distinguished from competitive
offerings by the integrated use of Oracle's relational database and the
Designer 2000 and Developer 2000 tool sets. The underlying database and
language used for the TAS 2000 products are the Oracle Relational Database
Management System and the Oracle Cooperative Development Environment
products. These products provide an integrated application environment.
Through Oracle's tools, these new products take advantage of the power of
Oracle Version 7 on over 90 different server platforms. This software
allows processing to be centralized, dedicated to specific server(s) or
clients or distributed across the network.
The changing of the century is an issue which has never been
faced in the computer industry and poses a massive problem for automation
systems previously designed and currently being used. Companies must
modify their systems to accommodate a four- digit year in order to properly
affect the calculations and sorting routines which provide the core of
their data processing accuracy. Although seemingly minor, this change
requires finding, analyzing, implementing and testing tens of thousands of
isolated incidents within millions of lines of source code. The cost for
the industry can reach into the millions of dollars to affect proper
change. Both COVER-ALL product lines already accommodate the advent of the
new century.
The TAS 2000 product line was developed with an emphasis on
quality from the conceptual design stage using Oracle CASE tools through to
the physical coding and testing phases. COVER-ALL intends to continue to
enhance both of its product lines based on customer needs and changes in
technology. COVER-ALL is also committed to maintaining a quality support
service program for its customers.
COMPETITIVE PRODUCTS
--------------------
COVER-ALL's competitors for both of its product lines are in most
instances larger and financially stronger than the Company. The Classic
product line competes primarily with three competitors who hold leadership
positions for LAN based policy rating and issuance software used by
property/casualty insurance companies. The TAS 2000 primary competitors
are also larger and financially stronger than the Company. The Company
believes, however, that its products offer customers certain advantages not
available from COVER-ALL's competitors as to functionality and hardware
requirements.
MARKETING
----------
The Company maintains a sales staff at its principal executive
offices in Fair Lawn, New Jersey. The Company also participates in and
displays its software products at trade shows organized by industry trade
groups.
RESEARCH AND DEVELOPMENT
------------------------
COVER-ALL's business is characterized by rapid technological
change. The Company's success will depend, in part, on its ability to keep
its products current based on new technologies. Accordingly, the Company
must maintain ongoing research and development programs to continually add
value to its suite of products, as well as any possible expansion of its
suite of products. The Company believes that research and development
expenditures will continue to constitute a significant percentage of
revenues.
COVER-ALL has expensed for research and development $1,932,920,
$2,499,436, $533,260 and $805,563 for the years ended December 31, 1995 and
1994, the two months ended December 31, 1993 and the year ended October
31, 1993, respectively.
BACKLOG
-------
Backlog is not applicable to the business of the Company.
MAJOR CUSTOMERS
---------------
The Classic product line is in use in over forty
property/casualty insurance companies while the TAS 2000 product line is
currently in use in two property/casualty insurance companies. TAS 2000
was licensed to the first health care insurer in 1996. The Company's
revenues from major customers (more than 10 percent of total revenues) for
the years ended December 31, 1995 and 1994 as a percentage of total revenue
were as follows:
Year Ended Year Ended
December 31, December 31,
Customer 1995 1994
-------- ------------ -------------
New Jersey State
Medical Underwriters 18%
Sun Alliance Management
Services 16%
Secura, Inc. 11%
Empire Insurance Company 17%
Millers Insurance Group 13%
No customer represented more than 10 percent of total revenues
prior to 1994. In 1995 export sales were made to a U.K. customer of
approximately $640,000.
EMPLOYEES
---------
The Company, excluding ISD (which had 192 employees), had 65
employees at year-end December 31, 1995. None of the Company's employees
are represented by a labor union, and the Company has not experienced any
work stoppages. The Company believes that relations with its employees are
good.
DISCONTINUED OPERATIONS
-----------------------
INSURANCE SERVICES DIVISION
---------------------------
ISD revenues decreased substantially in 1994 and 1995 because of
lower fees attributable to the reduced number of policies and claims being
handled on contracts that were winding down or were completed. As a
result, ISD had been suffering losses and operating under considerable
uncertainty due to the pendency of lawsuits with certain affiliates of The
Robert Plan Corporation ("The Robert Plan Corporation"). At December 31,
1995, the Company had a stockholders deficiency of $6,013,479, however, as
a result of the March 1996 restructuring transactions described below, the
Company expects to have a positive net worth as of March 31, 1996 primarily
because of the issuance of Warner Common Stock and Warrants with a fair
market value of approximately $7 million. In March 1996, the Company
entered into a series of agreements which provided for the transfer and
discontinuance of its ISD operations and the issuance of Warner Common
Stock and Warrants (i) to certain customers of the ISD business in exchange
for the release of Warner from its obligations to provide insurance
services to ISD customers and (ii) to The Robert Plan Corporation in
exchange for the settlement and dismissal of two lawsuits with The Robert
Plan Corporation. Effective March 1, 1996 the Company has discontinued
providing insurance processing services to the automobile insurance
industry and has reflected those activities as discontinued operations in
its Financial Statements. See Note 1 to the Consolidated Financial
Statements.
As part of the restructuring transactions (the "Restructuring"),
the Company transferred certain assets, employees, contracts and leased
premises relating to its ISD business to a subsidiary of The Robert Plan
Corporation, which is replacing the Company as the provider of insurance
services to the ISD customers. In exchange for settling the lawsuits,
releasing the Company's obligations to provide insurance services under its
contracts and executing mutual releases, the Company issued to certain of
the ISD customers (one major ISD customer received approximately 76 percent
of the total securities issued in the Restructuring) and certain parties to
the litigation: (a) a total of 3,256,201 shares of Warner Common Stock, (b)
five-year Warrants to purchase up to an additional aggregate of 1,553,125
shares of Warner Common Stock at $2.00 per share and (c) cash of
approximately $.9 million. The Company has the option, exercisable for a
period of six months (from March 1, 1996), to (i) purchase 50% of the
aforementioned 3,256,201 shares at a cash price equal to the greater of
$3.00 or 50% of the then market price of a share of Warner Common Stock and
(ii) acquire 50% of the 1,553,125 Warrants at a cash price equal to $1.00
per Warrant. On March 31, 1996, the Company settled with the one customer
which did not participate in the Restructuring by making a cash payment of
$1.6 million.
ALERION INSURANCE COMPANY OF NEW JERSEY ("ALERION")
----------------------------------------------------
In late 1993, the Company established Alerion, a wholly-owned
property/casualty insurance subsidiary. In this connection, the Company
also changed to a calendar year for financial and tax reporting purposes to
bring the Company into line with the calendar year reporting requirements
of the insurance industry.
By early 1994, Warner had funded Alerion with approximately $10
million of cash and securities and Alerion entered into a reinsurance
agreement to reinsure a portion of the risk on certain insurance policies
written by a primary insurer. In late 1994, the Company decided that risk
taking, even as a reinsurer, was not an attractive business strategy. The
Company and the primary insurer agreed to end the reinsurance arrangement
in the fourth quarter of 1994 and "commute" all reinsurance interests and
liabilities back to the inception of the agreement, thus eliminating all
reinsurance activity of Alerion. Therefore Alerion's operations for all
periods consisted of immaterial investment activity.
Alerion sold its securities and returned all of its cash
(approximately $9.5 million) in 1994, 1995 and 1996, having surrendered
its Certificate of Authority to transact insurance business in New Jersey.
ITEM 2. PROPERTIES
------ ----------
The Company's principal headquarters are located in Fair Lawn,
New Jersey where it occupies approximately 36,000 square feet under a lease
which expires in 2000 at a current annual rental expense of approximately
$400,000.
In addition, the Company also leases a facility with
approximately 22,000 square feet in Somerset, New Jersey. This lease
expires in 2002 with an annual rental expense of approximately $270,000.
This facility was previously used by ISD, however the Company anticipates
utilizing this facility to house a significant number of new employees that
will be working on a joint project with a new customer.
Pursuant to the Restructuring entered into in March 1996 (See
Discontinued Operations) the Company's lease for its former principal
headquarters has been transferred to The Robert Plan Corporation.
The Company believes that these facilities are well maintained
and adequate to meet its needs in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
------ -----------------
In March 1994, Material Damage Adjustment Corporation ("MDA"), a
subsidiary of The Robert Plan Corporation and a subcontractor for the
Company performing claims processing work, instituted an action in the
Superior Court of New Jersey seeking injunctive relief requiring that the
Company turn over to MDA in excess of $1 million that the Company had
withheld from certain claims fees allegedly owed to MDA. This action
arose out of the Company's servicing contract with the Market Transition
Facility of New Jersey ("MTF"). The Company had withheld the funds as a
set off to cover unpaid invoices for data processing services rendered by
the Company for MDA. MDA also added a claim for approximately $2.5
million of surcharge fees paid to the Company by the MTF. The MTF was
brought into the case to resolve disputes between MTF and MDA over refunds
of claims fees paid on claims later closed without payment ("CWP's").
The Company vigorously contested MDA's claims and asserted counterclaims
against MDA to establish the Company's entitlement to the disputed sums.
In May 1994, the Company filed an action in the Superior Court of
New Jersey against Lion Insurance Company, National Consumer Insurance
Corporation and The Robert Plan Corporation seeking payment of unsatisfied
invoices under an April 1991 agreement totalling approximately $2.7
million. Under the agreement, the Company agreed to provide data
processing services for a three-year term in support of Lion Insurance
Company's "depopulation pool" automobile insurance business in New Jersey.
Lion Insurance Company is a subsidiary of The Robert Plan Corporation whose
affiliate, National Consumer Insurance Corporation, has taken over the
"depopulation pool" business. The Robert Plan Corporation guaranteed
Lion's performance and payment.
On March 1, 1996, the two lawsuits described above were settled
as part of the overall settlement with certain of the Company's insurance
services customers. The settlement and restructuring transactions are
described in Note 1--Discontinued operations in the Notes to Consolidated
Financial Statements included in this Form 10-K.
On February 2, 1995, Sol M. Seltzer commenced an action in the
Supreme Court of New York against Mr. Krieger, the Chairman of the Board
and former President of the Company, and each of the other members of the
Board of Directors of the Company. The plaintiff, Sol M. Seltzer, who
purports to sue derivatively on behalf of the Company and COVER-ALL, was a
vice president of the Company and a director of COVER-ALL until he resigned
from such positions in late 1994. The plaintiff alleges, among other
things, breach of fiduciary duty, waste and mismanagement, as well as other
alleged wrongful acts by the Board and the former President, including
among other things, self-dealing and misuse of corporate funds by the
former President. The plaintiff seeks, among other things, compensatory
damages in an amount to be determined at trial and punitive damages in an
aggregate amount of $12 million.
The Company, and the other defendants, are vigorously contesting
Mr. Seltzer's claims. The Company believes that this lawsuit lacks
substantial merit. A motion to dismiss the complaint has been filed and is
pending.
On February 6, 1995, the Company commenced an action in the
Superior Court of New Jersey against Sol M. Seltzer, a former vice
president of the Company and a director of COVER-ALL, alleging fraud,
mismanagement, negligent misrepresentation and breach of fiduciary duty
with respect to the development and implementation of COVER- ALL's TAS 2000
software product. The Company seeks compensatory and punitive damages in
an amount to be determined at trial. Discovery has not been completed in
this case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------ ---------------------------------------------------
No matters were submitted to a vote of the Company's security
holders through the solicitation of proxies or otherwise during the fourth
quarter ended December 31, 1995.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
------- -------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Since March 8, 1996, the Company's common stock has been traded
on the Over the Counter market and since March 15, 1996, has been quoted on
the NASD OTC Bulletin Board under the symbol "WISI." Prior to March 4,
1996, the Company's common stock was traded on the New York Stock Exchange
under the symbol "WCP." The quotations below reflect the high and low
closing sale prices since November 1, 1993.
HIGH LOW
---- -----
CALENDAR 1995:
1st Quarter $3.00 $1.50
2nd Quarter 1.75 .875
3rd Quarter 2.25 1.25
4th Quarter 1.625 1.00
CALENDAR 1994:
1st Quarter $5.25 $4.125
2nd Quarter 4.25 2.375
3rd Quarter 4.25 2.25
4th Quarter 4.125 2.125
TWO MONTHS ENDED
DECEMBER 31, 1993: 5.75 4.625
As of April 1, 1996, there were approximately 872 holders of
record of the Company's common stock. This number does not include
beneficial owners who may hold their shares in street name. The closing
sale price for the Company's common stock on April 1, 1996 was $4.25.
The Company does not currently anticipate paying any dividends.
The Company paid quarterly cash dividends of $.01 per share from the first
quarter of 1993 through the second quarter of 1994 but discontinued this
policy in the third quarter of 1994.
ITEM 6. SELECTED FINANCIAL DATA
------ -----------------------
The following selected financial data of the Company are derived
from the consolidated financial statements. The data should be read in
conjunction with the consolidated financial statements, related notes, and
other financial information included herein.
(Dollar amounts in thousands except per share data)
Two
Year Year Months
Ended Ended Ended
December December December
31, 1995 31, 1994 31, 1993
--------- --------- --------
STATEMENTS OF OPERATIONS DATA:
Software licensing
revenues $ 4,119 $ 1,927 $ 224
Loss from continuing
operations (1) (3,544) (7,466) (781)
Income (loss) from
discontinued operations
less applicable income
taxes/(benefit) of none,
($924), $670, $3,633,
$2,852 and $1,417,
respectively (7,108) (6,754) 1,158
Loss on disposal of
discontinued operations
including $1,000 for losses
in 1996 prior to sale,
no tax benefit provided (750)
Net income (loss) (11,402) (14,220) 377
Loss per share from
continuing operations (.41) (.84) (.09)
Net income (loss)
per share (2) (1.33) (1.60) .04
Cash dividends per share -- $ .02 $ .01
BALANCE SHEET DATA:
Working capital
(deficiency) $ (8,717) $ 3,110 $12,475
Total assets 8,369 18,795 22,748
Short-term debt -- 2,000 --
Stockholders' equity
(deficit) (6,013) 5,376 20,574
(Dollar amounts in thousands except per share data)
Years Ended October 31,
---------------------------------
1993 1992 1991
---- ---- ----
STATEMENTS OF OPERATIONS DATA:
Software licensing
revenues $ 1,740 $ 1,802 $ 1,317
Loss from continuing
operations (1) (1,943) (850) (384)
Income (loss) from
discontinued operations
less applicable income
taxes/(benefit) of none,
($924), $670, $3,633,
$2,852 and $1,417,
respectively 5,653 4,116 2,034
Loss on disposal of
discontinued operations
including $1,000 for losses
in 1996 prior to sale,
no tax benefit provided
Net income (loss) 3,710 3,266 1,650
Loss per share from
continuing operations (.21) (.09) (.04)
Net income (loss)
per share (2) .40 .36 .19
Cash dividends per share $ .03 -- --
BALANCE SHEET DATA:
Working capital
(deficiency) $12,843 $17,102 $12,386
Total assets 22,443 18,544 14,451
Short-term debt -- -- --
Stockholders' equity
(deficit) 20,541 17,637 13,302
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
------ -----------------------
(1) Includes a $1,165 ($.14 per share) and $3,373 ($.25 per share net
of tax) special charge in 1995 and 1994, respectively.
(2) All per share amounts are based on the increased number of
shares giving retroactive effect to the impact of the five for
four stock split by way of a twenty-five percent (25%) stock
dividend declared on March 18, 1993 and the five percent (5%)
stock dividend declared on December 19, 1991.
(3) Revenues of the discontinued operations (ISD) were $20,228,
$32,893, $8,589, $68,515, $88,858 and $53,541, respectively, for
each of the periods above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
---------------------
DISCONTINUED OPERATIONS
-----------------------
During the years 1993 through 1995, the Company derived most of
its revenues from providing full service automobile insurance services
(policy processing, policy administration and claims administration)
through its ISD business. The Company has also provided state-of-the-art
computer products for the property casualty insurance industry through its
wholly-owned subsidiary, COVER-ALL.
ISD revenues in 1993 through 1995 were primarily made up of
policy administration and claims servicing fees from customers such as
Atlantic/Pacific Employers Insurance Company and to a lesser extent,
Clarendon National Insurance Company ("Clarendon"), for servicing policies
in the New Jersey voluntary and assigned risk markets. The contract with
Atlantic/Pacific Employers Insurance Company reached its peak level of
activity in 1994 and policy volumes declined sharply in 1995. During 1995
and 1996, Atlantic/Pacific Employers Insurance Company planned to non-renew
all of their auto insurance policies in New Jersey in accordance with the
accelerated withdrawal order entered into with the New Jersey Department of
Insurance in August 1994.
Revenues earned under the contract with Clarendon involved full
service policy administration and claims services for approximately 18
percent of the assigned risk drivers in New Jersey. This activity started
in 1993 with the commencement of the New Jersey Personal Automobile
Insurance Plan ("PAIP") following the end of New Jersey's direct insurance
program provided by its MTF. Warner's service for Clarendon was performed
under New Jersey's Limited Assignment Distribution Program ("LAD") which
required that servicing carriers such as Warner bear some of the underlying
insurance risk of the policies being handled. For this reason, Warner
formed a wholly-owned insurance subsidiary, Alerion, and effective January
1, 1994, Alerion reinsured a portion of Clarendon's insurance risk under
the PAIP program.
