<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to _______________
Commission file number 0-15946
DELPHI INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0021975
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
3501 Algonquin Road
Rolling Meadows, Illinois 60008
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (847) 506-3100
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Title of each class Name of each exchange of which registered
------------------- -----------------------------------------
Common Stock, par value NASDAQ SmallCap Market
$0.10 per share
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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
As of June 1, 1996, the number of shares of Common Stock outstanding was
29,849,724. As of such date, the aggregate market value of Common Stock held by
nonaffiliates, based upon the last sale price of the shares as reported on the
NASDAQ National Market System on such date, was approximately $61,565,000.
Documents Incorporated by Reference:
Portions of the registrant's definitive proxy statement relating to its 1996
Annual Meeting of Stockholders are incorporated by reference into Part III.
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
Page Reference
--------------
PART I
Caption
-------
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 36
PART III
Item 10. Directors and Executive Officers of the Registrant 36
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain Beneficial
Owners and Management 37
Item 13. Certain Relationships and Related Transactions 37
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 38
2
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Delphi is a leading provider of business application software and services
for independent property and casualty insurance agencies, brokerages, managing
general agents and insurance companies in the United States and Canada. Delphi
develops, markets and supports software products that automate the operations of
independent agents. The Company also has developed and markets an application
system that integrates its application software products with other database
products to help its customers manage their information needs.
For fifteen years Delphi has provided application software solutions to
large property and casualty agencies. In 1990, to meet the changing industry
dynamics, Delphi began pursuing a strategy of obtaining market share through the
acquisition of other application software businesses.
Delphi's customer list includes a majority of the largest 100 brokerages
and top 200 agencies in the United States and Canada, and provides a base for
the introduction of new products and services. Delphi's software operates on
approximately 75,000 workstations and terminals at more than 4,500 customer
sites representing approximately two-thirds of all workstations and terminals
installed in independent agencies.
Delphi Information Systems, Inc. was founded in 1976 as Delphi Systems,
Inc., a California corporation. In 1983, Delphi Information Systems, Inc., a
Delaware corporation, was formed and acquired all of the outstanding shares of
Delphi Systems, Inc. in an exchange offer.
In June, 1987, Delphi Systems, Inc. was merged into and with Delphi Information
Systems, Inc. The Company's executive offices are located at 3501 Algonquin
Road, Rolling Meadows, Illinois 60008. Its telephone number is (847) 506-3100.
PRODUCTS. The Company's proprietary applications software packages,
The Delphi SMART System, Vista, INfinity, INSIGHT, PC-ELITE and Insurnet, are
designed to enhance the efficiency and profitability of agencies, brokerages,
and insurance carriers. The software is designed to support various independent
agencies' business functions in an integrated manner.
The systems are designed to provide independent agencies with the following
capabilities:
- Management Information - Carrier Interface
- Sales and Prospecting - Policy and Claims Administration
- Marketing - Office Administration
- Finance and Accounting - Rating
- Client Service
Delphi has begun combining the complementary strong features of the six
software products into one "best breed" software system, currently called
"Common Delphi," that will serve as the front-end of Delphi's total business
solution strategy. Common Delphi is intended to increase customer satisfaction
through a comprehensive feature set and to lower Delphi's cost of research and
development, marketing, and customer support by eliminating multiple systems.
The first version of Common Delphi is currently in beta test.
3
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On September 16, 1995 Delphi Information Systems and IBM Corporation
announced a strategic industry alliance under which they will jointly market in
the distribution segment of the insurance industry. Delphi and IBM will work
together to deliver turnkey solutions built upon Delphi's new generation of
agency management systems and IBM's hardware, software, and service offerings.
This alliance will facilitate the integration of Lotus Notes and DB2 with
Delphi's products.
The systems offered by the Company range in price from $35,000 to over
$1,000,000 for multiple site global brokers. While the largest systems offered
by the Company support in excess of 400 terminals, smaller systems can
accommodate less than 10 users. No individual customer represented more than
10% of total revenues in fiscal 1996, 1995, or 1994.
In addition to systems sales to new customers, the Company provides
upgrades of software and hardware to its existing customers as well as
additional computer products. These products consist of various software,
terminals, processor memory, storage devices, and central processing units.
A significant portion of the Company's business comes from the maintenance
of the Company's proprietary software. In addition, hardware maintenance is
purchased by the Company for its customers from third parties. The Company's
customers enter into maintenance contracts under which the Company agrees to
service the software and hardware for varying periods of time after the
expiration of the warranty period. Consulting services, customized programming
and training, which are billed separately, are also provided to the customers
who desire specific assistance or enhancement of their systems.
Delphi historically has been a vendor of hardware but is in the process of
exiting that business. Profit margins in the computer hardware business are
slim and declining. Delphi has signed an agreement to outsource the hardware
function, allowing Delphi to remain a full service provider while improving the
level of customers' satisfaction with their computer hardware. In addition, the
agreement provides for commission payments to Delphi for both computer hardware
sales and hardware maintenance agreements, allowing Delphi to receive high
margin revenue from hardware sales.
SYSTEM DESIGN AND ARCHITECTURE. The Company has developed the Delphi SMART
System, a client/server-based system, which supports relational database
software technology, Structured Query Language (SQL), windowing and graphical
user interfaces, among other features. This product development is part of a
continuing strategy of the Company to deliver products to prospective and
current customers that utilize the latest software and hardware technologies.
In fiscal 1995, the Company released several new modules and enhancements to its
products which utilize these newer technologies including SaleSource, a sales
prospecting and management module, along with enhancements to the networking
capabilities of its systems.
The Company implements AIX (IBM's UNIX version) and SCO UNIX as the basic
operating systems for its INfinity and PC-ELITE software, respectively. UNIX-
based systems provide portability of applications software from one vendor's
hardware to that of another, or
4
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among various models of a single manufacturer's hardware, without a costly
rewrite as long as the models and makes of hardware are compatible with UNIX.