By the end of 1994, Warner decided that risk taking, even as a
reinsurer, was not an attractive business strategy, particularly because of
the substantial capital required by its insurance subsidiary relative to
other Warner capital commitments. Warner and Clarendon agreed, therefore,
to end the reinsurance arrangement in the fourth quarter of 1994 and
"commute" all reinsurance interests and liabilities back to the inception
of the agreement, thus eliminating all reinsurance activity of Alerion.
This had the effect of reducing revenues by $6.1 million and operating
income by $.5 million in the fourth quarter of 1994.
Since Warner was no longer willing to share in the underlying
insurance risk of PAIP policies, it could not, by law, continue to provide
policy administration and claims servicing to Clarendon under the LAD
program after 1994.
Most of Warner's insurance services contracts included a variable
fee structure based on the loss ratios of the underlying insurance policies
which could increase or decrease fee revenues. The Company obtained
periodic independent actuarial evaluations of the loss ratios for these
programs and adjusted the amount of its revenue when required. Subsequent
to December 31, 1994, the Company obtained independent actuarial
projections of loss adjustment expenses expected to be incurred in 1995 and
beyond with respect to the Company's contractual obligations under its
insurance services contracts. As a result of this review, the Company
determined that its deferred contract revenues at the end of 1994 should be
increased by $4.1 million to adequately cover contract costs and profit
margins in 1995 and beyond. This change in accounting estimate was
recorded in the fourth quarter of 1994 as a reduction of insurance services
revenue.
The overall decline in total revenues in calendar 1994 versus
fiscal 1993 is due primarily to the phasing out of the MTF program, as
described in the next paragraph, and related data processing contracts with
other insurance companies.
Policies serviced under the three-year MTF contract came to an
end at September 30, 1993 with respect to policy processing and
administration as the last of the MTF policies expired. In 1993, Warner's
policy servicing revenues from the MTF were approximately $8 million versus
less than $1 million in 1994. The claims for these MTF policies have been
handled for Warner since the inception of the contract by a subcontractor.
The claims fees were included in Warner's total revenues as "subcontracted
claims servicing revenue" and are passed through to the subcontractor
without any profit for Warner. In calendar 1994, these "pass-through"
subcontract claims servicing revenues were approximately $1 million,
compared with approximately $20 million in the high activity level in
fiscal 1993. As of March 1, 1996, the Company's contracted activity for
the MTF has ended.
In the fourth quarter of 1994, ISD wrote off $2.3 million of
unamortized capitalized software development costs previously incurred to
develop a version of the COVER-ALL system for use in-house to process
policies and claims.
As a result of the above, ISD was suffering losses and was
operating under considerable uncertainty because of the pendency of
lawsuits with certain affiliates of The Robert Plan Corporation, a customer
and subcontractor for the Company. In March 1996, the Company entered into
a series of agreements resulting in the settlement and dismissal of the
lawsuits and the release of the Company from continuing obligations under
contracts for the provision of insurance services to ISD customers. See
Note 1 to the Consolidated Financial Statements for a discussion of the
various financial elements of those agreements. In essence, the Company no
longer offers full service automobile insurance services, and its ISD
operations have been transferred to a subsidiary of The Robert Plan
Corporation which has replaced the Company as a service provider to such
customers. These agreements have resulted in a net loss for 1995 of
approximately $750,000, which includes a provision for estimated ISD losses
in 1996 prior to the March 1 effective date of the Restructuring.
Accordingly, the Company's Consolidated Financial Statements have
been restated for all periods to reflect ISD operations as "discontinued
operations."
The Company will now focus on its continuing COVER-ALL software
operations which management believes have a favorable outlook for 1996 and
beyond.
CONTINUING OPERATIONS
---------------------
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
-----------------------------------------------------------------------
Total revenues from software licensing were $4,118,754 for the
year ended December 31, 1995 as compared with $1,926,822 for the year ended
December 31, 1994, reflecting increasing progress on initial installations
of TAS 2000 and increased fee arrangements for professional support to most
customers.
In December 1994, management adopted a plan to reduce the
COVER-ALL marketing and product development costs until revenues
increased to significantly higher levels. The total cash outlay had grown
to a level of approximately $1 million per month but the revenues from
customers continued to lag expectations. The total head count, including
employees and technical consultants, was reduced by approximately half in
the first quarter of 1995 and a business plan was adopted for 1995 which
would match slowly growing revenues with reduced costs resulting in the
expectation of profitable operations by late 1995. In addition, the sales
offices in most cities were closed and sales staffing reduced by over 50
percent.
As a result of this reorganization plan for COVER-ALL, special
charges were reported in the fourth quarter of 1994 to write down a
substantial portion of the unamortized capitalized software development
costs (approximately $2.7 million) and accrue for excess facilities and
other costs ($.6 million). Additional costs were incurred in the first
quarter of 1995 for executive severance, employee severance, and write-off
of software development costs as the COVER-ALL reorganization was
completed. These 1995 provisions and write-offs, aggregating $1,165,000,
were reflected as special charges in the Statement of Operations for the
quarter ended March 31, 1995.
As described in Note 6 to the Consolidated Financial Statements,
no net income tax benefit is available to the Company with respect to the
loss it incurred in 1995.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED OCTOBER 31, 1993
----------------------------------------------------------------------
Total revenues from software licensing were $1,926,822 for the
year ended December 31, 1994 as compared with $1,740,478 for the year ended
October 31, 1993.
In 1993, COVER-ALL began developing a suite of computer
applications to add functionality to the existing systems such as billing,
statistical reporting, claims management, accounting and reinsurance.
Known as a "Total Administrative Solution" ("TAS 2000"), the new product
was designed to enable client-driven re-engineering of the insurer's
business processes. Research and development expenses were increased in
calendar 1994 to $2,499,436 from $805,563 in the year ended October 31,
1993.
Sales and marketing expenses were increased to $1,584,902 in
calendar 1994, up from $535,338 in the year ended October 31, 1993 as a
result of the establishment of new sales offices in several cities across
the United States to provide better customer contact and support.
General and administrative expenses increased in calendar 1994 to
$5,782,280 from $3,342,986 in the year ended October 31, 1993 due primarily
to higher executive staffing levels and increased facilities costs.
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------
In January 1996, the Company obtained approval from the New
Jersey Department of Insurance to dissolve its insurance subsidiary,
Alerion. As a result, plans were implemented to remove the remaining
approximately $2.5 million of statutory minimum capital from Alerion.
In January 1996, approximately $2.4 million was distributed to the Company
from Alerion. A portion of these funds were used in connection with the
Restructuring to satisfy certain legal and administrative expenses.
There was a $1 million letter of credit outstanding with a bank
at December 31, 1995 issued in connection with certain of the Company's
contractual obligations. The letter of credit expired in February 1996 and
the $1 million of cash collateral was returned to the Company, $887,500 of
these funds were utilized by the Company as the cash portion of the
settlement distributed to certain ISD customers and The Robert Plan
Corporation in connection with the Restructuring. In addition, $1.6
million was paid by the Company to the one ISD customer who did not
participate in the Restructuring.
In March 1996, the Company received a $2.3 million refund of
federal income taxes paid prior to 1995.
Working capital deficit at December 31, 1995 exclusive of
liabilities in excess of assets of the ISD business discontinued in March
1996 of $8,648,368 was $68,275. In March 1996, as a result of the
Restructuring described in Note 1 to the Consolidated Financial Statements,
the Company expects to have a positive net worth at March 31, 1996
primarily because of the issuance to certain ISD customers and The Robert
Plan Corporation of Warner Common Stock and Warrants with a fair market
value of approximately $7 million. Furthermore, in March 1996, the Company
received an additional $3,022,391 for the sale of Common Stock and Warrants
and expects to receive another $1,553,124 in May 1996 from the sale of
additional Common Stock pursuant to a series of transactions with Software
Investments Limited and Care Corporation Limited that are described in Note
11 to the Consolidated Financial Statements.
Cash flows from continuing operating activities were positive in
calendar 1995 by $2,450,142 as compared with negative cash flows of
$6,790,723 in calendar 1994, primarily due to reduced operating losses and
decreased working capital requirements in 1995 as a result of the
reorganization plan instituted at the end of 1994.
The Company believes that current cash balances, proceeds from
the sale of Common Stock and Warrants in 1996 and anticipated cash flows
from continuing operations will be sufficient to meet normal operating
needs for the continuing COVER-ALL business in 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------ -------------------------------------------
The financial statements and supplementary data listed in Item
14(a)(1) and (2) are included in this report beginning on page 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------ ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
PART III
--------
The information called for by Part III (Items 10, 11, 12 and 13)
of this Report is hereby incorporated by reference from the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Act of 1934 in connection with the election of directors at the
1996 Annual Meeting of Stockholders of the Company, which definitive Proxy
Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the Company's fiscal year ended
December 31, 1995.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
------- -------------------------------------------
REPORTS ON FORM 8-K
-------------------
(a) The following are filed as a part of this report.
(1) Financial Statements
--------------------
Page
----
Report of Independent Auditors 15
Consolidated Balance Sheets - December 31, 1995 and 1994 16
Consolidated Statements of Operations - Years ended
December 31, 1995 and 1994, Two months ended
December 31, 1993, and Year ended October 31, 1993 18
Consolidated Statements of Changes in Stockholders'
Equity - Years ended December 31, 1995 and 1994,
Two months ended December 31, 1993, and Year ended
October 31, 1993 19
Consolidated Statements of Cash Flows - Years ended
December 31, 1995 and 1994, Two months ended December
31, 1993 and Year ended October 31, 1993 21
Notes to Consolidated Financial Statements 23
(2) Financial Statement Schedule
----------------------------
II - Valuation and qualifying accounts 38
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of
the schedules, or because the information required is included in the
financial statements and notes thereto.
(3) Exhibits
--------
See pages 39, 40, 41, 42 and 43.
(b) Reports on Form 8-K
-------------------
None.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Warner Insurance Services, Inc.
We have audited the accompanying consolidated balance sheets of Warner
Insurance Services, Inc. as of December 31, 1995 and 1994 and the related
consolidated statements of operations, changes in stockholders' (deficit)
equity and cash flows for the years ended December 31, 1995 and 1994, two
months ended December 31, 1993 and the year ended October 31, 1993. Our
audits also included the financial statement schedule listed in the Index
at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Warner Insurance Services, Inc. at December 31, 1995 and 1994
and the consolidated results of its operations and its cash flows for the
years ended December 31, 1995 and 1994, two months ended December 31, 1993
and the year ended October 31, 1993 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Ernst & Young LLP
Hackensack, New Jersey
April 4, 1996
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1995 1994
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,576,745 $ 6,407,801
Fixed maturity investments
available-for-sale, at
fair value (cost $4,110,278) -- 3,872,500
Accounts receivable 1,763,890 389,721
Income taxes receivable 2,300,000 2,136,028
Deferred income taxes -- 3,250,000
Prepaid expenses 5,355 2,709
----------- ----------
Total current assets 5,645,990 16,058,759
----------- ----------
Property and equipment, at cost:
Furniture, fixtures and
equipment 3,095,529 3,990,693
Less accumulated depreciation (2,369,873) (2,737,880)
----------- -----------
Property and equipment-net 725,656 1,252,813
---------- -----------
Capitalized software, less
amortization of
and none 1,510,782 1,000,000
Other assets 486,726 482,950
----------- ----------
$ 8,369,154 $18,794,522
=========== ===========
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
December 31, December 31,
1995 1994
---------- ------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
EQUITY
Current liabilities:
Notes payable $ -- $ 2,000,000
Accounts payable 955,060 793,499
Accrued liabilities 4,123,641 1,302,279
Unearned revenue 635,564 122,117
Liabilities in excess of assets
of ISD business discontinued
in 1996 8,648,368 8,730,606
----------- ----------
Total current liabilities 14,362,633 12,948,501
----------- ----------
Deferred income taxes 20,000 470,000
----------- ----------
Commitments and contingencies (Notes 4 and 5)
Stockholders' (deficit) equity:
Common stock, $.01 par value;
authorized 20,000,000 shares,
issued 9,194,890 and 9,187,323
shares 91,949 91,873
Capital in excess of
par value 10,414,253 10,401,994
Accumulated (deficit) (13,952,474) (2,550,639)
Treasury stock at cost -
633,986 shares (2,567,207) (2,567,207)
------------ -----------
Total stockholders'
(deficit) equity (6,013,479) 5,376,021
------------ -----------
$ 8,369,154 $18,794,522
============ ===========
See accompanying notes.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended Year Ended
December 31, December 31,
1995 1994
----------- -----------
Software licensing and
maintenance
revenues $ 4,118,754 $ 1,926,822
------------ ------------
Costs and expenses:
Sales and marketing 465,045 1,584,902
Research and development 1,932,920 2,499,436
General and administrative
expenses 4,099,879 5,782,280
Special charges 1,165,000 3,373,000
------------ ------------
7,662,844 13,239,618
------------ ------------
Loss from continuing
operations before income
tax (benefit) (3,544,090) (11,312,796)
Income tax (benefit) -- (3,846,351)
------------ ------------
Loss from continuing
operations (3,544,090) (7,466,445)
Income (loss) from
discontinued operations,
less applicable income
tax (benefit) of none,
$(923,649), $669,981
$3,632,957,
respectively (7,107,987) (6,753,637)
Loss on disposal of
discontinued operations,
including $1,000,000
provision for operating
losses during phase-out
period, without tax
benefit (749,758) --
------------ -------------
Net income (loss) $(11,401,835) $(14,220,082)
============= =============
Loss per share from
continuing
operations $ (0.41) $ (0.84)
============ ==============
Net income (loss)
per share $ (1.33) $ (1.60)
============ =============
Weighted average number
of common shares
outstanding 8,559,307 8,868,926
=========== ============
Two Months Year
Ended Ended
December 31, October 31,
1993 1993
----------- -----------
Software licensing and
maintenance revenues $ 224,466 $ 1,740,478
------------ ------------
Costs and expenses:
Sales and marketing 294,482 535,338
Research and development 533,260 805,563
General and administrative
expenses 581,152 3,342,986
Special charges -- --
---------- ------------
1,408,894 4,683,887
---------- ------------
Loss from continuing
operations before income
tax (benefit) (1,184,428) (2,943,409)
Income tax (benefit) (402,706) (1,000,759)
------------ ------------
Loss from continuing
operations (781,722) (1,942,650)
Income (loss) from
discontinued operations,
less applicable income
tax (benefit) of none,
$(923,649), $669,981
$3,632,957,
respectively 1,158,484 5,653,097
Loss on disposal of
discontinued operations,
including $1,000,000
provision for operating
losses during phase-out
period, without tax
benefit -- --
----------- -----------
Net income (loss) $ 376,762 $ 3,710,447
=========== ============
Loss per share from
continuing operations $ (0.09) $ (0.21)
============ ============
Net income (loss)
per share $ 0.04 $ 0.40
=========== ===========
Weighted average number
of common shares
outstanding 9,024,890 9,303,548
============ ===========
See accompanying notes.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' (DEFICIT) EQUITY
Capital in Retained
Common Excess of Earnings
Stock Par Value (Deficit)
------ ---------- --------
Balance at October 31, 1992 $71,999 $ 9,524,529 $ 8,117,820
Issuance of 14,937 shares of
common stock under employee
stock purchase plan 149 99,432 --
Issuance of 91,849 shares of
common stock under stock
option plans 919 398,698 --
Tax benefit from stock
option transactions -- 193,227 --
Purchase of treasury stock -
185,000 shares -- -- --
Stock split - five for four 18,166 (22,066) --
Net income -- -- 3,710,447
Payment of cash dividends -- -- (269,979)
------- ----------- ------------
Balance at October 31, 1993 91,233 10,193,820 11,558,288
Issuance of 8,401 shares of
common stock under employee
stock purchase plan 84 35,788 --
Net income -- -- 376,762
Payment of cash dividends -- -- (88,750)
Purchase of treasury stock -
57,100 shares -- -- --
------- ----------- ------------
Balance at December 31, 1993 91,317 10,229,608 11,846,300
Issuance of 33,748 shares of
common stock under employee
stock purchase plan 337 76,948 --
Issuance of 21,875 shares
of common stock under
stock option plans 219 95,438 --
Purchase of treasury stock -
108,900 shares -- -- --
Net loss -- -- (14,220,082)
Payment of cash dividends -- -- (176,857)
Loan to officer/stockholder
exchanged for 268,111
shares of Treasury Stock
in January 1995 -- -- --
------- ----------- ------------
Balance at December 31, 1994 91,873 10,401,994 (2,550,639)
Issuance of 7,567 shares of
common stock under employee
stock purchase plan 76 12,259 --