The Company believes it is the only major company in its field to utilize the
UNIX operating system, which makes the Delphi system portable to a wide range of
computer hardware. The Company markets its INfinity software and Insurnet
software on the IBM RISC System/6000 computer and its PC-ELITE product on SCO
UNIX-compatible microcomputer hardware platforms. The Company's INSIGHT product
is marketed primarily on the IBM AS/400 computer. The Company's products
operate in a LAN environment with the RS/6000, AS/400 or microcomputer hardware
acting as a host server platform.
PRODUCT DEVELOPMENT. At the end of fiscal 1996, the Company employed 96
full-time employees engaged in product development and maintenance activities.
These activities consist of researching and developing enhancements to the
software such as adding new functionality, improving usefulness, adapting the
software to newer software and hardware technologies and increasing systems
responsiveness.
Product development expenditures prior to capitalization of software were
$6,486,000, $6,550,000 and $6,251,000 in fiscal 1996, 1995 and 1994,
respectively. The Company strongly believes in the importance of maintaining
and enhancing its technology and expects to continue to invest substantial
amounts in research and development in the future.
COMPETITION. The Company believes its principal competition is presented
by three companies which provide software systems that are comparable to those
offered by the Company.
The Company believes that most insurance carriers are in the process of
reducing or eliminating their agency and brokerage automation strategies.
Nevertheless, some insurance carriers continue to operate subsidiaries which
actively compete with the Company. These carriers have much greater financial
resources than the Company and have in the past subsidized the automation of
independent agencies through various incentives offered to promote the sale of
the carriers' insurance products. Accordingly, there can be no assurances that
insurance carriers will continue to withdraw from competition with the Company.
The Company is not aware of any large hardware company that has a set of
software explicitly addressing the independent agencies marketplace. However,
the larger hardware suppliers, such as IBM, do sell systems and components of
systems to the independent agencies. The Company, to a much lesser extent, also
experiences competition in the form of smaller, independent or freelance
developers and suppliers of software who sometimes work in concert with hardware
companies to supply systems to independent agencies.
The Company believes that the key competitive factors in the Company's
market are product features and functions, ease of use, price, reputation,
reliability, and quality of customer support and training. The Company believes
that overall it competes favorably with respect to these factors.
PROPRIETARY RIGHTS. The Company regards its applications software as
proprietary and attempts to protect it with copyrights, trade secret laws and
restrictions on disclosure and transferring title. Despite these precautions,
it may be possible for third parties to copy aspects
5
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of the Company's products or, without authorization, to obtain and use
information which the Company regards as trade secrets. Existing copyright law
affords only limited practical protection and the Company's software is
unpatented.
EMPLOYEES. At March 31, 1996, the Company employed 326 persons, including
53 in sales and marketing, 96 in product development, 152 in customer service
and operations, and 25 in general management, administration and finance. None
of the Company's employees is presently covered by a collective bargaining
agreement. The Company believes that its employee relations are good.
ITEM 2. PROPERTIES
All of the Company's office facilities are leased. The Company's corporate
headquarters is in Rolling Meadows (Chicago), Illinois, where it occupies
approximately 15,000 square feet of office space. Substantially all corporate
executive and administrative functions are located in Rolling Meadows. The
Company also has operational facilities in Burlington, Massachusetts of 23,400
square feet, Pittsburgh, Pennsylvania, of 17,500 square feet, Scarborough,
Ontario Canada of 6,012 square feet, Walnut Creek, California of 15,241 square
feet, and Scottsdale, Arizona of 10,000 square feet. In addition, the Company
has 32,600 square feet of office space in Westlake Village, California which it
is attempting to sublet and relocate to a smaller, more cost-effective facility.
Also, the Company leases 11,000 square feet of space in East Lansing, Michigan,
which the Company plans to sublet on or about April 1, 1997. The Company
believes its facilities are adequate for its current needs and that suitable
additional or substitute space will be available as needed. See Note 9 of Notes
to Consolidated Financial Statements for information regarding the Company's
obligations under leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party, and none of its property is subject to, any
material pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended March 31, 1996.
6
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
The principal market for the Company's common stock (NASDAQ Symbol DLPH) is
the SmallCap Market of the National Association of Securities Dealers Automated
Quotation System (NASDAQ). As of June 1, 1996, there were 358 shareholders of
record.
The Company has not paid dividends on its common stock to date. There are
no plans in the near future to do so.
The following tables sets forth the high and low bid prices for common
stock for each calendar quarter in the two year period ending March 31, 1996.
<TABLE>
<CAPTION>
FISCAL 1995 HIGH LOW
----------- ---- ---
<S> <C> <C>
First quarter $ 4.00 $ 3.13
Second quarter 3.50 0.88
Third quarter 1.63 0.53
Fourth quarter 1.88 0.69
FISCAL 1996 HIGH LOW
----------- ---- ---
First quarter $ 2.38 $ 0.88
Second quarter 3.13 2.00
Third quarter 2.63 0.88
Fourth quarter 1.50 0.69
</TABLE>
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenues $ 44,081 $ 53,040 $ 53,605 $ 51,607 $ 44,605
Operating (loss) income (11,120) (597) (8,160) 947 (8,684)
Net (loss) income $ (11,833) $ (1,681) $ ( 8,922) $ 531 $ (9,064)
EARNINGS PER SHARE:
Net (loss) income $ (1.37) $ (0.23) $ (1.34) $ 0.07 $ (1.53)
Shares used in computing per
share data (1) 8,621 7,306 6,672 7,897 5,922
FINANCIAL POSITION:
Assets $ 20,389 $ 27,547 $ 31,947 $ 24,735 $ 24,232
Short term debt 3,030 2,486 4,029 3,574 867
Long term debt 1,500 4,250 4,125 -- 2,454
Stockholders' equity (deficit) $ (3,346) $ 4,553 $ 6,231 $ 9,727 $ 3,718
</TABLE>
(1) Weighted average common and common equivalent shares, where applicable,
were used to compute per share data in all periods.
8
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The insurance industry has experienced major consolidation and
restructuring driven by slower premium growth and tighter margins. Industry
participants historically have been fragmented and poorly integrated, leading to
the inefficient delivery of high cost, high price products and services. The
Company's management believes that the insurance industry will experience
significant changes during the next two to three years in order to remedy these
deficiencies. These changes may create opportunities for innovation in
products, services and process automation.
The role of the independent agency distribution system has changed little
until recently. Historically, buyers of insurance purchased insurance
protection from an independent agent who secured policies directly from an
insurer. While the method of distribution and the details of the policy have,
over time, increased in complexity, certain fundamental activities of a
traditional insurance transaction have remained constant. The agent served
primarily as the sales arm in the process, and insurer as the risk bearer, who
typically performed risk analysis and pricing functions. The agent was also
primarily responsible for servicing the customer and providing risk management
and consulting services.
Company management believes that the insurance industry in the future is
likely to be characterized by industry automation efforts as opposed to separate
insurance company automation and independent agency automation. This industry
automation solution may well connect many insurance industry participants
electronically and integrate the workflow across different enterprises through
computer networks. Industry wide team computing would allow both improved
efficiency and marketing innovation.
The Company believes that major efficiencies will be gained in the property
and casualty distribution network. Replacing paper-based transactions with
electronic integration solutions should enable all participants -- carriers,
wholesalers, independent agencies, information providers, and the insured -- to
decrease the cost of entering information for new policies, renewals,
endorsements and inquiries. Electronic integration also reduces errors and
improves response time. The Company believes that computer software/information
services are likely to replace transfer of information between independent
agencies and insurance carriers by mail, facsimile, by telephone, or by
dedicated terminals supplied by carriers.
The Company's strategy is to expand its market from that of the agency
automation vendor to industry automation solution provider. Delphi also intends
to attempt to shift its revenue base from annual license fees to transaction
based revenue and fee based services. The focus will include, in addition to
the Company's historical base, adding efficiency to independent agencies and
adding quality and value to the entire insurance distribution system. Delphi
intends to develop and provide products and services aimed at providing
automation through the entire property and casualty insurance distribution
network.
The Company's success and profitablity will be dependent on its ability to
develop a new application system product which is compatible with its existing
products as well as its ability to strategically shift its business from selling
computer hardware and application software to
9
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becoming a provider of outsourced processing services. In addition, the Company
continually must develop product enhancements and new products that keep pace
with continuing changes in computer hardware and software technology and satisfy
the needs of its customers. The Company is developing a new application system,
Common Delphi, which is currently in beta testing. To a significant extent, the
Company's future operating results will be dependent upon the success of this
product. While the Company has identified several of the outsourcing services
that it intends to provide, none of these service offerings has been developed
or is ready for marketing. There can be no assurances that the Company will be
successful in adequately addressing changing technologies, that it can introduce
services and products to the marketplace on a timely basis, or that its new
services and new or enhanced products will be successful in the marketplace on
timely basis, or that its new services and new or enhanced products will be
successful in the marketplace. Any failure to successfully introduce such
services and products will materially impact the Company's existing business and
its future profitability.
The Company has experienced losses in each of its last two years and in each
quarter of the current fiscal year. The Company attributes these losses
primarily to a soft market, or possibly a changed market, for insurance agency
automation equipment by reason of the relatively lower profitablity of
independent agencies during the last three years as compared with earlier
periods, industry-wide consolidation and customer dissatisfaction with certain
products and their concern regarding the Company's financial statements. The
Company has taken steps to reduce costs, strengthen its management and improve
its product offering so as to be in a position to achieve profitability as
market conditions improve, but no assurances can be given that those steps will
be successful and help the Company achieve profitability. The Company cannot
survive continued operating losses indefinitely, and consequently, may be forced
to raise additional funds or further restructure it business.
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Results of Operations - The table below sets forth, for the fiscal periods
indicated, the percentage of revenues represented by each item reflected in the
Company's consolidated statements of operations, and the percentage increase
(decrease) in each item of revenue, cost and expense from the prior fiscal
period.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
Year to Year Percentage
Increase (Decrease)
Percentage of Revenues -----------------------------
Year Ended March 31, Fiscal 1996 Fiscal 1995
-------------------------------------- versus versus
1996 1995 1994 Fiscal 1995 Fiscal 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Systems 32.8% 39.8% 49.4% (31.6)% (20.3)%
Services 67.2% 60.2% 50.6% (7.2)% 17.8%
- ------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 100.0% 100.0% 100.0% (16.9)% (1.0)%
COSTS OF REVENUES:
Systems 26.3% 26.5% 35.2% (17.3)% (25.6)%
Services 39.1% 33.9% 31.5% (4.1)% 6.4%
- ------------------------------------------------------------------------------------------------------------------
TOTAL COST OF REVENUES 65.4% 60.4% 66.7% (9.9)% 10.5%
- ------------------------------------------------------------------------------------------------------------------
GROSS MARGIN 34.6% 39.6% 33.3% (27.5)% 17.9%
OPERATING EXPENSES:
Product development 11.5% 10.2% 7.4% (6.2)% 36.4%
Sales and marketing 14.6% 12.9% 14.7% (6.4)% (12.6)%
General and administrative 17.4% 14.6% 11.7% (0.8)% 23.0%
Amortization of goodwill,
customer lists and non-
compete agreements 3.4% 3.1% 2.6% (9.7)% 16.5%
Consolidation, repositioning
and restructuring charges 13.0% -- 12.1% * (100.0)%
- ------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 59.9% 40.8% 48.5% 21.9% (16.8)%
- ------------------------------------------------------------------------------------------------------------------
OPERATING LOSS (25.3)% (1.2)% (15.2)% 1762.6% 92.7%
Interest expense 1.4% 1.8% 1.2% (36.5)% 47.3%
- ------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (26.7)% (3.0)% (16.4)% 660.5% (82.5)%
Income tax provision 0.3% (0.3)% 0.2% (18.6)% 15.7%
NET LOSS (27.0)% (3.3)% (16.6)% 603.9% (81.2)%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* PERCENTAGE HAS BEEN INTENTIONALLY OMITTED BECAUSE SUCH PERCENTAGE IS NOT
MEANINGFUL.
11
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Revenues - The Company's revenues are derived from two sources, systems
agreements and service fees. Systems agreements with the Company's customers
include the delivery of the Company's proprietary software with the computer
hardware and software of third parties. Service fees include fees for
maintenance, training and consulting services related to the Company's
proprietary software, as well as sales of the Company's proprietary software
which is not bundled with hardware or software of third parties. The Company
recongizes revenue consistent with the provisions of the American Institute of
Certified Public Accountants (AICPA) Statement of Position No. 91-1.