Net loss -- -- (11,401,835)
------- ----------- ------------
Balance at December 31, 1995 $91,949 $10,414,253 $(13,952,474)
======== =========== ============
Total
Stockholders'
Treasury (Deficit)
Stock Equity
------ ------------
Balance at October 31, 1992 $ (77,725) $17,636,623
Issuance of 14,937 shares of
common stock under employee
stock purchase plan -- 99,581
Issuance of 91,849 shares of
common stock under stock
option plans -- 399,617
Tax benefit from stock
option transactions 193,227
Purchase of treasury stock -
185,000 shares (1,224,433) (1,224,433)
Stock split - five for four -- (3,900)
Net income -- 3,710,447
Payment of cash dividends -- (269,979)
----------- -----------
Balance at October 31, 1993 (1,302,158) 20,541,183
Issuance of 8,401 shares of
common stock under employee
stock purchase plan -- 35,872
Net income -- 376,762
Payment of cash dividends -- (88,750)
Purchase of treasury stock -
57,100 shares (290,635) (290,635)
----------- ------------
Balance at December 31, 1993 (1,592,793) 20,574,432
Issuance of 33,748 shares of
common stock under employee
stock purchase plan -- 77,285
Issuance of 21,875 shares
of common stock under
stock option plans -- 95,657
Purchase of treasury stock -
108,900 shares (338,657) (338,657)
Net loss -- (14,220,082)
Payment of cash dividends -- (176,857)
Loan to officer/stockholder
exchanged for 268,111
shares of Treasury Stock
in January 1995 (635,757) (635,757)
----------- ------------
Balance at December 31, 1994 (2,567,207) 5,376,021
Issuance of 7,567 shares of
common stock under employee
stock purchase plan -- 12,335
Net loss -- (11,401,835)
----------- ------------
Balance at December 31, 1995 $(2,567,207) $ (6,013,479)
============ ============
See accompanying notes.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Year Ended
December 31, December 31,
1995 1994
------------ ------------
Cash flows from operating
activities:
Net loss from continuing
operations $(3,544,090) $ (7,466,445)
Adjustments to reconcile
net loss to net cash
provided form (used for)
operating activities:
Depreciation and
amortization 365,129 538,751
Amortization and write-off
of capitalized software 489,227 3,313,023
Loss on disposal of
securities 86,223 465,195
Accounts receivable (1,374,169) (129,603)
Income taxes receivable (163,972) (2,136,028)
Deferred income taxes 2,800,000 (3,180,000)
Prepaid expenses (2,646) 410
Other assets (3,776) (60,506)
Accounts payable 161,561 733,471
Accrued liabilities 3,123,208 540,671
Unearned revenue 513,447 590,338
----------- ------------
Net cash provided from
(used for) continuing
operating activities 2,450,142 (6,790,723)
----------- ------------
(Loss) income from
discontinued operations (7,107,987) (6,753,637)
Loss on disposal of
discontinued operations (749,758) --
Decrease (increase) in
net assets of discontinued
operations (82,238) 11,208,695
----------- ------------
Net cash provided form
(used for) discontinued
activities (7,939,983) 4,455,058
----------- ------------
Cash flows from
investing activities:
Proceeds from sale of
fixed maturity
investments $ 3,786,277 $ 18,271,905
Purchase of fixed
maturity investments -- (12,661,482)
Capital expenditures (139,818) (269,345)
Capitalized software
expenditures (1,000,009) (3,350,981)
----------- ------------
Net cash provided from
(used for) investing
activities 2,646,450 1,990,097
----------- ------------
Cash flows from financing
activities:
Credit line borrowings -- 4,500,000
Payments on credit lines (2,000,000) (2,500,000)
Dividends to
stockholders -- (176,857)
Net proceeds from
issuance of common
stock 12,335 17,942
Payment for purchase of
treasury shares -- (974,414)
----------- ------------
Net cash provided from
(used for) financing
activities (1,987,665) 1,021,671
----------- ------------
Change in cash and
cash equivalents (4,831,056) 676,103
Cash and cash equivalents
beginning of year 6,407,801 5,731,698
----------- ------------
Cash and cash equivalents
end of year $ 1,576,745 $ 6,407,801
=========== ============
Two Months
Ended Year Ended
December 31, October 31,
1993 1993
------------ -----------
Cash flows from operating
activities:
Net loss from continuing
operations $ (781,722) $(1,942,650)
Adjustments to reconcile
net loss to net cash
provided from (used for)
operating activities:
Depreciation and
amortization 82,312 396,850
Amortization and write-off
of capitalized software 75,474 312,057
Loss on disposal of
securities -- --
Accounts receivable 94,676 (86,256)
Income taxes receivable -- --
Deferred income taxes 80,000 (849,000)
Prepaid expenses 12,110 (8,262)
Other assets -- (6,644)
Accounts payable (4,260) 51,583
Accrued liabilities 212,804 680,570
Unearned revenue (77,440) (55,469)
----------- ------------
Net cash provided from
(used for) continuing
operating activities (306,046) (1,507,221)
----------- ------------
(Loss) income from
discontinued operations 1,158,484 5,653,097
Loss on disposal of
discontinued operations -- --
Decrease (increase) in
net assets of discontinued
operations 677,631 8,249,580
----------- ------------
Net cash provided from
(used for) discontinued
activities 1,836,115 13,902,677
----------- ------------
Cash flows from
investing activities:
Proceeds from sale of
fixed maturity
investments $ -- $ --
Purchase of fixed
maturity investments -- (10,026,027)
Capital expenditures (403,734) (637,668)
Capitalized software
expenditures (295,658) (647,756)
----------- ------------
Net cash provided from
(used for) investing
activities (699,392) (11,311,451)
----------- ------------
Cash flows from financing
activities:
Credit line borrowings -- --
Payments on credit lines -- --
Dividends to
stockholders (88,750) (269,979)
Net proceeds from
issuance of common
stock 35,872 495,298
Payment for purchase of
treasury shares (290,635) (1,224,433)
----------- ------------
Net cash provided from
(used for) financing
activities (343,513) (999,114)
----------- ------------
Change in cash and
cash equivalents 487,164 84,891
Cash and cash equivalents
beginning of year 5,244,534 5,149,643
----------- ------------
Cash and cash equivalents
end of year $ 5,731,698 $ 5,244,534
=========== ============
See accompanying notes.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DISCONTINUED OPERATIONS
Insurance Services Division ("ISD") revenues decreased
substantially in 1994 and 1995 because of lower fees attributable to the
reduced number of policies and claims being handled on contracts that were
winding down or were completed. As a result, ISD had been suffering losses
and operating under considerable uncertainty as a result of the pendency of
lawsuits with certain affiliates of The Robert Plan Corporation ("The
Robert Plan Corporation") as described in Note 4. In March 1996, the
Company entered into a series of agreements which provided for the transfer
and discontinuance of its ISD operations and the issuance of Warner Common
Stock and Warrants to certain customers of the ISD business in exchange for
the release of Warner from its obligations to provide insurance services to
ISD customers and to The Robert Plan Corporation in exchange for the
settlement and dismissal of lawsuits with The Robert Plan Corporation.
Effective March 1, 1996 the Company has discontinued providing insurance
processing services to the automobile insurance industry and has reflected
those activities as discontinued operations in its Financial Statements.
As part of the restructuring transactions (the "Restructuring"),
the Company transferred certain assets, employees, contracts and leased
premises relating to its ISD business to a subsidiary of The Robert Plan
Corporation, which is replacing the Company as the provider of insurance
services to the ISD customers. In exchange for settling the lawsuits,
releasing the Company's obligations to provide insurance services under its
contracts and executing the mutual releases, the Company issued to certain
of the ISD customers (with one major ISD customer receiving approximately
76 percent of the total securities issued in connection with the
Restructuring) and certain parties to the litigation: (a) a total of
3,256,201 shares of Warner Common Stock, (b) five-year Warrants to purchase
up to an additional aggregate of 1,553,125 shares of Warner Common Stock at
$2.00 per share and (c) cash of approximately $2.5 million. The holders of
these securities can request the Company to register these securities with
such registration costs to be paid by the Company. The Company has the
option, exercisable for a period of six months (from March 1, 1996), to (i)
purchase 50% of the aforementioned 3,256,201 shares at a cash price equal
to the greater of $3.00 or 50% of the then market price of a share of
Warner Common Stock and (ii) acquire 50% of the 1,553,125 Warrants at a
cash price equal to $1.00 per Warrant. On March 31, 1996, the Company
assigned its aforementioned repurchase option applicable to Warner's Common
Stock and Warrants to a third party as discussed in Note 11.
Assets and liabilities of the discontinued ISD operations
classified separately in the Consolidated Balance Sheets, are summarized as
follows:
Decembeer 31,
-------------------------------
1995 1994
---- ----
Cash $ 2,487,500 $ --
Account receivable 18,722,178 17,285,590
Other current assets 155,370 229,507
Deferred contract receivables -- 3,218,126
Property and equipment, net 1,674,639 3,004,266
Capitalzied software, net 81,494 340,639
Other assets 21,017 20,803
Accounts payable (459,111) (304,169)
Accrued expenses (10,771,406) (10,663,310)
Unearned contract revenue (20,560,049) (21,862,058)
------------ ------------
(Net liabilities) $ (8,648,368) $ (8,730,606)
============ =============
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1--DISCONTINUED OPERATIONS (CONTINUED)
Management estimates the sale and discontinuance of ISD will
result in a $749,758 loss after providing $1,000,000 for estimated
losses from ISD's operations in 1996 prior to the sale.
The consolidated statements of operations have been restated for
all periods to report the net results of the ISD operations as income
(loss) from discontinued operations. The results of ISD are summarized as
follows:
Year Ended Year Ended
December 31, December 31,
1995 1994
------------ ------------
Net revenues $20,228,212 $32,892,898
Income (loss) from
operations before
income taxes (7,107,987) (7,677,286)
Income taxes/(benefit) -- (923,649)
----------- ----------
Net income (loss) from
discontinued operations $(7,107,987) $(6,753,637)
=========== ============
Two Months
Ended Year Ended
December 31, October 31,
1993 1993
------------ ------------
Net revenues $ 8,588,488 $68,514,769
Income (loss) from
operations before
income taxes 1,828,465 9,286,054
Income taxes/(benefit) 669,981 3,632,957
----------- -----------
Net income (loss) from
discontinued operations $1,158,484 $ 5,653,097
=========== ============
At December 31, 1995, the Company had a stockholders deficiency
of $6,013,479, however, as a result of the March 1996 Restructuring
described above, the Company expects to have a positive net worth as of
March 31, 1996 primarily because of the issuance of Warner Common Stock and
Warrants with a fair market value of approximately $7 million.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
With the discontinuance of ISD, COVER-ALL Systems, Inc.
("COVER-ALL"), a wholly-owned subsidiary, is the Company's only active
operation. COVER-ALL provides software products for the property/casualty
and health care insurance industries throughout the United States, Puerto
Rico and the United Kingdom.
BASIS OF PRESENTATION
The consolidated financial statements are prepared on the basis
of generally accepted accounting principles and include the accounts of
Warner Insurance Services, Inc. and its subsidiaries (the "Company"), all
of which are wholly-owned. All material intercompany balances and
transactions have been eliminated. Preparation of the financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
On December 16, 1993, the Company's Board of Directors approved a
change to calendar year reporting for financial and tax reporting purposes.
This change was effective with the calendar year beginning January 1, 1994.
Accordingly, these financial statements have been prepared to present the
consolidated results of operations, changes in stockholders' equity and
cash flows for the years ended December 31, 1995 and 1994, the two months
ended December 31, 1993 and the year ended October 31, 1993.
INSURANCE COMPANY
In late 1993, the Company obtained approval from the New Jersey
Department of Insurance to form Alerion Insurance Company of New Jersey
("Alerion"). Alerion entered into a reinsurance agreement with Clarendon
National Insurance Company ("Clarendon") to assume a portion of Clarendon's
risk in the New Jersey Assigned Risk Program. The subsidiary was initially
capitalized with $10 million. During the fourth quarter of 1994, the
Company decided to discontinue assuming any underlying insurance risk.
This was accomplished by Alerion commuting all its rights and obligations
under the reinsurance contract back to Clarendon and paying to Clarendon
all amounts received in excess of payments made since the inception of the
reinsurance contract in January 1994.
MARKETABLE SECURITIES
As of January 1, 1994, the Company adopted the provisions of the
Statement of Financial Accounting Standards 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115"). SFAS No.
115 requires that investments in fixed maturity securities and those equity
securities with readily determinable market values be classified into one
of three categories: held-to-maturity, trading or available-for- sale.
Classification of investments is based upon management's current intent.
The impact of adoption was not material to the Company. All of the
Company's fixed maturity securities, which consist of municipal, state, and
mortgage-backed securities with original maturities in excess of three
months, have been categorized as available-for- sale and recorded at their
fair value at December 31, 1994. Unrealized depreciation of the securities
available for sale at December 31, 1994 ($237,737) was recorded as a
realized loss in 1994 because the securities, which were held by the
Company's insurance subsidiary, were either sold, or expected to be sold in
early 1995 in connection with the liquidation or sale of the insurance
subsidiary.
CASH FLOWS
The Company considers all highly liquid investments, with a
maturity of three months or less when purchased, to be cash equivalents.
PROPERTY AND EQUIPMENT
Expenditures for furniture, fixtures and equipment are
capitalized and carried at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives ranging from three to
ten years.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED SOFTWARE
Certain software development costs are being capitalized and
amortized over a three-year period. In addition to internally developed
costs capitalized, the cost of purchased computer software, which includes
software acquired through business acquisition, is included in capitalized
software. These costs were being amortized on a straight-line basis over
the expected useful lives of the software products which range from three
to six years. In the fourth quarter of 1994, the Company wrote down the
unamortized software costs by approximately $2.7 million (see Note 3).
INCOME TAXES
Deferred income tax assets and liabilities are recognized for the
expected future tax effects attributable to temporary differences between
the financial reporting and tax basis of assets and liabilities. Such
differences relate primarily to: the application of different depreciation
methods for tax versus financial reporting purposes; the amortization of
capitalized software costs for financial statement purposes and the current
write-off for tax purposes; the capitalization of processing and certain
start-up costs for financial statement purposes and the current write-off
for tax purposes; revenue recognition and the alternative minimum tax
credit carryover. Cash (received) paid for income taxes was: 1995 --
($2,600,000), 1994 -- $1,375,000, two months ended December 31, 1993 --
none, and year ended October 31, 1993 -- $5,050,000.
REVENUE RECOGNITION
Revenue from the sale of software licenses is recognized as
modules and modifications are provided and accepted by the customer.
Revenue from software maintenance contracts is recognized ratably over the
life of the contract.
RESEARCH AND DEVELOPMENT
For the fiscal years ended December 31, 1995 and 1994, the two
months ended December 31, 1993 and the year ended October 31, 1993,
$1,932,920, $2,499,436, $533,260 and $805,563, respectively, was expensed
for research and development of new software products. These expenses are
in addition to software development costs which are capitalized and then
amortized over their expected useful lives.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average
number of common shares and, where applicable, common share equivalents
outstanding during the periods. All per share amounts have been
retroactively adjusted to reflect the impact of the five for four stock
split by way of a 25% stock dividend declared on March 18, 1993.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25.
"Accounting for Stock Issued to Employees" ("APB No. 25") with regard to
the accounting for its employee stock options. Under APB No. 25,
compensation expense is recognized only when the exercise price of options
is below the market price of the underlying stock on the date of grant.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
SFAS No. 123 provides a fair value accounting alternative under which the
Company would recognize compensation expense for options based on their
fair value on the date of grant. The Company is evaluating the provisions
of SFAS No. 123 and has not determined whether in the future it will adopt
the statement for expense recognition purposes.
RECLASSIFICATION OF PRIOR YEARS
Prior year financial statements have been reclassified to conform
to 1995 presentations.
NOTE 3--SPECIAL CHARGES
In March 1994, the Company adopted a plan to implement a tax-free
spin-off of 100% of the stock of COVER-ALL on a pro rata basis to the
Company's stockholders. On November 11, 1994, the Company announced that
its Board of Directors had voted to retain COVER-ALL, thereby cancelling
the spin-off plan. Prior to 1995 COVER-ALL revenues came from licensing of
its Classic software product line and services. Since 1993 COVER-ALL has
been developing a suite of computer applications for property and casualty
and health care insurers entitled the Total Administration Solution ("TAS
2000"). TAS 2000 is designed to enable a client-driven re-engineering of
the insurer's business programs. TAS 2000 applications run on commodity
priced open computer systems and use state-of- the-art client/server
technology provided by Oracle Corporation.
In December 1994, management instituted a plan to down-size the
COVER-ALL organization and reduce the rate of product development to a
level consistent with the reduced level of customer installations planned
for 1995. As a result, unamortized software development costs related to
modules of the TAS 2000 application for which the development process has
been curtailed were written down by $2,733,000 and provision of $640,000
was made at December 31, 1994 for excess facilities and equipment
appropriate for the smaller organization. Costs of $1,165,000 were
incurred and written off in the first quarter of 1995 for executive and
other severance costs as well as additional software development
costs.
These write-offs and provisions were reflected as special charges
in the 1995 and 1994 Statements of Operations.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4--LITIGATION
In March 1994, Material Damage Adjustment Corporation ("MDA"), a
subsidiary of The Robert Plan Corporation and a subcontractor for the
Company performing claims processing work, instituted an action in the
Superior Court of New Jersey seeking injunctive relief requiring that the
Company turn over to MDA in excess of $1 million that the Company had
withheld from certain claims fees allegedly owed to MDA. This action arose
out of the Company's servicing contract with the Market Transition Facility
of New Jersey ("MTF"). The Company had withheld the funds as a set off to
cover unpaid invoices for data processing services rendered by the Company
for MDA. MDA also added a claim for approximately $2.5 million of
surcharge fees paid to the Company by the MTF. The MTF was brought into
the case to resolve disputes between MTF and MDA over refunds of claims
fees paid on claims later closed without payment. The Company vigorously
contested MDA's claims and asserted counterclaims against MDA to establish
the Company's entitlement to the disputed sums.
In May 1994, the Company filed an action in the Superior Court of
New Jersey against Lion Insurance Company, National Consumer Insurance
Corporation and The Robert Plan Corporation seeking payment of unsatisfied
invoices under an April 1991 agreement totalling approximately $2.7
million. Under the agreement, the Company agreed to provide data
processing services for a three-year term in support of Lion Insurance
Company's "depopulation pool" automobile insurance business in New Jersey.
Lion Insurance Company is a subsidiary of The Robert Plan Corporation whose
affiliate, National Consumer Insurance Corporation, had taken over the
"depopulation pool" business. The Robert Plan Corporation guaranteed
Lion's performance and payment.
On March 1, 1996, the two lawsuits described above were settled
as part of the overall settlement with certain of the Company's insurance
services customers. The settlement and restructuring transactions are
described in Note 1--Discontinued operations.
In addition to the above lawsuits, the Company is named as
defendant in a number of legal actions arising from its operations. Those
actions have been considered in establishing liabilities. Management and
its legal counsel are of the opinion that the settlement of those actions
will not have a material adverse effect on financial position or results of
operations.
NOTE 5--COMMITMENTS, CONTINGENCIES AND OTHER
OPERATING LEASES
Rent expense for COVER-ALL office space was $174,710, $265,363,
$44,365 and $144,520 for the years ended December 31, 1995 and 1994, the
two months ended December 31, 1993 and the year ended October 31, 1993,
respectively.
The Company's future minimum rental commitments under
noncancellable operating leases in effect at December 31, 1995, after
giving effect to the Restructuring referred to in Note 1 under which The
Robert Plan Corporation will assume one lease, are as follows: years ending
December 31, 1996 -- $810,000; 1997 -- $750,000; 1998 -- $710,000; 1999 --
$690,000; 2000 -- $460,000 thereafter -- $530,000.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5--COMMITMENTS, CONTINGENCIES AND OTHER (CONTINUED)
OPERATING LEASES (CONTINUED)
The Company's leases of office space expire at various dates from
1996 through 2002. The leases include escalation clauses for increased
real estate taxes, insurance and maintenance expenses. Generally, the
leases provide for renewal periods from three to five years.
EMPLOYMENT CONTRACTS
The Company has employment contracts with certain of its
executives with various dates of expiration through the fiscal year
ending December 31, 1996. Certain of the contracts are automatically
renewable from year to year. The aggregate annual commitment for
future salaries at December 31, 1995 was approximately $700,000.
The Company's Board of Directors adopted executive severance
agreements which create certain liabilities in the event of the
termination of the covered executives following a change of control of the
Company. At December 31, 1995, the aggregate commitment under these
agreements is approximately $2,100,000.
LETTER OF CREDIT
At December 31, 1994, the Company had an outstanding letter of
credit for $1,000,000 with First Fidelity Bank, N.A., NJ, which
guaranteed a performance bond issued in connection with the Company's
contract with the JUA/MTF, an ISD customer. In February 1995, this
letter of credit was replaced by a $1,000,000 letter of credit issued by
Chase Manhattan Bank N.A. which was collateralized by $1,000,000 that was
placed in a restricted account. The letter of credit expired in February
1996 and the $1,000,000 of cash collateral was returned to the
Company.
MAJOR CUSTOMERS
COVER-ALL had a substantial portion of its revenues from three
customers in 1995 and two customers in 1994 as follows:
Year Ended Year Ended
December 31, December 31,
Customer 1995 1994
-------- ----------- ----------
New Jersey State
Medical Underwriters 18%
Sun Alliance Management Services 16%
Secura, Inc. 11%
Empire Insurance Company 17%
Millers Insurance Group 13%
No customer represented more than 10 percent of total revenues
prior to 1994. In 1995 export sales were made to a U.K. customer of
approximately $640,000.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5--COMMITMENTS, CONTINGENCIES AND OTHER (CONTINUED)
CREDIT LINES
At December 31, 1994, the Company had outstanding $2 million in
short-term borrowings against its $4 million secured credit line with a
bank. In 1995 the Company repaid the $2 million and the credit line was
withdrawn. The Company intends to seek new bank lines. Cash paid during
the periods for interest was: 1995 -- none, 1994 -- $199,120, two months
ended December 31, 1993 -- $5,030, and year ended October 31, 1993 - -
$10,290.
NOTE 6--INCOME TAXES
An analysis of the components of the income tax provision and the
classification between continuing and discontinued operations is as
follows:
Year Ended Year Ended
December 31, December 31,
1995 1994
---------- ------------
Current:
Federal $ (2,800,000) $(2,050,000)
State -- 460,000
------------ -----------
(2,800,000) (1,590,000)
------------ ------------
Deferred:
Federal 2,800,000 (3,110,000)
State -- ( 70,000)
------------ ------------
2,800,000 (3,180,000)
------------ ------------
Total $ -- $(4,770,000)
============ ============
Income taxes (benefit):
Continuing operations -- $(3,846,351)
Discontinued operations -- (923,649)
------------ ------------
Total income taxes
(benefit) $ -- $(4,770,000)
============ ============
Two Months
Ended Year Ended
December 31, October 31,
1993 1993
---------- ------------
Current:
Federal $ 159,000 $ 2,985,800
State 28,275 1,154,200
----------- ------------
187,275 4,140,000
----------- ------------
Deferred:
Federal 60,000 (1,143,802)
State 20,000 ( 364,000)
----------- -----------
80,000 (1,507,802)
----------- -----------
Total $ 267,275 $ 2,632,198
=========== ===========
Income taxes (benefit):
Continuing operations $ (402,706) $(1,000,759)
Discontinued operations 669,981 3,632,957)
----------- ------------
Total income taxes
(benefit) $ 267,275 $ 2,632,198
=========== ============
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6--INCOME TAXES (CONTINUED)
The income tax provision (benefit) for continuing operations
differs from the amount computed by applying the statutory federal income
tax rate as follows:
Year Ended Year Ended
December 31, December 31,
1995 1994
---------- ------------
Computed federal
statutory tax (benefit) $(1,204,991) $(3,846,351)
Valuation allowance to
reduce deferred tax asset 1,204,991 --
----------- ------------
Total $ -- $(3,846,351)
=========== ============
Two Months
Ended Year Ended
December 31, October 31,
1993 1993
---------- ------------
Computed federal
statutory tax (benefit) $(402,706) $(1,000,759)
Valuation allowance to -- --
reduce deferred tax asset -------- ----------
Total $(402,706) $(1,000,759)
========= ===========
The components of the net deferred tax asset and liability
were as follows:
December 31, December 31,
1995 1994
----------- ------------
Deferred tax assets - current:
Deferred revenue $ 1,185,000 $ 4,000,000
Reserve for contract
adjustments 2,075,000 1,300,000
Bad debts 186,000 188,000
Reserve for loss on disposal 300,000 --
Other - net 31,000 112,000
Valuation allowance (3,777,000) (2,350,000)
----------- -----------
Current deferred tax
asset $ -- $ 3,250,000
=========== ===========
Deferred tax asset (liability) - long-term:
Net operating loss
carryforward $ 2,790,000 $ --
Capitalized software (600,000) (460,000)
Depreciation and amortization 200,000 (10,000)
Valuation allowance (2,410,000) --
----------- --------
Long-term deferred tax
liability $ (20,000) $ (470,000)
=========== ============
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6--INCOME TAXES (CONTINUED)
At December 31, 1995 the Company has approximately $6,975,000 of
operating tax loss carryforwards expiring in 2010. The Tax Reform Act of
1986 enacted a complex set of rules which limit a company's ability to
utilize net operating loss carryforwards and tax credit carryforward in
periods following an ownership change. These rules define an ownership
change as a greater than 50 percent point change in stock ownership within
a defined testing period which is generally a three-year period. As a
result of stock issued relative to the Restructuring and stock which is
anticipated to be issued in the near future, the Company may experience an
ownership change and consequently the Company's utilization of its net
operating losses may be subject to limitation.
NOTE 7--STOCK OPTION AND STOCK PURCHASE PLANS
In March 1995, the Company adopted the 1995 Employee Stock Option
Plan. Options for the purchase of up to 600,000 shares may be granted by a
committee of the Board of Directors to employees of the Company at an
exercise price determined by the committee at the date of grant. Options
may be granted as incentive or non-qualified stock options with a term of
not more than ten years. At December 31, 1995, 482,325 shares were
available for grant.
On November 15, 1994 the Company adopted the 1994 Stock Option
Plan for Independent Directors. Options for the purchase of up to 300,000
shares may be granted to directors of the Company who are not employees
("non-employee director"). Each non-employee director who is serving on
"Date of Grant" shall automatically be granted an option to purchase 10,000
shares of Common Stock at the fair market value of Common Stock on the date
the option is granted. Dates of Grant are November 15, 1994, 1999, 2004,
and 2009 for non-employee directors serving on November 15, 1994. For
individuals who become non-employee directors after November 15, 1994, such
directors' Dates of Grant will be the date such individual becomes a
director and the fifth, tenth and fifteenth anniversaries of such date.
Options are exercisable in full 6 months after the applicable date of grant
and expire 5 years after the date of grant. At December 31, 1995 and 1994,
260,000 and 230,000 shares, respectively, were available for grant.
In October 1994, the Company adopted the 1994 Non-Qualified Stock
Option Plan for Consultants. Options for the purchase of up to 200,000
shares may be granted by a Committee of the Board of Directors to any
individual who has entered into a written consulting contract with the
Company. The non-qualified stock options will have a 5 year term from date
of grant and will be exercisable at a price and time as determined by the
Committee at the date of grant. At December 31, 1995 and 1994, 105,000 and
150,000 shares, respectively, were available for grant.
In 1988, the Company adopted a Non-Employee Director Stock Option
Plan. Options for the purchase of up to 206,719 shares may be granted by
the Option Committee of the Board of Directors to outside Directors at an
exercise price of not less than the fair market value of common stock on
the date the option is granted. Options granted have a term of five years
from the date of grant. At December 31, 1995 and 1994, 179,156 shares were
available for grant.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7--STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED)
In June 1991, the Company adopted the Key Employee Stock Option
Plan (the "KESO Plan"). Options for the purchase of up to 721,875 shares
may be granted by the KESO Plan Committee of the Board of Directors to key
employees of the Company at an exercise price determined by the type of
option granted. Options may be granted as incentive or non-qualified stock
options with a term of not more than ten years from the date of grant. At
December 31, 1995 and 1994, 229,938 and 367,813 shares, respectively, were
available for grant.
At December 31, 1995, 2,355 options remained outstanding under
the Company's Incentive Stock Option Plan adopted in 1982. The plan
expired in 1992 with regard to the granting of new options.
A summary of the changes in outstanding common stock options for
all outstanding plans is as follows:
Shares Per Share
----- ---------
Balance, October 31, 1992 680,713 $2.29 - 6.48
Granted 62,500 9.30 - 10.40
Exercised (107,224) 2.29 - 6.48
Cancelled ( 24,500) 3.43 - 6.38
-------- -------------
Balance, October 31, 1993 611,489 2.29 - 10.40
Cancelled ( 43,750) 3.53
-------- -------------
Balance, December 31, 1993 567,739 2.29 - 10.40
Granted 222,000 2.63 - 4.38
Exercised ( 21,875) 3.53
Cancelled (314,514) 2.29 - 10.40
--------- -------------
Balance, December 31, 1994 453,350 2.63 - 10.00
Granted 462,225 1.13 - 3.75
Cancelled (225,608) 3.13 - 10.00
-------- -------------
Balance, December 31, 1995 689,967 $1.13 - 10.00
At December 31, 1995 under the above plans, 565,967 shares were
exercisable.
In 1985, the Board of Directors authorized, and the stockholders
approved, the adoption of an Employee Stock Purchase Plan (the
"Purchase Plan"). An aggregate of 344,531 shares of the Company's
common stock could be issued under the Purchase Plan. As of December 31,
1995, 207,681 shares were issued under the Purchase Plan which was
terminated in March 1995.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8--COMMON STOCK
The Company made a series of loans in 1994, 1993 and 1992
aggregating $635,757 at December 31, 1994, to its former President in
exchange for a demand note receivable with interest at 1% over the
bank's prime rate. Effective January 6, 1995, the Board of Directors
approved the receipt of 268,111 shares of Warner's Common Stock, which
were added to treasury shares, in full satisfaction for the repayment
of these loans by the former President. The cost of $2.37 per common
share for this treasury stock was $.37 per share less than the closing
bid price of Warner's Common Stock on January 6, 1995. This
receivable at December 31, 1994 was reflected in treasury stock as a
reduction of stockholders' equity.
In March 1993, the Company declared a five for four stock split
by way of a twenty-five percent (25%) stock dividend payable to
stockholders of record on April 23, 1993.
On November 17, 1989, the Company adopted a Stockholder Rights
Plan and declared a dividend distribution of one Right for each outstanding
share of common stock. Under certain conditions, each Right shall
initially entitle the registered holder thereof to purchase one-fifth of
one share of common stock at a purchase price of $10.00, subject to
adjustment. The Rights will be exercisable only if (i) a person or group
has acquired, or obtained the right to acquire 15% or more of the
outstanding shares of common stock (other than a person that acquires the
stock directly from the Company in a transaction that the Company's
independent Directors determine to be in the best interests of the Company
and its stockholders) or (ii) following the commencement of a tender offer
or exchange offer for 15% or more of the then outstanding shares of common
stock. Each Right will entitle its holder to receive, upon exercise,
common stock (or, in certain circumstances, cash, property, or other
securities of the Company) having a value equal to two times the purchase
price of the Right under certain circumstances, including the acquisition
of 20% of the outstanding common stock. All rights holders, except the
acquiror, may purchase a number of shares of common stock equal to $10.00
(subject to adjustment under the terms of the Rights Plan) divided by 50%
of the market price of the Company's common stock on the date which is ten
days after a public announcement by the Company that a person or group has
acquired, or obtained the right to acquire, 15% or more of the outstanding
shares of common stock. In the event that the Company is acquired in a
merger or other business combination transaction in which the Company is
not the surviving corporation, the rights holders may purchase the
acquiror's shares at the similar discount.
The Company may redeem the Rights at $.01 each until ten days
following the date on which a person or group of affiliated persons has
acquired, or obtained the right to acquire, the beneficial ownership of 15%
or more of the outstanding shares of common stock. The Rights will expire
on December 4, 1999 unless earlier redeemed by the Company.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9--QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows:
(Dollar amounts in thousands except per share data)
Quarter
-------------------------
First Second
----- ------
Year ended December 31, 1995:
Software licensing revenue $ 1,054 $ 925
Loss from continuing operations(1) (2,158) (280)
Loss from discontinued operations (1,330) (3,103)
Loss on disposal of discontinued
operations -- --
Net loss (3,488) (3,383)
Loss per share from continuing
operations ($0.25) ($0.03)
Net loss per share ($0.41) ($0.40)
Year ended December 31, 1994:
Software licensing revenue $ 484 $ 630
Loss from continuing operations(1) (905) (1,531)
Income (loss) from discontinued
operations (1,951) 1,252
Net income (loss) (2,856) (279)
Loss per share from continuing
operations ($0.10) ($0.17)
Net income (loss) per share ($0.32) (0$.03)
Quarter
-------------------------
Third Fourth
----- ------
Year ended December 31, 1995:
Software licensing revenue $ 1,136 $ 1,004
Loss from continuing operations(1) (388) (718)
Loss from discontinued operations (1,128) (1,547)
Loss on disposal of discontinued
operations -- (750)
Net loss (1,516) (3,015)
Loss per share from continuing
operations ($0.05) ($0.08)
Net loss per share ($0.18) ($0.34)
Year ended December 31, 1994:
Software licensing revenue $ 155 $ 658
Loss from continuing operations(1) (1,671) (3,359)
Income (loss) from discontinued
operations 1,911 (7,966)
Net income (loss) 240 (11,325)
Loss per share from continuing
operations ($0.19) ($0.38)
Net income (loss) per share $0.03 ($1.28)
(1) The first quarter of 1995 and the fourth quarter of 1994
were adversely affected by the special charges as described
in Note 3.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10--SUPPLEMENTAL DATA
Accrued liabilities consist of the following:
December 31,
----------------------
1995 1994
---- ----
Reserve for contract
costs and adjustments $ 200,000 $ 526,732
Accrued payroll, benefits
temporary help, consulting
and severance 229,623 733,868
Reserve for loss on disposal
of discontinued operations 749,758 --
Accrued expenses of the discontinued
operations not assumed by The
Robert Plan Corporation 2,839,702 --
Other 104,558 41,679
---------- ---------
Total $4,123,641 $1,302,279
========== ==========
NOTE 11--SALE OF STOCK AND WARRANTS ON MARCH 31, 1996
On March 31, 1996, the Company entered into a series of
transactions with Software Investments Limited ("SIL") and Care Corporation
Limited ("Care") whereby the Company:
(A) sold to SIL for total proceeds of $3,022,391: (i) 1,412,758
shares of Warner Common Stock for $2.00 per share and (ii) five-year
warrants to purchase an aggregate of 196,875 shares of Warner Common Stock
exercisable at $2.00 per share for $1.00 per warrant ($196,875).