Revenues decreased 16.9% in fiscal 1996, and decreased 1% in fiscal 1995. The
decrease in fiscal 1996 was primarily due to decreased sales of system upgrades
to existing customers. The decrease in system sales was the result of several
factors, including increased competitive pressures, an overall decline in both
the cost and resale price of hardware which the Company resold to customers, a
decline in sales force productivity due to reorganization of the sales force,
and a temporary, unforseen complexity in the installation process of certain
advanced features of the Company's latest product releases.
Costs of Systems Revenues - Costs of systems revenues include costs of computer
hardware and third party software, along with costs associated with the purchase
and installation of hardware and software products, and the amortization of
capitalized software development costs. Costs of systems revenues, as a
percentage of systems revenues, were 80.3%, 66.5% and 71.2% in fiscal 1996,
1995, and 1994, respectively. Changes in the percentage of costs of systems
expressed as a percentage of revenues are primarily a result of a changing mix
of products sold by the Company and a decline in margin on the resale of third-
party hardware.
Costs of Service Revenues - Costs of service revenues include costs associated
with maintenance, consulting and training services, and payments made to third
party hardware maintenance vendors. Costs of service revenues as a percentage
of service revenues were 58.2%, 56.3% and 62.3% in fiscal 1996, 1995, and 1994,
respectively. In fiscal 1996 the increase was primarily due to short-term non-
variability of the largest component of costs of services revenues, namely
direct labor, during a period when service revenues were declining. In fiscal
1995, an increase in sales of the Company's proprietary software which was not
bundled with third party hardware increased service revenues and decreased costs
of service revenues expressed as a percentage of service revenues.
Product Development Expenses - Product development expenses, net of
capitalized software costs, were $5,051,000, $5,384,000 and $3,948,000 in
fiscal 1996, 1995, and 1994, respectively. The decrease in fiscal 1996 is
primarily the result of increased capitalization of software due to increased
outside consulting expenditures for new product development. The increase in
fiscal 1995 is primarily a result of a decrease in the amount of development
spending capitalized due to a greater relative proportion of spending in
product research, combined with an increase in spending levels. Product
development expenditures, including those which were capitalized, were
$6,486,000, $ 6,550,000 and $6,251,000, respectively, in fiscal years 1996,
1995, and 1994.
Sales and Marketing Expenses - Sales and marketing expenses decreased 6.4% in
fiscal 1996, compared to a decrease of 12.6% in fiscal 1995. The decrease in
fiscal 1996 is primarily due to a reduction in the sales force headcount. The
decrease in fiscal 1995 was primarily due to a one-time charge in 1994
associated with the elimination and consolidation of certain expenses.
12
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The Company capitalizes software development costs in accordance with Statement
of Financial Accounting Standards No. 86, and amortizes these costs through cost
of systems revenues over a maximum of five years. The amount capitalized
varies each period depending on how many software development projects have
reached technological feasibility and whether they are in general release. The
Company strongly believes in the importance of maintaining its technological
strengths and will continue to invest substantial amounts in software
development.
General and Administrative Expenses - General and administrative expenses
decreased 0.8% in fiscal 1996, and increased 23.0% in fiscal 1995. The
decrease in fiscal 1996 was primarily due to a reduction in headcount and
overall spending reductions, partially offset by severance and relocation costs
for certain Company personnel. The increase in fiscal 1995 was primarily due to
increased general and administrative expenses as a result of the December, 1993,
acquisitions of Mountain States and Insurnet, as well as severance costs for
certain Company officers in fiscal 1995.
Amortization of Goodwill, Customer Lists and Noncompete Agreements - Goodwill
and noncompete agreements are costs from the acquisitions of Insurnet and
Mountain States in December, 1993 and other acquisitions since fiscal 1992.
Amortization expense decreased 9.7% in fiscal 1996, compared to an increase of
16.5% in fiscal 1995. The decrease in fiscal 1996 is the result of some assets
becoming fully amortized in the current year. The increase in the prior fiscal
year is attributable to the Insurnet and Mountain States acquisitions in
December 1993. The Company follows a policy of periodic evaluation of the
carrying value of its intangible assets. See Note 2 of Notes to Consolidated
Financial Statements of the Company.
Interest Expense - The Company had interest expense of $599,000 in fiscal 1996,
compared to $944,000 in fiscal 1995 and $641,000 in fiscal 1994. The decrease
in fiscal 1996 was due to decreased average borrowings compared to the prior
fiscal year. The increase in fiscal 1995 was due to higher interest rates.
Income Tax Provision - The effective tax rates under SFAS No. 109 for fiscal
years 1996, 1995, and 1994, were 1.0%, 9.0% and 1.4%, respectively. Lower than
statutory effective tax rates and tax benefits are due to the operating losses.
Due to the Company's recurring losses, net operating loss carryforwards have
been generated for income tax purposes. The Company continues to provide a
valuation allowance against this and all other net deferred tax assets, thus no
income tax benefit has been recorded. The tax provision relates to certain
state and foreign income taxes.
Liquidity and Capital Resources - Working capital was a negative $11,367,000 at
March 31, 1996, compared to a negative $5,738,000 at March 31, 1995. The
working capital deficit increased during fiscal 1996 as the result of a decrease
in prepaid expenses and other assets due to the amortization and write off of
the short-term portion of noncompete agreements and an increase in deferred
revenue due to a change in the customer support billing cycle from monthly to
quarterly.
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The Company's negative net working capital position is primarily a result of
deferred revenues of $10,031,000 at March 31, 1996, representing prepaid
maintenance fees from its customers which are recognized as revenue ratably over
the maintenance agreement terms. This liability is satisfied through normal
ongoing operations of the Company's service organization and does not require a
payment to a third party.
Net cash provided by operating activities was $1,094,000, $2,700,000 and
$288,000 for fiscal years ended in 1996, 1995, and 1994, respectively. Although
the Company reported a net loss in fiscal years 1996 and 1995, cash provided by
operating activities was positive because a substantial portion of the loss was
related to non-cash items, including the amortization of goodwill and
capitalized software and the consolidation, repositioning and restructuring
charge.
Cash used in investing activities was $2,028,000, $2,305,000 and $4,362,000 for
the fiscal years ended 1996, 1995, and 1994, respectively.
Cash from financing activities reflects the Company's borrowing and payment
activities on its line of credit, proceeds from the convertible promissory note,
proceeds from the exercise of options under the Company's various stock option
plans and the issuance of preferred stock. In fiscal 1996, the Company raised
$433,000 in cash from the exercise of employee stock options. In fiscal 1995,
the Company received proceeds from the issuance of the remaining $125,000 of the
$1,500,000 of Convertible Promissory Notes, of which $1,375,000 was raised in
fiscal 1994.
The Company had a line of credit agreement with a bank totaling $5 million which
expired on June 5, 1996. Borrowings under the line of credit were generally
limited to 75% of qualified accounts receivable, increasing to 80% for a forty-
five day period each quarter. At March 31, 1996, the Company had borrowed
$2,606,000 on its line of credit, compared to $2,486,000 on March 31, 1995. The
credit agreement required that the Company maintain certain minimum financial
ratios. It also restricted certain activities of the Company without the
approval of the bank, including the incurrence of senior debt, mergers and
acquisitions, and the payment of dividends. The interest rate on the line of
credit was prime plus 3.5%. At March 31, 1996, $1,438,000 remained available
for borrowing under the line of credit. The Company is currently in active
negotiations to replace the expired line of credit. While the Company expects
to be successful in such negotiations, there can be no assurances that this will
occur. As of the date of expiration, the Company had no borrowings outstanding
under the line of credit.
In May 1996, the Company completed a private equity placement providing gross
proceeds of $10,700,000 to the Company. Under the terms of the placement, the
Company issued 10,700,000 units at a price of $1.00 per unit. Each unit
consisted of one share of common stock and a redeemable warrant to purchase one
share of common stock at an exercise price of $1.50 per share, subject to
certain anti-dilution adjustments. The shares and redeemable warrants
comprising the units are immediately detachable and separately transferable.
The redeemable warrants may be exercised at any time after their date of
issuance for a period of three years. The Company can redeem the redeemable
warrants at any time subsequent to 180 days after the issuance of the redeemable
warrants if the closing bid price for the common stock is above $2.00 per share
for twenty consecutive trading days subsequent to when the redeemable warrants
first are redeemable.
14
<PAGE>
The private equity placement provided net proceeds of approximately $9,478,000
to the Company. The proceeds will be used for product research and development,
to strengthen the Company's sales and marketing organization, to reduce debt, to
strengthen working capital, and to continue the consolidation of Delphi's
operations. In addition, the Company may use proceeds to make strategic
investments in complementary businesses.
In conjunction with the equity placement, the Company converted its outstanding
Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock
into 8,747,570 shares of common stock. In addition $1,500,000 in outstanding
promissory notes were converted into 1,500,000 units, identical to those
described above.
The statements contained in this MD&A and elsewhere in this 10K that are not
historical facts are forward-looking statements subject to the safe harbor
created by Private Securities Litigation Reform Act of 1995. A number of
important factors could cause the Company's actual results for 1996 and beyond
to differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
SFAS No. 123 "Accounting for Stock-Based Compensation" was issued in 1995.
Implementation is required in the fiscal year commencing January 1, 1996. SFAS
No. 123 established financial accounting and reporting standards for stock-based
compensation plans. The Company is currently evaluating the impact this
statement will have on the Company's consolidated financial statements.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Delphi Information Systems, Inc.
We have audited the accompanying consolidated balance sheets of Delphi
Information Systems, Inc. (a Delaware Corporation) and subsidiaries as of March
31, 1996, and 1995, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended March 31, 1996. These financial statements and the schedule
referred to below 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 amount and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delphi Information Systems,
Inc. and subsidiaries as of March 31, 1996, and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1996, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule II is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not a part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Chicago, Illinois
May 17, 1996
16
<PAGE>
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
<TABLE>
<CAPTION>
AS OF MARCH 31
ASSETS 1996 1995
CURRENT ASSETS: -----------------------
<S> <C> <C>
Cash $ 920 $ 877
Accounts receivable, less allowances of $922
and $687, respectively 8,079 7,639
Inventories 592 983
Prepaid expenses and other assets 365 1,424
-------- --------
TOTAL CURRENT ASSETS 9,956 10,923
Property and equipment, net 2,869 3,630
Software development costs, net 4,407 4,389
Goodwill and customer lists, net 1,182 5,284
Purchased software, net 1,845 2,484
Other assets 130 837