(B) assigned to SIL the rights it retained in the Restructuring
(see Note 1) to repurchase within six months (from March 1, 1996) 1,628,100
shares of Warner Common Stock for the greater of $3.00 per share or 50
percent of the then market price of Warner Common Stock and its rights to
purchase from the warrant holders for $1.00 per share five-year warrants to
acquire 776,562 shares of Warner Common Stock at $2.00 per share.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11--SALE OF STOCK AND WARRANTS ON MARCH 31, 1996 (CONTINUED)
SIL has agreed to acquire the warrants within 30 days of the
agreement and to exercise such warrants within five days of their
acquisition, which will result in Warner receiving additional proceeds of
$1,553,124. The aforementioned proceeds of $3,022,391 and the $1,553,124 ,
which are anticipated to be received by the middle of May 1996, will be
used for working capital purposes including replenishing the cash paid in
March 1996 pursuant to the Restructuring (see Note 1).
In addition, the Company was granted by Care the exclusive
license for the Care software systems for use in the workers' compensation
and group health claims administration markets in Canada, Mexico and
Central and South America. In exchange for this license, Warner has issued
to Care 2,500,000 shares of Warner Common Stock. If during the three years
after closing, this license results in $5,000,000 or more in revenues by
Warner, then the shares will be fully earned. Otherwise, depending upon
the level of revenue reached, Warner will have the right to repurchase
portions of the shares at $.01 per share based upon the level of revenues
actually achieved. Under certain circumstances, based upon aggregate net
sales in excess of $10,000,000 from a maximum of two separate sales during
such three-year period, Warner may be required to grant to Care five-year
warrants to buy an additional 1,000,000 shares of Warner Common Stock at
$2.00 per share.
<PAGE>
WARNER INSURANCE SERVICES, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at
Beginning
of Period Additions
---------- ---------
Accumulated amortization of
capitalized software:
Year Ended December 31, 1995 $ -- $ 489,227
========== ==========
Year Ended December 31, 1994 $1,388,601 $3,313,023
========== ==========
Two Months Ended December 31, 1993 $1,313,127 $ 75,474
========== ==========
Year Ended October 31, 1993 $1,001,070 $312,057
========== ==========
Balance at
End
Deductions(1) of Period
---------- ----------
Accumulated amortization of
capitalized software:
Year Ended December 31, 1995 $ -- $ 489,227
========== ==========
Year Ended December 31, 1994 $4,701,624 $ --
========== ==========
Two Months Ended December 31, 1993 $ -- $1,388,601
========== ==========
Year Ended October 31, 1993 $ -- $1,313,127
========== ==========
(1) Represents reduction of fully amortized software in 1994.
<PAGE>
EXHIBIT NO. DESCRIPTION
--------- -----------
2 Certificate of Merger of Warner Computer Systems, Inc. (a
New York corporation) into the Registrant, filed on June 11,
1985 [incorporated by reference to Exhibit 2 to the
Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 29, 1986].
3(a) Certificate of Incorporation of the Registrant filed on
April 22, 1985 [incorporated by reference to Exhibit 3(a) to
the Registrant's Annual Report on Form 10-K (Commission File
No. 0-13124) filed on January 29, 1986].
3(b) Certificate of Amendment of Certificate of Incorporation of
the Registrant filed on May 6, 1987 [incorporated by
reference to Exhibit 3.2 to the Registrant's Registration
Statement on Form S-1 (Commission File No. 33- 17533) filed
on September 29, 1987].
3(c) Certificate of Amendment of Certificate of Incorporation of
the Registrant filed on March 26, 1990 [incorporated by
reference to Exhibit 3(d) to the Registrant's Quarterly
Report on Form 10-Q (Commission File No. 0-13124) filed on
June 14, 1990].
3(d) Certificate of Amendment of Certificate of Incorporation of
the Registrant filed on March 18, 1992 [incorporated by
reference to Exhibit 1 to the Registrant's Current Report on
Form 8-K (Commission File No. 0-13124) filed on March 30,
1992].
* 3(e) Bylaws of the Registrant, as amended.
4 Form of Common Stock Certificate of the Registrant
[incorporated by reference to Exhibit 4(a) to the
Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 29, 1986].
10(a) Partnership Agreement, dated December 7, 1978, by and among
the Registrant, James R. Poole, Ira M. Cantor and Stanley
A. Rothenberg [incorporated by reference to Exhibit 10(a)
to the Registrant's Registration Statement on Form S-18
(Commission File No. 2-88695-NY) filed on December 30,
1983].
10(b) Employment Agreement, dated as of August 1, 1990, between
the Registrant and Bradley J. Hughes [incorporated by
reference to Exhibit 10(h) to the Registrant's Annual Report
on Form 10-K (Commission File No. 0-13124) filed on January
24, 1991].
10(c) Employment Agreement, dated as of July 11, 1990, between the
Registrant and Theodore I. Botter [incorporated by
reference to Exhibit 10(j) to the Registrant's Annual Report
on Form 10-K (Commission File No. 0-13124) filed on January
24, 1991].
------------------------------
* Filed herewith
<PAGE>
10(e)(1) Employment Agreement, dated as of November 1, 1992, between
the Registrant and Harvey Krieger [incorporated by
reference to Exhibit 10(h) to the Registrant's Annual Report
on Form 10-K (Commission File No. 0-13124) filed on January
28, 1993].
*10(e)(2) Amendment to Employment Agreement, dated June 7, 1995,
between the Registrant and Harvey Krieger.
10(f)(1) Employment Agreement, dated as of March 22, 1994, among
COVER-ALL Systems, Inc., Michael G. Repoli and the
Registrant [incorporated by reference to Exhibit 10(f)(1) to
the Registrant's Annual Report on Form 10-K (Commission File
No. 0-13124) filed on April 17, 1995].
10(f)(2) Amendment to Employment Agreement, dated August 10, 1994,
among COVER-ALL Systems, Inc., Michael G. Repoli and the
Registrant [incorporated by reference to Exhibit 10(f)(2) to
the Registrant's Annual Report on Form 10-K (Commission File
No. 0-13124) filed on April 17, 1995].
10(f)(3) Amendment to Employment Agreement, dated January 11, 1995,
among COVER-ALL Systems, Inc., Michael G. Repoli and the
Registrant [incorporated by reference to Exhibit 10(f)(3) to
the Registrant's Annual Report on Form 10-K (Commission File
No. 0-13124) filed on April 17, 1995].
*10(g) Employment Agreement, dated as of January 24, 1996, among
COVER-ALL Systems, Inc., the Registrant and Peter C. Lynch.
10(h) Warner Insurance Services, Inc. Tax Saver 401(k) Salary
Reduction Plan adopted May 31, 1985 and restated as of
August 11, 1992 [incorporated by reference to Exhibit 10(k)
to the Registrant's Annual Report on Form 10-K (Commission
File No. 0-13124) filed on January 28, 1993].
10(i) Incentive Stock Option Plan adopted by the Board of
Directors of the Registrant on February 22, 1982, and
approved by the stockholders in February 1983 as amended on
December 16, 1983 and March 31, 1988 [incorporated by
reference to Exhibit 10(b) to the Registrant's Annual Report
on Form 10-K (Commission File No. 0-13124) filed on January
24, 1989].
10(j) Stock Option Agreement, dated March 22, 1990, between the
Registrant and Harvey Krieger [incorporated by reference to
Exhibit 10(q) to the Registrant's Annual Report on Form 10-K
(Commission File No. 0-13124) filed on January 24, 1991].
10(k) Stock Option Agreement, dated August 15, 1990, between the
Registrant and Bradley J. Hughes [incorporated by reference
to Exhibit 10(t) to the Registrant's Annual Report on Form
10-K (Commission File No. 0-13124) filed on January 24,
1991].
10(l) Stock Option Agreement, dated August 15, 1990, between the
Registrant and Theodore I. Botter [incorporated by
reference to Exhibit 10(u) to the Registrant's Annual Report
on Form 10-K (Commission File No. 0-13124) filed on January
24, 1991].
------------------------------
* Filed herewith
<PAGE>
10(m)(1) The 1991 Key Employee Stock Option Plan, adopted by the
Board of Directors of the Registrant on June 18, 1991, as
amended on September 6, 1991 and November 19, 1991 and
approved by stockholders on March 18, 1992 [incorporated by
reference to Exhibit 4(a) to the Registrant's Registration
Statement on Form S-8 (Commission File No. 33-44270) filed
on November 26, 1991].
10(m)(2) Form of Incentive Stock Option Agreement under the 1991 Key
Employee Stock Plan [incorporated by reference to Exhibit
4(b) to the Registrant's Registration Statement on Form S-8
(Commission File No. 33-44270) filed on November 26, 1991].
10(m)(3) Form of Non-Qualified Stock Option Agreement under the 1991
Key Employee Stock Option Plan [incorporated by reference to
Exhibit 4(c) to the Registrant's Registration Statement on
Form S-8 (Commission File No. 33- 44270) filed on November
26, 1991].
10(m)(4) Form of Stock Option Agreement under the 1991 Key Employee
Stock Option Plan dated as of June 21, 1991, between the
Registrant and each of Theodore I. Botter, Thomas F.
Rocchio, and Harvey Krieger [incorporated by reference to
Exhibit 4(d) to the Registrant's Registration Statement on
Form S-8 (Commission File No. 33-44270) filed on November
26, 1991].
10(m)(5) Stock Option Agreement, dated as of November 20, 1992,
between the Registrant and Bradley J. Hughes [incorporated
by reference to Exhibit 10(x)(vi) to the Registrant's Annual
Report on Form 10-K (Commission File No. 0-13124) filed on
January 28, 1993].
10(n)(1) 1994 Stock Option Plan for Independent Directors adopted by
the Board of Directors of the Registrant on November 10,
1994 [incorporated by reference to Exhibit 10(n)(1) to the
Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on April 17, 1995].
10(n)(2) Form of Stock Option Agreement under the 1994 Stock Option
Plan for Independent Directors [incorporated by reference to
Exhibit 10(n)(2) to the Registrant's Annual Report on Form
10-K (Commission File No. O-13124) filed on April 17,
1995].
10(o)(1) The 1995 Employee Stock Option Plan, adopted by the Board of
Directors of the Registrant on March 22, 1995 [incorporated
by reference to Exhibit 10(o)(1) to the Registrant's Annual
Report on Form 10-K (Commission File No. O-13124) filed on
April 17, 1995].
10(o)(2) Form of Incentive Stock Option Agreement under the 1995
Employee Stock Option Plan [incorporated by reference to
Exhibit 10(o)(2) to the Registrant's Annual Report on Form
10-K (Commission File No. 0-13124) filed on April 17,
1995].
10(o)(3) Form of Non-Qualified Stock Option Agreement under the 1995
Employee Stock Option Plan [incorporated by reference to
Exhibit 10(o)(3) to the Registrant's Annual Report on Form
10-K (Commission File No. 0-13124) filed on April 17,
1995].
10(p)(1) Indenture of Lease, dated as of July 1, 1994, between Fair
Lawn Industrial Park, Inc. and the Registrant for premises
located at 17-01 Pollitt Drive, Fair Lawn, New Jersey
[incorporated by reference to Exhibit 10(p)(1) to the
Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on April 17, 1995].
10(p)(2) Termination Agreement, dated as of June 30, 1994, among Fair
Lawn Industrial Park, Inc., Symtron Systems, Inc., and the
Registrant [incorporated by reference to Exhibit 10(p)(2) to
the Registrant's Annual Report on Form 10-K (Commission File
No. 0-13124) filed on April 17, 1995].
10(q) Lease Agreement, dated as of March 2, 1990, between the
Registrant and Polevoy Associates for premises located at
18-01 Pollitt Drive, Fair Lawn, New Jersey [incorporated by
reference to Exhibit 10(z) to the Registrant's Annual Report
on Form 10-K (Commission File No. 0-13124) filed on January
24, 1991].
10(r) Lease Agreement, dated as of December 11, 1991, between the
Registrant and Aetna Life Insurance Company for premises
located at 125 Belmont Drive, Somerset, New Jersey
[incorporated by reference to Exhibit 10(ee) to the
Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 24, 1992].
10(s) Rights Agreement, dated November 17, 1989, between the
Registrant and First Fidelity Bank, N.A., as Rights Agent
[incorporated by reference to Exhibit 1 to the Registrant's
Registration Statement on Form 8-A (Commission File No.
13-2698053) filed on October 20, 1989].
10(t)(i) Severance Agreement, dated as of November 28, 1989, between
the Registrant and Harvey Krieger [incorporated by reference
to Exhibit 1 to the Registrant's Form 8-K (Commission File
No. 0-13124) filed on December 6, 1989].
10(t)(ii) Severance Agreement, dated August 15, 1990, between the
Registrant and Bradley J. Hughes [incorporated by reference
to Exhibit 10(o)(i) to the Registrant's Annual Report on
Form 10-K (Commission File No. 0-13124) filed on January
24, 1991].
10(t)(iii) Severance Agreement, dated August 15, 1990, between the
Registrant and Theodore I. Botter [incorporated by
reference to Exhibit 10(t)(i) to the Registrant's Annual
Report on Form 10-K (Commission File No. 0-13124) filed on
January 24, 1991].
10(u)(i) Restructuring Agreement, dated as of March 1, 1996, by and
among the Registrant, Atlantic Employers Insurance Company,
Pacific Employers Insurance Company, Electric Insurance
Company, The Robert Plan Corporation, Material Damage
Adjustment Corporation, Lion Insurance Company, and National
Consumer Insurance Company [incorporated by reference to
Exhibit 10.1 to the Registrant's Form 8-K (Commission File
No. 0-13124) filed on March 7, 1996].
10(u)(ii) Form of Warrant issued by the Registrant pursuant to the
Restructuring Agreement listed as Exhibit 10(x)(i) above
[incorporated by reference to Exhibit 10.2 to the
Registrant's Form 8-K (Commission File No. 0-13124) filed
on March 7, 1996].
10(u)(iii) Asset Purchase Agreement, dated as of March 1, 1996, by and
among the Registrant, MDA Services, Inc. and The Robert
Plan Corporation [incorporated by reference to Exhibit 10.3
to the Registrant's Form 8-K (Commission File No. 0-13124)
filed on March 7, 1996].
10(v)(i) Stock Purchase Agreement, dated as of March 31, 1996, by and
among the Registrant, Software Investments Limited and Care
Corporation Limited [incorporated by reference to Exhibit
10.1 to the Registrant's Form 8-K (Commission File No.
0-13124) filed on April 8, 1996].
10(v)(ii) Repurchase Rights Assignment, dated as of March 31, 1996,
between the Registrant and Software Investments Limited
[incorporated by reference to Exhibit 10.2 to the
Registrant's Form 8-K (Commission File No. 0-13124) filed
on April 8, 1996].
10(v)(iii) Warrant, dated as of March 31, 1996, issued by the
Registrant to Software Investments Limited [incorporated by
reference to Exhibit 10.3 to the Registrant's Form 8-K
(Commission File No. 0-13124) filed on April 8, 1996].
10(v)(iv) Exclusive Software License Agreement, dated as of March 31,
1996, by and among the Registrant, Care Corporation Limited
and COVER-ALL Systems, Inc. [incorporated by reference to
Exhibit 10.4 to the Registrant's Form 8-K (Commission File
No. 0-13124) filed on April 8, 1996].
10(w) Settlement Agreement dated March 28, 1996 between the
Registrant and Clarendon National Insurance Company
[incorporated by reference to Exhibit 10.5 to the
Registrant's Form 8-K (Commission File No. 0-13124) filed
on April 8, 1996].
*21 Subsidiaries of the Registrant.
*23 Consent of Ernst & Young LLP.
*27 Financial Data Schedule.
------------------------------
* Filed herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WARNER INSURANCE SERVICES, INC.
Date: April 9, 1996 By: /s/ Alfred J. Moccia
---------------------------
Alfred J. Moccia, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated:
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Alfred J. Moccia President and Chief Executive April 9, 1996
-------------------- Office and Director
Alfred Moccia (Principal Executive Officer)
/s/ Harvey Krieger Chairman of the Board of April 9, 1996
---------------------- Directors
Harvey Krieger
/s/ Bradley J. Hughes Vice President - Finance April 9, 1996
---------------------- (Principal Financial and
Bradley J. Hughes Accounting Officer)
/s/ Leonard Gubar Director April 9, 1996
------------------
Leonard Gubar
/s/ Peter R. Lasusa Director April 9, 1996
---------------------
Peter R. Lasusa
/s/ Pamela J. Newman Director April 9, 1996
----------------------
Pamela J. Newman
----------------------
James R. Stallard Director
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Description
------- -----------
3(e) Bylaws of the Registrant, as amended
10(e)(2) Amendment to Employment Agreement,
dated June 7, 1995, between the
Registrant and Harvey Krieger
10(g) Employment Agreement, dated as of
January 24, 1996, among COVER-ALL
Systems, Inc., the Registrant and
Peter C. Lynch
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
Exhibit 3(e)
BY-LAWS OF
WARNER INSURANCE SERVICES, INC.
(A Delaware corporation)
-------------------------------------
ARTICLE I
Meetings of Stockholders
------------------------
SECTION 1. Annual Meeting. The annual meeting of the
--------------
stockholders of WARNER INSURANCE SERVICES, INC. (hereinafter
referred to as the "Corporation") for the election of directors
and for the transaction of such other business as may properly
come before the meeting shall be held on such date and at such
time as may be fixed by the Board of Directors (hereinafter
referred to as the "Board") or if no date and time are so fixed
on the last Tuesday in February of each year, if not a legal
holiday, and if a holiday, then on the next succeeding day not a
legal holiday, at the office of the Corporation or at such other
place and at such hour as shall be designated by the Board, or,
if no such time be fixed, then at 10:00 o'clock in the forenoon.
SECTION 2. Special Meetings. Special meetings of the
----------------
stockholders, unless otherwise prescribed by statute, may be
called at any time by the President or the Board of Directors
pursuant to a resolution approved by a majority of the entire
Board of Directors.
SECTION 3. Notice of Meetings. Notice of the place,
------------------
date and hour of holding each annual and special meeting of the
stockholders and the purpose or purposes thereof shall be given
personally or by mail in a postage prepaid envelope, not less
than ten nor more than fifty days before the date of such
meeting, to each stockholder entitled to vote at such meeting,
and, if mailed, it shall be directed to such stockholder at his
address as it appears on the record of stockholders, unless he
shall have filed with the secretary of the Corporation a written
request that notices to him be mailed to some other address. Any
such notice for any meeting other than the annual meeting shall
indicate that it is being issued at the direction of the
President or of the Board. Notice of any meeting of stockholders
shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy and shall not, prior to
the conclusion of such meeting, protest the lack of notice
thereof, or who shall, either before or after the meeting,
submit a signed waiver of notice, in person or by proxy. Unless
the Board shall fix a new record date for an adjourned meeting,
notice of such adjourned meeting need not be given if the time
and place to which the meeting shall be adjourned were announced
at the meeting at which the adjournment is taken.
SECTION 4. Quorum. At all meetings of the stockholders
------
the holders of the majority of the shares of Common Stock of the
Corporation, issued and outstanding and entitled to vote, shall
be present in person or by proxy to constitute a quorum for the
transaction of business. In the absence of a quorum, the holders
of a majority of the shares of Common Stock present in person or
by proxy and entitled to vote may adjourn the meeting from time
to time. At any such adjourned meeting at which a quorum may be
present any business may be transacted which might have been
transacted at the meeting as originally called.
SECTION 5. Organization. At each meeting of the
------------
stockholders, the President or in his absence any Vice President
of the Corporation, shall act as chairman of the meeting or, if
no one of the foregoing officers is present, a chairman shall be
chosen at the meeting by the stockholders. The Secretary, or in
his absence or inability to act, the person whom the chairman of
the meeting shall appoint secretary of the meeting, shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 6. Order of Business. The order of business at
-----------------
all meetings of the stockholders shall be as determined by the
chairman of the meeting.
SECTION 7. Voting. Except as otherwise provided by
------
statute or the Certificate of Incorporation, each holder of
record of shares of stock of the Corporation having voting power
shall be entitled at each meeting of the stockholders to one vote
for every share of such stock standing in his name on the record
of stockholders of the Corporation:
(a) on the date fixed pursuant to the provisions
of Section 5 of Article V of these By-Laws as the
record date for the determination of the stockholders
who shall be entitled to notice of and to vote at such
meeting; or
(b) if such record date shall not have been so
fixed, then at the close of business on the day next
preceding the day on which notice thereof shall be
given.
Each stockholder entitled to vote at any meeting of stockholders
may authorize another person or persons to act for him by a proxy
signed by such stockholder or his attorney-in-fact. Any such
proxy shall be delivered to the secretary of such meeting at or
prior to the time designated in the order of business for so
delivering such proxies. Except as otherwise required by statute
or by the Certificate of Incorporation, any corporate action to
be taken by vote of the stockholders shall require the vote of a
majority of the votes cast at a meeting of the holders of the
Common Stock of the Corporation entitled to vote thereon. Unless
required by statute, or determined by the chairman of the meeting
to be advisable, the vote on any question need not be by ballot.
On a vote by ballot, each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
SECTION 8. List of Stockholders. A list of stockholders
--------------------
as of the record date, certified by the Secretary of the
Corporation or by the transfer agent for the Corporation, shall
be produced at any meeting of the stockholders upon the request
of any stockholder made at or prior to such meeting.
SECTION 9. Inspectors. The Board may, in advance of any
----------
meeting of stockholders, appoint one or more inspectors to act at
such meeting or any adjournment thereof. If the inspectors shall
not be so appointed or if any of them shall fail to appear or
act, the chairman of the meeting shall appoint inspectors. Each
inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according
to the best of his ability. The inspectors shall determine the
number of shares outstanding and the voting power of each, the
number of shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result,
and do such acts as are proper to conduct the election or vote
with fairness to all stockholders. On request of the chairman of
the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a
certificate of any fact found by them. No director or candidate
for the office of director shall act as an inspector of an
election of directors. Inspectors need not be stockholders.
SECTION 10. Stockholder Action; How Taken. Any action
-----------------------------
required or permitted to be taken by the stockholders must be
effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such
holders.
ARTICLE II
Board of Directors
------------------
SECTION 1. General Powers. The business and affairs of
---------------
the Corporation shall be managed under the direction of the
Board. The Board may exercise all such authority and powers of
the Corporation and do all such lawful acts and things as are not
by statute or the Certificate of Incorporation directed or
required to be exercised or done by the stockholders.
SECTION 2. Number, Increase or Decrease Thereto and Term
---------------------------------------------
of Office. The Board of Directors shall consist of at least
---------
three (3), but no more than seven (7) Directors, as determined
by a majority vote of the entire Board of Directors, which number
may be increased and decreased as provided in this Section 2. The
Directors shall be classified, with respect to the term for which
they severally hold office, into three classes, as nearly equal
in number as possible, as determined by the Board of Directors,
one class to hold office initially for a term expiring at the
annual meeting of stockholders to be held in 1986, another class
to hold office initially for a term expiring at the annual
meeting of stockholders to be held in 1987, and another class to
hold office initially for a term expiring at the annual meeting
of stockholders to be held in 1988, with the members of each
class to hold office until their successors are elected and
qualified. At each annual meeting of stockholders, the
successors of the class of Directors whose term expires at that
meeting shall be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third year
following the year of their election.
The term "entire Board" as used in these By-Laws means
the total number of Directors which the Corporation would have if
there were no vacancies. Nominations for the election of
Directors may be made by the Board of Directors or a committee
appointed by the Board of Directors or by any stockholder
entitled to vote in the election of Directors generally.
However, any stockholder entitled to vote in the election of
Directors generally may nominate one or more persons for election
as Directors at a meeting only if written notice of such
stockholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail,
postage prepaid to the Secretary of the Corporation not later
than (i) with respect to an election to be held at an annual
meeting of stockholders, ninety days prior to the anniversary
date of the immediately preceding annual meeting, and (ii) with
respect to an election to be held at a special meeting of
stockholders for the election of Directors, the close of
business on the tenth day following the date on which notice of
such meeting is first given to stockholders. Each such notice
shall set forth: (a) the name and address of the stockholder who
intends to make the nomination and the person or persons to be
nominated; (b) a representation that the stockholder is a holder
of record of stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings
between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d)
such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
Exchange Commission; and (e) the consent of each nominee to serve
as a Director of the Corporation if so elected. The presiding
officer of the meeting may refuse to acknowledge the nomination
of any person not made in compliance with the foregoing
procedure.
The Board of Directors, by the vote of a majority of
the entire Board, may increase the number of Directors. Newly
created directorships resulting from any increase in the number
of Directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or
other cause shall be filled solely by the affirmative vote of a
majority of the remaining Directors then in office, even though
less than a quorum of the Board of Directors. Any Director
elected in accordance with the preceding sentence shall hold
office for the remainder of the full term of the class of
Directors in which the new directorship was created or the
vacancy occurred and until such Director's successor shall have
been elected and qualified. No decrease in the number of
Directors constituting the Board of Directors shall shorten the
term of any incumbent Director.
SECTION 3. Place of Meeting. Meetings of the Board
----------------
shall be held at the principal office of the Corporation in the
State of Delaware or at such other place, with in or without such
state, as the Board may from time to time determine or as shall
be specified in the notice of any such meeting.
SECTION 4. Annual Meeting. The Board shall meet for the
--------------
purpose of organization, the election of officers and the
transaction of other business, as soon as practicable after each
annual meeting of the stockholders, on the same day and at the
same place where such annual meeting shall be held. Notice of
such meeting need not be given. Such meeting may be held at any
other time or place (within or without the State of Delaware)
which shall be specified in a notice thereof given as hereinafter
provided in Section 7 of this Article II.
SECTION 5. Regular Meetings. Regular meetings of the
----------------
Board shall be held at such time as the Board may fix. If any
day fixed for a regular meeting shall be a legal holiday at the
place where the meeting is to be held, then the meeting which
would otherwise be held on that day shall be held at the same
hour on the next succeeding business day. Notice of regular
meetings of the Board need not be given except as otherwise
required by statute or these By-Laws.
SECTION 6. Special Meetings. Special meetings of the
----------------
Board may be called by the President or by a majority of the
entire Board.
SECTION 7. Notice of Meetings. Notice of each special
------------------
meeting of the Board (and of each regular meeting for which
notice shall be required) shall be given by the Secretary as
hereinafter provided in this Section 7, in which notice shall be
stated the time and place of the meeting. Except as otherwise
required by these By-laws, such notice need not state the
purposes of such meeting. Notice of each such meeting shall be
mailed, postage prepaid, to each director, addressed to him at
his residence or usual place of business, by first-class mail, at
least two days before the day on which such meeting is to be
held, or shall be sent addressed to him at such place by
telegraph, telex, cable or wireless, or be delivered to him
personally or by telephone, at least 24 hours before the time at
which such meeting is to be held. A written waiver of notice,
signed by the director entitled to notice, whether before or
after the time stated therein shall be deemed equivalent to
notice. Notice of any such meeting need not be given to any
director who shall, either before or after the meeting, submit a
signed waiver of notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice
to him.
SECTION 8. Quorum and Manner of Acting. Except as
---------------------------
hereinafter provided, a majority of the entire Board shall be
present in person or by means of a conference telephone or
similar communications equipment which allows all persons
participating in the meeting to hear each other at the same time
at any meeting of the Board in order to constitute a quorum for
the transaction of business at such meeting; and, except as
otherwise required by statute or the Certificate of
Incorporation, the act of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the
Board. In the absence of a quorum at any meeting of the Board, a
majority of the directors present thereat may adjourn such
meeting to another time and place. Notice of the time and place
of any such adjourned meeting shall be given to the directors who
were not present at the time of the adjournment and, unless such
time and place were announced at the meeting at which the
adjournment was taken, to the other directors. At any adjourned
meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as
originally called. The directors shall act only as a Board and
the individual directors shall have no power as such.
SECTION 9. Action Without a Meeting. Any action
------------------------
required or permitted to be taken by the Board at a meeting may
be taken without a meeting if all members of the Board consent in
writing to the adoption of the resolutions authorizing such
action. The resolutions and written consents thereto shall be
filed with the minutes of the Board.
SECTION 10. Telephonic Participation. One or more
------------------------
members of the Board may participate in a meeting by means of a
conference telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at
the same time. Participation by such means shall constitute
presence in person at the meeting.
SECTION 11. Organization. At each meeting of the Board,
------------
the President or, in his absence, another director chosen by a
majority of the directors present shall act as chairman of the
meeting and preside thereat. The Secretary (or, in his absence,
any person -- who shall be an Assistant Secretary, if any of them
shall be present at such meeting -- appointed by the chairman)
shall act as secretary of the meeting and keep the minutes
thereof.
SECTION 12. Resignations. Any director of the
------------
Corporation may resign at any time by giving written notice of
his resignation to the Board or the President or the Secretary.
Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not
be specified therein, immediately upon its receipt, and, unless
otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
SECTION 13. Vacancies. Vacancies and newly created
---------
directorships resulting from any increase in the authorized
number of directors may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole
remaining director. If there are no directors in office, then a
special meeting of stockholders for the election of directors may
be called and held in the manner provided by statute. If, at the
time of filling any vacancy or any newly created directorship,
the directors then in office shall constitute less than a
majority of the whole Board (as constituted immediately prior to
any such increase), the Court of Chancery may, upon application
of any stockholder or stockholders holding at least ten percent
of the total number of the shares at the time outstanding having
the right to vote for such directors, summarily order an election
to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the
directors then in office, in the manner provided by statute.
When one or more directors shall resign from the Board, effective
at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill
such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and
each director so chosen shall hold office until the next
election of directors and until their successors shall be
elected and qualified.
SECTION 14. Removal of Directors. Any Director may be
--------------------
removed from office, without cause, only by the affirmative vote
of the holders of 80% of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the
election of Directors, voting together as a single class.
SECTION 15. Compensation. The Board shall have
------------
authority to fix the compensation, including fees and
reimbursement of expenses, of directors for services to the
Corporation in any capacity.
ARTICLE III
Executive and Other Committees
------------------------------
SECTION 1. Executive and Other Committees. The Board
------------------------------
may, by resolution passed by a majority of the whole Board,
designate one or more committees, each committee to consist of
two or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, to the extent
provided in the resolution shall have and may exercise the powers
of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; provided, however,
that in the absence or disqualification of any member of such
committee or committees, the member or members thereof present
at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any
such absent or disqualified member. Each committee shall keep
written minutes of its proceedings and shall report such minutes
to the Board when required. All such proceedings shall be
subject to revision or alteration by the Board; provided,
however, that third parties shall not be prejudiced by such
revision or alteration.
SECTION 2. General. A majority of any committee may
-------
determine its action and fix the time and place of its meetings,
unless the Board shall otherwise provide. Notice of such
meetings shall be given to each member of the committee in the
manner provided for in Article II, Section 7. The Board shall
have any power at any time to fill vacancies in, to change the
membership of, or to dissolve any such committee. Nothing herein
shall be deemed to prevent the Board from appointing one or more
committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such
committee shall have or may exercise any authority of the Board.
SECTION 3. Action Without a Meeting. Any action
------------------------
required or permitted to be taken by any committee at a meeting
may be taken without a meeting if all of the members of the
committee consent in writing to the adoption of the resolutions
authorizing such action. The resolutions and written consents
thereto shall be filed with the minutes of the committee.
SECTION 4. Telephone Participation. One or more
-----------------------
members of a committee may participate in a meeting by means of a
conference telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at
the same time. Participation by such means shall constitute
presence in person at the meeting.
ARTICLE IV
Officers
--------
SECTION 1. Number and Qualifications. The officers of
-------------------------
the Corporation shall include the President, the Chairman of the
Board, one or more Vice Presidents, the Treasurer, and the
Secretary. Any two or more offices may be held by the same
person; except the offices of President and Secretary; provided
that when all of the issued and outstanding stock of the
Corporation is held by one person, such person may hold all or
any combination of offices. Such officers shall be elected from
time to time by the Board, each to hold office until the meeting
of the Board following the next annual meeting of the
stockholders, or until his successor shall have been duly elected
and shall have qualified or until his death, or until he shall
have resigned, or have been removed, as hereinafter provided in
these By-laws. The Board may from time to time elect, or
delegate to the President the power to appoint, such other
officers (including one or more Assistant Treasurers and one or
more Assistant Secretaries) and such agents, as may be necessary
or desirable for the business of the Corporation. Such other
officers and agents shall have such duties and shall hold their
offices for such terms as may be prescribed by the Board or by
the appointing authority.