-------- --------
TOTAL ASSETS $ 20,389 $ 27,547
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable $ 3,030 $ 2,486
Accounts payable and accrued liabilities 6,823 6,402
Accrued payroll and related benefits 1,439 1,441
Deferred revenue 10,031 6,332
-------- --------
TOTAL CURRENT LIABILITIES 21,323 16,661
Convertible promissory notes 1,500 1,500
Subordinated note payable 0 2,750
Excess lease liability 824 1,445
Other liabilities 88 638
-------- --------
TOTAL LIABILITIES 23,735 22,994
-------- --------
Commitments and contingencies (Note 9)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stocks, $.10 par value, 2,000,000 shares authorized,
Series B, 0 and 9,205 shares issued and
outstanding, respectively 0 780
Series C, 36,268 shares issued and outstanding 3,570 3,570
Seried D, 16,356 shares issued and outstanding 3,655 3,655
Common stock, $.10 par value:
Non-designated, 50,000,000 shares authorized
10,307,700 and 7,979,173 issued and
outstanding, respectively 1,031 798
Additional paid-in capital 23,019 18,507
Accumulated deficit (34,727) (22,894)
Cumulative foreign currency translation adjustment 106 137
-------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (3,346) 4,553
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 20,389 $ 27,547
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED MARCH 31 1996 1995 1994
REVENUES: --------------------------------------
Systems $ 14,440 $ 21,100 $ 26,485
Services 29,641 31,940 27,120
-------- -------- --------
TOTAL REVENUES 44,081 53,040 53,605
COSTS OF REVENUES:
Systems 11,601 14,027 18,862
Services 17,238 17,983 16,906
-------- -------- --------
TOTAL COST OF REVENUES 28,839 32,010 35,768
-------- -------- --------
GROSS MARGIN 15,242 21,030 17,837
OPERATING EXPENSES:
Product development 5,051 5,384 3,948
Sales and marketing 6,442 6,879 7,873
General and administrative 7,658 7,718 6,273
Amortization of goodwill, customer lists and
noncompete agreements 1,487 1,646 1,413
Consolidation, repositioning and restructuring charges 5,724 -- 6,490
-------- -------- --------
TOTAL OPERATING EXPENSES 26,362 21,627 25,997
-------- -------- --------
OPERATING LOSS (11,120) (597) (8,160)
Interest expense 599 944 641
-------- -------- --------
Loss before income taxes (11,719) (1,541) (8,801)
Income tax provision 114 140 121
-------- -------- --------
Net loss ($11,833) ($1,681) ($8,922)
-------- -------- --------
-------- -------- --------
Net loss per common share ($1.37) ($0.23) ($1.34)
-------- -------- --------
-------- -------- --------
Weighted average common shares and common share
equivalents outstanding 8,621 7,306 6,672
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except for shares outstanding)
<TABLE>
<CAPTION>
PREFERRED STOCK
----------------------------------------------------------------------------------------
SERIES A: SERIES B: SERIES C: SERIES D: SERIES E
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993 16,577 $3,703 61,950 $5,250 -- $ -- -- $ -- -- $ --
----------------------------------------------------------------------------------------
Net loss -- -- -- -- -- -- -- -- -- --
Redshaw acquisition adjustment
Exercise of stock options -- -- -- -- -- -- -- -- -- --
Exercise of options under employee
stock purchase plan -- -- -- -- -- -- -- -- -- --
Issuance of common stock
in conjunction with the
acquisitions of Mountain
Systems International, Inc.
and Insurnet, Inc. -- -- -- -- -- -- -- -- -- --
Issuance of Series C
Preferred Stock -- -- -- -- 36,268 3,570 -- -- -- --
Translation adjustment -- -- -- -- -- -- -- --
----------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1994 16,577 3,703 61,950 5,250 36,268 3,570 0 0 0 0
----------------------------------------------------------------------------------------
Net loss -- -- -- -- -- -- -- -- -- --
Conversion of Series A, -- -- -- -- -- -- -- -- -- --
Preferred Stock (16,577) (3,703) -- -- -- -- 16,356 3,655 -- --
Conversion of Series B, -- -- -- -- -- -- -- -- -- --
Preferred Stock -- -- (52,745) (4,470) -- -- -- -- -- --
Mountain States' -- -- -- -- -- -- -- -- -- --
acquisition adjustment -- -- -- -- -- -- -- -- -- --
Translation adjustment -- -- -- -- -- -- -- -- -- --
----------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1995 0 0 9,205 780 36,268 3,570 16,356 3,655 0 0
----------------------------------------------------------------------------------------
Net loss -- -- -- -- -- -- -- -- -- --
Exercise of stock options -- -- -- -- -- -- -- -- -- --
Exercise of options under employee
stock purchase plan -- -- -- -- -- -- -- -- -- --
Mountain States'
acquisition adjustment -- -- -- -- -- -- -- -- -- --
Conversion of Note Payable to
Series E Preferred Stock -- -- -- -- -- -- -- -- 63,426 3,125
Conversion of Series B
Preferred Stock -- -- (9,205) (780) -- -- -- -- -- --
Conversion of Series E
Preferred Stock -- -- -- -- -- -- -- -- (63,426) (3,125)
Translation adjustment -- -- -- -- -- -- -- -- -- --
----------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 0 $0 0 $0 36,268 $3,570 16,356 $3,655 0 $0
----------------------------------------------------------------------------------------
<CAPTION>
COMMON STOCK ADDITIONAL FOREIGN
------------------------ PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1993 6,528,369 $653 $12,333 ($12,291) $79
-----------------------------------------------------------------------
Net loss -- -- -- (8,922) --
Redshaw acquisition adjustment 50,687 5 236 -- --
Exercise of stock options 17,023 2 54 -- --
Exercise of options under employee
stock purchase plan 453 3 -- --
Issuance of common stock
in conjunction with the
acquisitions of Mountain
Systems International, Inc.
and Insurnet, Inc. 414,883 41 1,459 -- --
Issuance of Series C
Preferred Stock -- -- -- -- --
Translation adjustment -- -- -- -- 56
-----------------------------------------------------------------------
BALANCE, MARCH 31, 1994 7,011,415 701 14,085 (21,213) 135
-----------------------------------------------------------------------
Net loss -- -- -- (1,681) --
Conversion of Series A,
Preferred Stock 24,995 3 46 -- --
Conversion of Series B,
Preferred Stock 879,083 88 4,382 -- --
Mountain States'
acquisition adjustment 63,680 6 (6) -- --
Translation adjustment -- -- -- -- 2
-----------------------------------------------------------------------
BALANCE, MARCH 31, 1995 7,979,173 798 18,507 (22,894) 137
-----------------------------------------------------------------------
Net loss -- -- -- (11,833) --
Exercise of stock options 121,000 12 64 -- --
Exercise of options under employee
stock purchase plan 255,406 26 333 -- --
Mountain States'
acquisition adjustment 339,280 34 371 -- --
Conversion of Note Payable to
Series E Preferred Stock -- -- -- -- --
Conversion of Series B
Preferred Stock 191,781 19 761 -- --
Conversion of Series E
Preferred Stock 1,421,060 142 2,983 -- --
Translation adjustment -- -- -- -- (31)
-----------------------------------------------------------------------
BALANCE, MARCH 31, 1996 10,307,700 $1,031 $23,019 ($34,727) $106
-----------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED MARCH 31 1996 1995 1994
---------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss ($11,833) ($1,681) ($8,922)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 1,434 1,495 1,248
Amortization of capitalized software development costs 1,245 1,128 979
Amortization of purchased software 582 436 --
Amortization of goodwill, customer lists and noncompete agreements 1,487 1,646 1,413
Write off of capitalized software development costs 173 -- 1,878
Write off of goodwill, customer lists, and noncompete agreements 5,017 -- --
Loss on disposal of fixed assets (85) 76 318
Excess lease cost (620) (638) 2,083
Other -- -- 134
CHANGES IN ASSETS AND LIABILITIES NET OF EFFECT OF
ACQUISITION OF BUSINESSES:
Accounts receivable, net (440) 1,876 522
Inventories 391 25 690
Prepaid expenses and other assets (635) (550) (12)
Accounts payable and accrued liabilities 797 (1,250) 262
Accrued payroll and related benefits (2) (48) (141)
Other liabilities and deferred revenue 3,614 183 (220)
---------------------------------------
Net cash provided by operating activities 1,125 2,698 232
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (590) (718) (1,435)
Expenditures for capitalized software development (1,435) (1,166) (2,303)
Purchased software (3) (177) (332)
Cash outlays for acquisitions, net of cash acquired 0 (244) (292)
---------------------------------------
Net cash used in investing activities (2,028) (2,305) (4,362)
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable (10,071) (3,550) (8,653)
Borrowings on notes payable 10,615 2,250 8,366
Proceeds from exercise of stock options and
employee stock purchase plan 433 -- 59
Proceeds from issuance of convertible promissory notes -- 125 1,375
Proceeds from issuance of preferred stock -- -- 3,443
---------------------------------------
Net cash provided by (used in) financing activities 977 (1,175) 4,590
---------------------------------------
Foreign currency translation adjustment (31) 2 56
Net increase (decrease) in cash 43 (780) 516
Cash at the beginning of the year 877 1,657 1,141
---------------------------------------
Cash at the end of the year $ 920 $ 877 $ 1,657
---------------------------------------
---------------------------------------
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 884 $ 594 $ 407
Taxes paid 65 140 135
NON-CASH TRANSACTIONS:
Common stock, preferred stock, subordinated convertible
debentures and notes payable issued for acquisitions $ 3,591 $ 450 $ 5,229
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION OF THE COMPANY:
Delphi Information Systems, Inc., (the "Company") develops, markets and supports
computer software systems which automate independent property and casualty
insurance agencies and brokerages including the areas of rating, sales
management, policy administration, accounting and electronic interface with the
computers of insurance carriers.
From January 1991, to December 1993, the Company acquired eight companies in
similar or complementary lines of business, including the March, 1993,
acquisition of Continental Systems, Inc. ("Continental") and the December, 1993,
acquisitions of Mountain Systems International, Inc. ("Mountain States") and
Insurnet, Inc. ("Insurnet") noted below. The Company's recent efforts have
been, and will continue to be, to streamline and consolidate operations which
will result in cost savings and/or enhanced customer service.
On December 16, 1993, the Company acquired all of the outstanding stock of
Mountain States of Scottsdale, Arizona, for consideration of 311,320 shares of
the Company's common stock and a note payable of $500,000, which was paid in
January, 1994. Per the terms of the merger agreement, an additional 63,680
shares were issued in December, 1994, for a total of 375,000 shares. In
addition, the shareholders of Mountain States earned an additional 339,280
shares based upon growth in sales. The acquisition became effective on December
23, 1993.
On December 30, 1993, the Company acquired all of the issued and outstanding
capital stock of Insurnet, a wholly-owned subsidiary of Pacific Insurance
Company, in exchange for a $5,000,000 principal amount, $2,750,000 carrying
value subordinated note bearing interest at 6%, due June 30, 1996 (see Note
10), 103,563 shares of the Company's common stock, and a non-interest bearing
$250,000 principal amount, $237,500 carrying value note, which was paid in
March, 1995.
Both acquisitions have been accounted for as purchases. Accordingly, the
results of Mountain States have been recorded in the financial statements
commencing on December 24, 1993, and the results of Insurnet have been recorded
in the financial statements commencing on December 31, 1993. The excess of the
cost of the acquisitions over the net fair value of identifiable assets and
liabilities assumed at the date of acquisition was recorded as purchased
software (Mountain States) and goodwill (Insurnet) and amortized on a straight-
line basis over five years for Mountain States, and on a straight-line basis
over ten years for Insurnet.
Proforma revenues, net loss and loss per share of the Company for the year ended
March 31, 1994, are presented as though the Mountain States and Insurnet
operations had been combined with the Company at the beginning of the period.
The proforma results do not reflect any changes in operations which may occur as
a result of the mergers.
Fiscal 1994 proforma revenues, net loss and loss per share are $64,635,000,
$8,827,000 and $1.27, respectively. Fiscal 1994 proforma results include
Insurnet and Mountain States results beginning April 1, 1993, through the
respective acquisition date combined with the Company's
21
<PAGE>
results as of March 31, 1994, which includes Insurnet and Mountain States
activity for the period from the respective acquisition date through March 31,
1994.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation - The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries after elimination of intercompany
transactions and balances.
Revenue Recognition - The Company recognizes revenues related to software
licenses and software maintenance in accordance with the American Institute of
Certified Public Accountants (AICPA) Statement of Position No. 91-1, "Software
Revenue Recognition". System revenues consist of revenues earned under software
license agreements and revenues from computer hardware purchased by customers of
the Company. When all components necessary to run the system have been shipped
and only insignificant post-delivery obligations remain, revenue and costs are
recognized based upon the sales price and the cost of specific items shipped.
Service revenues include maintenance fees for providing system updates for
software products, user documentation and technical support, and sales of the
Company's proprietary software which is not bundled with hardware or software of
third parties. Maintenance is generally billed to the customers in advance
monthly, quarterly or annually and recognized as revenue ratably over the term
of the maintenance contract. Other service revenues including training and
consulting are recognized as the services are performed. Revenues related to
custom programming are recognized based on the percentage of completion method.
Software Development Costs - The Company capitalizes internally generated
software development costs in compliance with the Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed." Capitalization of software development
costs begins upon the establishment of technological feasibility for the
product. The establishment of technological feasibility and the ongoing
assessment of the recoverability of these costs consider external factors
including, but not limited to, anticipated future gross product revenues,
estimated economic life and changes in software and hardware technology.