SECTION 2. Resignations. Any officer of the Corporation
------------
may resign at any time by giving written notice of his
resignation to the Board, the President or the Secretary. Any
such resignation shall take effect at the time specified therein
or, if the time when it shall become effective shall not be
specified therein, immediately upon its receipt; and, unless
otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
SECTION 3. Removal. Any officer or agent of the
-------
Corporation may be removed, either with or without cause, at any
time, by the Board at any meeting of the Board or, except in the
case of an officer or agent elected or appointed by the Board, by
the President.
SECTION 4. Vacancies. A vacancy in any office, whether
---------
arising from death, resignation, removal or any other cause, may
be filled for the unexpired portion of the term of the office
which shall be vacant, in the manner prescribed in these By-laws
for the regular election or appointment to such office.
SECTION 5. The President. The President shall be the
-------------
chief executive officer of the Corporation and shall have general
and active management of the business and affairs of the
Corporation and general and active supervision and direction over
the other officers, agents and employees and shall see that their
duties are properly performed subject, however, to the control of
the Board. He shall perform all duties incident to the office of
President and such other duties as from tine to time may be
assigned to him by the Board or these By-Laws.
SECTION 6. The Chairman of the Board. The Chairman of
-------------------------
the Board shall preside at each meeting of the Board of Directors
of the Corporation and shall have such other powers and perform
such other duties as from time to time may be assigned to him by
the Board or these By-Laws.
SECTION 7. Vice Presidents. Each Vice President,
---------------
including any Executive Vice President, shall perform all such
duties as from time to time may be assigned to him by the Board.
SECTION 8. The Treasurer. The Treasurer shall
-------------
(a) have charge and custody of, and be
responsible for, all the funds and securities of the
Corporation;
(b) keep full and accurate accounts of receipts
and disbursements in books belonging to the
Corporation;
(c) deposit all monies and other valuables to the
credit of the Corporation in such depositaries as may
be designated by the Board;
(d) receive, and give receipts for, monies due
and payable to the Corporation from any source
whatsoever;
(e) disburse the funds of the Corporation and
supervise the investment of its funds as ordered or
authorized by the Board, taking proper vouchers
therefor; and
(f) in general, perform all the duties incident
to the office of Treasurer and such other duties as
from time to time may be assigned to him by the Board
or the President.
SECTION 9. The Secretary. The Secretary shall
-------------
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings
of the Board, the committees of the Board and the stock
holders;
(b) see that all notices are duly given in
accordance with the provisions of these By-laws and as
required by law;
(c) be custodian of the records and the seal of
the Corporation and affix and attest the seal to all
stock certificates of the Corporation (unless the seal
of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and
attest the seal to all other documents to be executed
on behalf of the Corporation under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required
by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident
to the office of Secretary ad such other duties as from
time to time may be assigned to him by the Board or the
President.
SECTION 10. Officers' Bonds or Other Security. If
---------------------------------
required by the Board, any officer of the Corporation shall give
a bond or other security for the faithful performance of his
duties, in such amount and with such surety or sureties as the
Board may require.
SECTION 11. Compensation. The compensation of the
------------
officers of the Corporation for their services as such officers
shall be fixed from time to time by the Board; provided, however,
that the Board may delegate to the President the power to fix the
compensation of officers and agents appointed by him. An officer
of the Corporation shall not be prevented from receiving
compensation by reason of the fact that he is also a director of
the Corporation, but any such officer who shall also be a
director (except in the event that there is only one director of
the Corporation) shall not have any vote in the determination of
the amount of compensation paid to him.
ARTICLE V
Shares, etc.
------------
SECTION 1. Stock Certificates. Each owner of stock of
------------------
the Corporation shall be entitled to have a certificate, in such
form as shall be approved by the Board, certifying the number of
shares of stock of the Corporation owned by him. The
certificates representing shares of stock shall be signed in the
name of the Corporation by the President or a Vice President and
by the Secretary, Treasurer or an Assistant Secretary and sealed
with the seal of the Corporation (which seal may be a facsimile,
engraved or printed). In case any officer who shall have signed
such certificates shall have ceased to be such officer before
such certificates shall be issued, they may nevertheless be
issued by the Corporation with the same effect as if such officer
were still in office at the date of their issue.
SECTION 2. Books of Account and Record of Stockholders.
-------------------------------------------
There shall be kept correct and complete books and records of
account of all the business and transactions of the Corporation.
The stock record books and the blank stock certificate books
shall be kept by the Secretary or by any other officer or agent
designated by the Board of Directors.
SECTION 3. Transfers of Shares. Transfers of shares of
-------------------
stock of the Corporation shall be made on the stock records of
the Corporation only upon authorization by the registered holder
thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a
transfer agent or transfer clerk, and on surrender of the
certificate or certificates for such shares properly endorsed or
accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. The person in whose name shares of
stock shall stand on the record of stockholders of the
Corporation shall be deemed the owner thereof for all purposes as
regards the Corporation. Whenever any transfers of shares shall
be made for collateral security and not absolutely and written
notice thereof shall be given to the Secretary or to such
transfer agent or transfer clerk, such fact shall be stated in
the entry of the transfer.
SECTION 4. Regulations. The Board may make such
-----------
additional rules and regulations, not inconsistent with these
By-laws, as it may deem expedient concerning the issue, transfer
and registration of certificates for shares of stock of the
Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer agents or one or more
transfer clerks and one or more registrars and may require all
certificates for shares of stock to bear the signature or
signatures of any of them.
SECTION 5. Fixing of Record Date. The Board may fix, in
---------------------
advance, a date not more than fifty nor less than ten days before
the date then fixed for the holding of any meeting of the
stockholders or before the last day on which the consent or
dissent of the stockholders may be effectively expressed for any
purpose without a meeting, as the time as of which the
stockholders entitled to notice of and to vote at such meeting or
whose consent or dissent is required or may be expressed for any
purpose, as the case may be, shall be determined, and all persons
who were shareholders of record of voting stock at such time,
and no others, shall be entitled to notice of and to vote at such
meeting or to express their consent or dissent, as the case may
be. The Board may fix, in advance, a date not more than fifty
nor less than ten days preceding the date fixed for the payment
of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the
Corporation, or for the delivery of evidence of rights or
evidences of interest arising out of any change, conversion or
exchange of capital stock or other securities, as the record
date for the determination of the stockholders entitled to
receive any such dividend, distribution, allotment, rights or
interests, and in such case only the stockholders of record at
the time so fixed shall be entitled to receive such dividend,
distribution, allotment, rights or interests.
SECTION 6. Lost, Destroyed or Mutilated Certificate. The
----------------------------------------
holder of any certificate representing shares of stock of the
Corporation shall immediately notify the Corporation of any loss,
destruction or mutilation of such certificate, and the
Corporation may issue a new certificate of stock in the place of
any certificate theretofore issued by it which the owner thereof
shall allege to have been lost or destroyed or which shall have
been mutilated, and the Board may, in its discretion, require
such owner or his legal representative to give to the Corporation
a bond in such sum, limited or unlimited, and in such form and
with such surety or sureties as the Board in its absolute
discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged
loss or destruction of any such certificate, or the issuance of
such new certificate. Anything herein to the contrary
notwithstanding, the Board, in its absolute discretion, may
refuse to issue any such new certificate, except pursuant to
legal proceedings under the laws of the State of Delaware.
ARTICLE VI
Contracts, Checks, Drafts, Bank Accounts, Etc.
----------------------------------------------
SECTION 1. Execution of Contracts. Except as otherwise
----------------------
required by statute, the Certificate of Incorporation or these
By-Laws, any contract or other instrument may be executed and
delivered in the name and on behalf of the Corporation by such
officer of officers (including any assistant officer) of the
Corporation as the Board may from time to time direct. Such
authority may be general or confined to specific instances as the
Board may determine. Unless authorized by the Board or expressly
permitted by these By-Laws, no officer or agent or employee shall
have any power or authority to bind the Corporation by any
contract or engagement or to pledge its credit or to render it
pecuniarily liable for any purpose or to any amount.
SECTION 2. Loans. Unless the Board shall otherwise
-----
determine, the President or any Vice-President may effect loans
and advances at any time for the Corporation from any bank, trust
company or other institution, or from any firm, corporation or
individual, and for such loans and advances may make, execute and
deliver promissory notes, bonds or other certificates or
evidences of indebtedness of the Corporation, but no officer or
officers shall mortgage, pledge, hypothecate or transfer any
securities or other property of the Corporation other than in
connection with the purchase of chattels for use in the
Corporation's operations, except when authorized by the Board.
SECTION 3. Checks, Drafts, etc. All checks, drafts,
-------------------
bills of exchange or other orders for the payment of money out of
the funds of the Corporation, and all notes or other evidence of
indebtedness of the Corporation, shall be signed in the name and
on behalf of the Corporation by such persons and in such manner
as shall from time to time be authorized by the Board.
SECTION 4. Deposits. All funds of the Corporation not
--------
otherwise employed shall be deposited from time to time to the
credit of the Corporation in such banks, trust companies or other
depositaries as the Board may from time to time designate or as
may be designated by any officer or officers of the Corporation
to whom such power of designation may from time to time be
delegated by the Board. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, checks,
drafts and other orders for the payment of money which are
payable to the order of the Corporation may be endorsed, assigned
and delivered by any officer or agent of the Corporation.
SECTION 5. General and Special Bank Accounts. The
---------------------------------
Board may from time to time authorize the opening and keeping of
general and special bank accounts with such banks, trust
companies or other depositaries as the Board may designate or as
may be designated by any officer or officers of the Corporation
to whom such power of designation may from time to time be
delegated by the Board. The Board may make such special rules
and regulations with respect to such bank accounts, not
inconsistent with the provisions of these By-Laws, as it may deem
expedient.
ARTICLE VII
Offices
-------
SECTION 1. Registered Office. The registered office of
-----------------
the Corporation shall be in the City of Wilmington, County of New
Castle, State of Delaware, and the registered agent of the
Corporation shall be The Corporation Trust Company, whose
address is Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801.
SECTION 2. Other Offices. The Corporation may also
-------------
have such offices, both within or without the State of Delaware,
as the Board of Directors may from time to time determine or the
business of the Corporation may require.
ARTICLE VIII
Fiscal Year
-----------
The fiscal year of the Corporation shall be determined
by the Board of Directors.
ARTICLE IX
Seal
----
The seal of the Corporation shall be circular in form,
shall bear the name of the Corporation and shall include the
words and numbers "Corporate Seal," "Delaware" and the year of
incorporation.
ARTICLE X
Indemnification
---------------
Any person made a party to any action or proceeding
(whether or not by or in the right of the Corporation to procure
a judgment in its favor or by or in the right of any other
corporation) by reason of the fact that he, his testator or
intestate, is or was a director, officer or employee of the
Corporation, or of any corporation which he served as such at the
request of the Corporation, shall be indemnified by the
Corporation against judgments, fines, amounts paid in settlement
and reasonable expenses, including attorneys' fees, actually and
necessarily incurred by him in connection with the defense of or
as a result of such action or proceeding, or in connection with
any appeal therein, to the full extent permitted under the laws
of the State of Delaware from time to time in effect. The
Corporation shall have the power to purchase and maintain
insurance for the indemnification of such directors, officers and
employees to the full extent permitted under the laws of the
State of Delaware from time to time in effect. Such right of
indemnification shall not be deemed exclusive of any other rights
of indemnification to which such director, officer or employee
may be entitled.
ARTICLE XI
Amendment
---------
The Board of Directors shall have power to make,
alter, amend and repeal the By-laws (except so far as the
By-laws adopted by the stockholders shall otherwise provide).
Any By-laws made by the Directors under the powers conferred
hereby may be altered, amended or repealed by the Directors or
by the stockholders. Notwithstanding the foregoing and anything
contained in this Certificate of Incorporation to the contrary,
those provisions of the By-laws relating to the number, election
and terms of the Directors, newly created Directorships and
vacancies or removal of Directors shall not be altered, amended
or repealed and no provision inconsistent therewith shall be
adopted without the affirmative vote of the holders of at least
80% of the combined voting power of the then outstanding shares
of stock entitled to vote generally in the election of Directors,
voting together as a single class.
Exhibit 10(e)(2)
WARNER INSURANCE SERVICES, INC.
17-01 Pollitt Drive
Fair Lawn, New Jersey 07410
June 7, 1995
Mr. Harvey Krieger
12 Vaughn Drive
Ramsey, New Jersey 07446
Re: AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
Dear Mr. Krieger:
Reference is made to the Employment Agreement, dated as
of November 1, 1992 (the "Employment Agreement"), between Harvey
Krieger (the "Executive") and Warner Insurance Services, Inc., a
Delaware corporation (the "Company"). The Executive and the
Company desire to amend the Employment Agreement (i) to change
the Executive's position provided thereunder, (ii) to change the
expiration date of the Employment Agreement, (iii) to change the
Executive's duties provided thereunder, and (iv) to decrease by
fifteen percent (15%) the annual base compensation of the
Executive provided thereunder.
1. The first WHEREAS clause of the Employment
Agreement is hereby amended in its entirety to read as follows:
"WHEREAS, the Company desires to
continue to engage the services of the
Executive as Chairman of the Board of
Directors of the Company, and the Executive
desires to render such services:"
2. Section 1 of the Employment Agreement is hereby
amended in its entirety to read as follows:
"1. Employment. The Company hereby
----------
retains the Executive as Chairman of its Board of
Directors, and Executive hereby accepts such
employment, all upon and subject to the terms and
conditions hereinafter set forth."
3. Section 2 of the Employment Agreement is hereby
amended in its entirety to read as follows:
"2. Term. The term of the Executive's
----
employment under this Agreement shall commence on
November 1, 1992 and shall continue to May 31, 1996 and
from year to year thereafter for annual terms (the
"Employment Term"); provided, however, either party may
terminate this Agreement on May 31, 1996 or on any May
31 thereafter by not less than sixty (60) days' written
notice to the other prior to the renewal date."
4. Subsection (a) of Section 3 of the Employment
Agreement is hereby amended in its entirety to read as follows:
"3. Duties.
------
(a) The Executive will render his
services to the Company as Chairman of the
Company's Board of Directors and shall
perform the duties and services incident to
such position as may be assigned to him from
time to time by the Board of Directors of the
Company. In addition, the Executive will
hold, without additional compensation
therefor, such other offices and
directorships in the Company or any
subsidiary of the Company to which, from time
to time, he may be appointed or elected."
5. Subsection (a) of Section 4 of the Employment
Agreement is hereby amended in its entirety to read as follows:
"4. Compensation; Benefits.
----------------------
(a) In consideration of the services to
be rendered by the Executive hereunder,
including, without limitation, any services
rendered by him as an officer or director of
the Company or any subsidiary of the Company,
the Company agrees to pay the Executive, and
the Executive agrees to accept as
compensation a salary at the annual rate of
not less than Three Hundred Twenty-Seven
Thousand Five Hundred Ninety Dollars
($327,590), payable in accordance with the
Company's normal payroll policies. In
addition, the Executive shall be entitled to
vacations, sick leave and fringe benefits in
accordance with Company policies and plans
from time to time in effect for executive
officers of the Company, which shall include
the use of a Company car.
Except as above modified, the Employment Agreement
shall continue in full force and effect. Please indicate your
agreement to the foregoing amendments to the Employment Agreement
by executing the acknowledgment to this letter in the space
provided below.
Very truly yours,
WARNER INSURANCE SERVICES, INC.
By: /s/ Bradley J. Hughes
-------------------------------
Name: Bradley J. Hughes
Title: Vice President, Finance and
Administration and Chief
Financial Officer
ACKNOWLEDGED AND AGREED TO AS
OF THE 1ST DAY OF JUNE, 1995
/s/ Harvey Krieger
-----------------------------
Harvey Krieger
Exhibit 10(g)
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of the 24th day of January, 1996, by
and among COVER-ALL Systems, Inc., a Delaware corporation
("Cover-All"), Warner Insurance Services, Inc., a Delaware
corporation (the "Company"), having its principal office at 17-01
Pollitt Drive, Fair Lawn, New Jersey 07410 and PETER C. LYNCH,
currently residing at 153 Indian Cove Lane, Ponte Vedra Beach,
Florida 32082 (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee is serving as President and Chief
Operating Officer of Cover-All, the Company's subsidiary,
pursuant to that certain Employment Agreement by and among the
Company, Cover-All and the Employee dated the 1st day of March,
1995, which expires on February 29, 1996, and the Company, Cover-
All and the Employee wish to continue the Employee's employment
thereafter pursuant to the terms hereof.
NOW, THEREFORE, in consideration of the
representations, warranties and mutual covenants set forth
herein, the parties agree as follows:
1. Employment. The Company, effective March 1, 1996,
----------
hereby agrees to continue to retain the Employee as President and
Chief Operating Officer of Cover-All and the Employee hereby
accepts such employment, all upon and subject to the terms and
conditions hereinafter set forth.
2. Term. The term of employment under this Agreement
----
(the "Employment Agreement") shall commence as of March 1, 1996
and shall continue in full force and effect until February 28,
1998 (the "Employment Term"), subject to earlier termination for
disability or for cause as provided in Section 6 hereof. This
Agreement may be renewed by the Company and Employee for
successive one-year terms by providing written notice of renewal
to each other (the "Renewal Option"), provided such written
notice is given at least ninety (90) days prior to the expiration
of the then current term.
3. Duties.
------
(a) The Employee will render his services to Cover-All
as President and Chief Operating Officer and shall perform such
duties and services of those offices or positions or of such
other office or position as may be assigned to him from time to
time by the Board of Directors of the Company. In addition, the
Employee will hold, without additional compensation therefor,
such other offices and directorships in the Company or any parent
or subsidiary of the Company to which, from time to time, he may
be appointed or elected.
(b) Except as otherwise provided herein and except for
illness, permitted vacation periods and permitted leaves of
absence consistent with the past practice of the Company or as
otherwise approved by the Board of Directors of the Company, the
Employee agrees that during the term of his employment hereunder,
he shall devote all of his full working time and attention, and
give his best effort, skill and abilities, exclusively to the
business and interests of Cover-All.
4. Compensation; Benefits
----------------------
(a) (i) Salary. In consideration of the services to
------
be rendered by the Employee hereunder, including, without
limitation, any services rendered by him as an officer or
director of the Company or any parent, subsidiary or affiliate of
the Company, the Company agrees to pay to the Employee, and the
Employee agrees to accept as compensation, a salary of
$165,000.00 for the first year of employment contemplated hereby
and $189,750.00 for the second year of employment as well as for
each successive year of employment thereafter if the Renewal
Option is exercised (the "Salary"), payable in accordance with
the Company's normal payroll policies. The Company, by action of
the Board of Directors or the Compensation Committee of the Board
of Directors of the Company, may, in their sole discretion,
increase the Salary at any time. The Employee's Salary shall be
subject to all applicable withholding and other taxes.
(ii) Moving Allowance. The Employee hereby
----------------
agrees, in order to carry out his duties and responsibilities
hereunder, to relocate from Ponte Vedra, Florida and establish
permanent residence within a reasonable distance from Fair Lawn,
New Jersey. The Company agrees that it will, upon presentation
and adequate documentation of reasonable expenses incurred by the
Employee in having to relocate ("Relocation Expenses"), reimburse
the Employee for all reasonable Relocation Expenses, up to
$57,000.00.
(iii) Bonus Plan. In addition to the payment of
----------
the Salary, as provided for hereunder, the Company shall pay the
Employee a bonus based upon the financial results of the Company,
in accordance with such Bonus Plan as may be approved hereafter
by the Compensation Committee of the Board of Directors of the
Company.
(b) Benefits. During the term of his employment
--------
hereunder, the Employee shall be entitled to the following
employment benefits:
(i) vacations and sick leaves in accordance with
the Company's policies from time to time in effect for
officers and executive employees of the Company;
(ii) participation, subject to qualification and
participation requirements, in medical, life or other
insurance or hospitalization plans and any pension, profit
sharing or other employee benefit plans, presently in effect
or hereafter instituted by the Company and applicable to its
officers and executive employees; and
(iii) attendance for five (5) days at an
educational seminar for executives at Company expense.
(c) Reimbursement of Expenses. The Employee shall be
-------------------------
reimbursed for reasonable and necessary expenses incurred by the
Employee in performing his employment hereunder, provided such
expenses are adequately documented in accordance with the
Company's policies.
(d) Indemnification. To the extent and under the
---------------
conditions provided in the Company's bylaws, the Employee shall
be indemnified by the Company for judgments, costs, and expenses
for acts performed as an officer and employee of the Company
(subject to Delaware law).
5. Stock Options. Effective upon the commencement of
-------------
the employment of the Employee under the terms herein, the
Employee shall be eligible, at the sole discretion of the
Compensation Committee of the Board of Director of the Company,
for incentive stock options for the purchase of shares of common
stock, $.01 par value, of the Company (the "Common Stock") in
amounts and at costs to be determined by and in the sole
discretion of the Compensation Committee of the Board of
Directors of the Company.
6. Termination in Case of Disability Death or for
----------------------------------------------
Cause.
-----
(a) If the Employee, due to physical or mental injury,
illness, disability or incapacity, shall fail to render the
services provided for in this Agreement for a consecutive period
of three (3) months, or an aggregate of three (3) months in any
six (6) month period, the Company may, at its option, terminate
the Employee's employment hereunder upon fourteen (14) days'
written notice to the Employee.
(b) If the Employee shall die during the term of this
Agreement, this Agreement and the Employee's employment hereunder
shall terminate immediately upon the Employee's death.
(c) Notwithstanding anything to the contrary in this
Agreement, the Company, upon notice to the Employee, may
terminate this Agreement and the employment of the Employee
hereunder for Cause, which, for purposes of this Agreement, shall
be defined to mean (i) the continued and repeated failure or
refusal by the Employee to perform specific directives of the
Board of Directors of the Company, (ii) embezzlement or any
offense involving misuse or misappropriation of money or other
property of the Company, (iii) indictment for a crime, (iv) any
act of dishonesty, disloyalty or other conduct that is materially
injurious to the Company, or (v) material breach by the Employee
of any of the terms of this Agreement other than those contained
in this Section 6.
7. Severance Compensation.
----------------------
(a) In the event the Employee's employment hereunder
is terminated by the Company during the Employment Term for any
reason other than for Cause, death or disability, the Company
shall pay to the Employee as severance compensation an amount
equal to the remaining Salary that the Employee would have been
entitled if the Employee's employment had not been terminated
before the end of the Employment Term plus six (6) months'
Salary.
(b) In the event the Employee's employment hereunder is
terminated by the Company after the Employment Term for any
reason, including the expiration of the Employment Term without
renewal thereof by the Company, and other than for Cause, death
or disability, the Company shall pay to the Employee as severance
compensation an amount equal to six (6) months' Salary.
(c) Severance compensation shall be paid biweekly in
accordance with the Company's usual practices. Employee shall
also be paid biweekly for unused vacation time.
(d) In the event the Employee receives severance
compensation under this Section 7, the Employee shall not be
entitled to receive any other compensation or benefits under this
Agreement after the termination of the Employee's employment
hereunder and, as a condition to receiving such-severance
compensation, the Employee hereby agrees that he shall have no
other claim against the Company by reason of this Agreement.
8. Disclosure and Assignment of Discoveries.
----------------------------------------
(a) The Employee shall (without any additional
compensation) promptly disclose in writing to the Board of
Directors of Cover-All and of the Company all ideas, processes,
devices and business concepts (hereinafter referred to
collectively as "Discoveries"), whether or not patentable or
copyrightable, which he, while employed by the Company,
conceives, develops, acquires or reduces to practice, whether
alone or with others and whether during or after usual working
hours, and which are related to Cover-All's business or
interests, or arise out of or in connection with the duties
performed by him hereunder; and the Employee hereby transfers and
assigns to Cover-All all right, title and interest in and to such
Discoveries. Upon the request of the Company, the Employee shall
(without any additional compensation), from time to time during
or after the expiration or termination of his employment, execute
such further instruments and do all such other acts and things as
may be deemed necessary or desirable by the Company to protect
and/or enforce its rights in respect of such discoveries.
(b) For purposes of this Section 8 and the following
Section 9, the term "Company" shall mean and include any and all
subsidiaries, parents and affiliated corporations of the Company
in existence from time to time.
9. Non-Disclosure of Confidential Information and
----------------------------------------------
Non-Competition.
----------------
(a) The Employee represents that he has been informed
that it is the policy of the Company to maintain as secret and
confidential all information relating to (i) the products,
processes and/or business concepts used by the Company and (ii)
the customers and employees of the Company ("Confidential
Information"), and the Employee further acknowledges that such
Confidential Information is of great value to the Company and is
the property of the Company. The parties recognize that the
services to be performed by the Employee are special and unique,
and that by reason of his employment by the Company, he will
acquire Confidential Information as aforesaid. The parties
confirm that to protect the Company's goodwill, it is reasonably
necessary that the Employee agree, and accordingly the Employee
does hereby agree, that he will not directly or indirectly
(except where authorized by the Board of Directors of the Company
for the benefit of the Company):
A. at any time during his employment hereunder or
after he ceases to be employed by the Company, divulge to
any persons, firms or corporations other than the Company
(hereinafter referred to collectively as "Third Parties"),
or use, or cause to authorize any Third Parties to use, any
such Confidential Information, or any other information
regarded as confidential and valuable by the Company which
he knows or should know is regarded as confidential and
valuable by the Company (whether or not any of the foregoing
information is actually novel or unique or is actually known
to others); or
B. at any time during his employment hereunder and
for a period of one (1) year after he ceases to be employed
by the Company (the "Restricted Period"), solicit or cause
or authorize, directly or indirectly, to be solicited for
employment, for or on behalf of himself or Third Parties,
any persons who were at any time within one year prior to
the cessation of his employment hereunder, employees of the
Company; or
C. at any time during his employment hereunder and
during the Restricted Period, employ or cause or authorize,
directly or indirectly, to be employed, for or on behalf of
himself or Third Parties, any such employees of the Company;
D. at any time during his employment hereunder and
during the Restricted Period, unless agreed to by the
Company in writing, the Employee will not accept employment
with or participate, directly or indirectly, as owner,
stockholder, director, officer, manager, consultant or agent
or otherwise use his special, unique or extraordinary skills
or knowledge with respect to the business of the Company or
of any affiliate of the Company in or with any business,
firm, corporation, partnership, association, venture or
other entity or person which is engaged in the business of
designing, developing or providing software services to the
property and casualty insurance industry, except that this
paragraph D shall not be construed to prohibit the Employee
from owning up to 5% of the securities of a corporation
which are publicly traded on a national securities exchange
or in the over-the-counter market or from being employed by
an insurance or other company which may design and market
software provided the designing and marketing of software is
not a principal part of the business of such other company
or concern; or
E. at any time during his employment hereunder and
during the Restricted Period, solicit or cause or authorize,
directly or indirectly, to be solicited, for or on behalf of
himself or Third Parties, any business with respect to
designing, developing or providing software services to the
property and casualty insurance industry from Third Parties
who were, at any time within one (1) year prior to the
cessation of his employment hereunder, customers of the
Company for such business; or
F. at any time during his employment hereunder and
during the Restricted Period, accept or cause or authorize,
directly or indirectly, to be accepted, for or on behalf of
himself or Third Parties, any such business from any
customers of the Company.
(b) The Employee agrees that he will not, at any time,
remove from the Company's premises any drawings, notebooks, data
and other documents and materials relating to the business and
procedures heretofore or hereafter acquired, developed and/or
used by the Company without prior written consent of the Board of
Directors of the Company, except as reasonably necessary to the
discharge of his duties hereunder.
(c) The Employee agrees that, upon the expiration of
his employment by the Company for any reason, he shall forthwith
deliver up to the Company any and all order-books, customer
lists, logs, drawings, notebooks and other documents and
materials, and all copies thereof, in his possession or under his
control relating to any Confidential Information or any
discoveries or which is otherwise the property of the Company.
(d) The Employee agrees that any breach or threatened
breach or alleged breach or alleged threatened breach by him of
any provision of this Section 9 shall entitle the Company, in
addition to any other legal remedies available to it, to apply to
any court of competent jurisdiction to enjoin such breach or
threatened breach or alleged breach or alleged threatened breach.
The parties understand and intend that each restriction agreed to
by the Employee hereinabove shall be construed as separable and
divisible from every other restriction, and that the
unenforceability, in whole or in part, of any other restriction,
will not effect the enforceability of the remaining restrictions
and that one or more or all of such restrictions may be enforced
in whole or in part as the circumstances warrant. No waiver of
any one breach of the restrictions contained in this Section 9
shall be deemed a waiver of any future breach.
(e) The Employee hereby acknowledges that he is fully
cognizant of the restrictions put upon him by this Section 9, and
that the provisions of this Section 9 shall survive the
termination of this Employment Agreement and his employment with
the Company.
10. Conflicting Agreements and Warranties of the
--------------------------------------------
Employee. The Employee hereby represents and warrants to the
--------
Company that (a) neither the execution of this Agreement by the
Employee nor the performance by the Employee of any of his
obligations or duties hereunder will conflict with or violate or
constitute a breach of the terms of any employment or other
agreement to which the Employee is a party or by which the
Employee is bound, and (b) the Employee is not required to obtain
the consent of any person, firm, corporation or other entity in
order to enter into this Agreement or to perform any of his
obligations or duties hereunder.
11. Life Insurance. The Employee agrees that the
--------------
Company may apply for and purchase one or more life insurance
policies on the life of the Employee in such amount or amounts as
the Company deems appropriate. The Company shall be the sole
beneficiary of such insurance policy or policies and the Employee
hereby acknowledges that the Company has an insurable interest in
his life. The Employee agrees to cooperate with the Company in
obtaining any insurance on the life or on the disability of the
Employee which the Company may desire to obtain for its own
benefit and shall undergo such physical and other examinations,
and shall execute any consents or applications, which the Company
may request in connection with the issuance of one or more of
such insurance policies.
12. Notices.
-------
(a) All notices, requests, demands or other
communications hereunder shall be deemed to have been given if
delivered in writing personally or by certified mail to each
party at the address set forth below, or at such other address as
each party may designate in writing to the other:
If to the Company or Cover-All:
Warner Insurance Services, Inc.
17-01 Pollitt Drive
Fair Lawn, New Jersey 07410
Attention: President and Chief Executive Officer
with a copy to:
Reid & Priest
40 West 57th Street
New York, New York 10019
Attention: Leonard Gubar, Esq.
If to the Employee:
Until _____________, 1996:
Peter C. Lynch
153 Indian Cove Lane
Ponte Vedra Beach, Florida 32082
If after _______________, 1996:
______________________
______________________
______________________
13. Entire Agreement. This Agreement and the Exhibits
----------------
annexed hereto contain the entire understanding of the parties
with respect to the subject matter hereof, supersedes any prior
agreement between the parties, and may not be changed or
terminated orally. No change, termination or attempted waiver of
any of the provisions hereof or thereof shall be binding unless
in writing and signed by the party against whom the same is
sought to be enforced. No provision hereof shall be construed
against a party because that provision or any other provision was
drafted by or at the direction of such party.
14. Successors and Assigns. This Agreement shall be
----------------------
binding upon and shall inure to the benefit of the respective
heirs, legal representatives, successors and assigns of the
parties hereto.
15. Severability. In the event that any one or more
------------
of the provisions of this Agreement shall be declared to be
illegal or unenforceable under any law, rule or regulation of any
government having jurisdiction over the parties hereto, such
illegality or unenforceability shall not affect the validity and
enforceability of the other provisions of this Agreement.
16. Counterparts. This Agreement may be executed in
------------
one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
17. Governing Law. All matters concerning the
-------------
validity and interpretation of and performance under this
Agreement shall be governed by the laws of the state of New York,
whose courts or the federal courts located in the Southern
District of New York shall have exclusive jurisdiction over the
parties to which they consent.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first above written.
WARNER INSURANCE SERVICES, INC.
By: /s/ Alfred J. Moccia
--------------------------------
Name: Alfred J. Moccia
Title: President
COVER-ALL SYSTEMS, INC.
By: /s/ Alfred J. Moccia
--------------------------------
Name: Alfred J. Moccia
Title: Vice-Chairman
/s/ Peter C. Lynch
--------------------------------
PETER C. LYNCH
Exhibit 21
SUBSIDIARIES OF WARNER INSURANCE SERVICES, INC.
State of Jurisdiction % Owned
Name or Incorporation Direct or Indirect
---- -------------------- ------------------
COVER-ALL
Systems Inc. Delaware 100%
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-18243) pertaining to the 1982
Incentive Stock Option Plan and in the Registration Statement
(Form S-8 No. 33-44270) pertaining to the 1991 Key Employee
Stock Option Plan, the 1988 Non-Employee Director Stock Option
Plan and certain Non-Qualified Stock Option Contracts, and in the
related Prospectuses of Warner Insurance Services, Inc., of our
report dated April 4, 1996, with respect to the consolidated
financial statements and schedule of Warner Insurance Services,
Inc. included in the Annual Report (Form 10-K) for the year
ended December 31, 1995.
/s/ Ernst & Young LLP
Ernst & Young LLP
Hackensack, New Jersey
April 9, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM WARNER INSURANCE SERVICES, INC. FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,576,745
<SECURITIES> 0
<RECEIVABLES> 1,763,890
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,645,990
<PP&E> 3,095,529
<DEPRECIATION> 2,369,873
<TOTAL-ASSETS> 8,369,154
<CURRENT-LIABILITIES> 14,362,633
<BONDS> 0
<COMMON> 91,949
0
0
<OTHER-SE> (6,105,428)
<TOTAL-LIABILITY-AND-EQUITY> 8,369,154
<SALES> 0
<TOTAL-REVENUES> 4,118,754
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,662,844
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,544,090)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,544,090)
<DISCONTINUED> (7,857,745)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,401,835)
<EPS-PRIMARY> (1.33)
<EPS-DILUTED> (1.33)
</TABLE>