Amortization of capitalized software development costs, through costs of systems
revenues, begins when the products are available for general release to
customers. The annual amortization is the greater of the amount computed using
(a) the ratio that current gross revenues for a product bear to the total of
current and anticipated future gross product revenues for that product or (b)
the straight-line method over the remaining estimated economic life of the
product. The maximum amortization period on a straight-line basis is five
years. Capitalized software costs are amortized on a product-by-product basis.
Amortization of capitalized software development costs was $1,245,000,
$1,128,000 and $979,000 in fiscal 1996, 1995, and 1994, respectively.
22
<PAGE>
Net software development costs at March 31, 1996 and 1995 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Total software development costs capitalized $6,672 $5,496
Less accumulated amortization (2,265) (1,107)
- --------------------------------------------------------------------------------
$4,407 $4,389
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
During the fourth quarter of fiscal 1996, the Company wrote down its capitalized
software development costs by $259,351, and its accumulated amortization by
$86,178 (see Note 4).
Accounts Receivable - The Company's accounts receivable resulting from system
sales are unsecured; however, the Company reserves a purchase security interest
in the hardware until such time that the purchase price is paid in full.
Inventories - Inventories, which consist primarily of computer equipment and
consist entirely of finished goods, are stated at the lower of cost or market
value. The cost of substantially all inventories is determined by specific
identification.
Goodwill and Customer Lists - Intangible assets relate to the excess of the cost
of acquisitions over the net fair value of identifiable assets and liabilities
and value assigned to customer lists. These costs are being amortized on a
straight-line basis over five to ten years. Subsequent to acquisitions, the
Company continually evaluates whether later events and circumstances have
occurred that indicate the remaining useful life of the intangible assets may
warrant revision or that the remaining balance of the intangible assets may not
be recoverable. When factors indicate that the intangible assets should be
evaluated for possible impairment, the Company uses an estimate of the related
business segment's sufficiency of operating income and related cash flow over
the remaining life of the intangible assets in measuring whether the intangible
assets' value is recoverable. If management's assessment or other facts and
circumstances pertaining to the recoverability of intangible assets of a
particular business unit were to change, including their estimate of future
operating income and related cash flows, the Company would adjust the carrying
value of the intangible assets as appropriate. In fiscal 1996, the Company
decreased the carrying value of certain of these assets by $5,017,000, to
reflect the impairment of the recoverability of those assets (see Note 4). As
of March 31, 1996, and 1995, the accumulated amortization was $968,000 and
$2,306,000, respectively. Amortization of goodwill and customer lists was
$833,000, $823,000 and $649,000 in fiscal 1996, 1995, and 1994, respectively.
Purchased Software - Purchased software represents product purchased for use in
developing product, for licensing with the Company's products, or for direct
sale to the Company's customers. These costs are being amortized on a straight-
line basis over a maximum term of five years, or a shorter period, depending
upon any contractual license agreement limitations or estimated remaining useful
life. In fiscal 1994, the Company assigned $2,109,000 of the purchase price of
Mountain States to purchased software.
23
<PAGE>
Other Assets - Other assets consist primarily of noncompete agreements as well
as miscellaneous long-term deposits.
Property and Equipment - Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of three to ten years. Leasehold improvements are amortized over
the shorter of the expected life of the improvements or the lease term.
Income Taxes - The Company has adopted the liability method of accounting for
income taxes pursuant to the Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes". Deferred income taxes are recorded to
reflect the tax consequences on future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts at each
year-end. Business tax credits are accounted for under the flow-through method.
Loss Per Common Share - Loss per common share for fiscal 1996, 1995, and 1994 is
based on the weighted average number of common shares outstanding. The effect
of common share equivalents is not included in the loss per common share
calculation for fiscal 1996, 1995 and 1994 because inclusion would be anti-
dilutive. Primary and fully diluted earnings per share are the same for all
periods presented.
Foreign Currency Transactions - The accounts of the Company's foreign subsidiary
have been translated according to the provisions of the Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation". Gains or losses
resulting from translation of the foreign subsidiary's financial statements are
included in stockholders' equity. Any gains or losses resulting from foreign
currency transactions are reflected in the consolidated results of the period in
which they occur.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
was issued in 1995. Implementation of SFAS No. 121 established accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill relating to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. The
Company adopted SFAS No. 121 in fiscal 1996. This adoption did not have a
significant impact on the Company's consolidated financial statements.
NOTE 3 - PRIVATE EQUITY PLACEMENT:
In May 1996, the Company completed a private equity placement providing gross
proceeds of $10,700,000 to the Company. Under the terms of the placement, the
Company issued 10,700,000 units at a price of $1.00 per unit. Each unit
consists of one share of common stock
24
<PAGE>
and a redeemable warrant to purchase one share of common stock at an exercise
price of $1.50 per share, subject to certain anti-dilutive adjustments. The
shares and redeemable warrants comprising the units are immediately detachable
and separately transferable.
The redeemable warrants may be exercised at any time after their date of
issuance for a period of three years. The Company can redeem the redeemable
warrants at any time subsequent to 180 days after the issuance of the redeemable
warrants if the closing bid price for the common stock is above $2.00 per share
for twenty consecutive trading days subsequent to when the redeemable warrants
first are redeemable.
The private equity placement provided net proceeds of approximately $9,478,000
to the Company. The proceeds will be used for product research and development,
to strengthen the Company's sales and marketing organization, to reduce debt, to
strengthen working capital, and to continue the consolidation of Delphi's
operations. In addition, the Company may use proceeds to make strategic
investments in complementary businesses.
In conjunction with the equity placement, the Company converted its outstanding
Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock
into 8,747,570 shares of common stock. In addition $1,500,000 in outstanding
promissory notes were converted into 1,500,000 units, identical to those
described above. The Series C Preferred Stock and the Series D Preferred Stock
converted in April 1996, while the Series E Preferred Stock converted in March
1996.
NOTE 4 - CONSOLIDATION, REPOSITIONING AND RESTRUCTURING CHARGES:
The Company is operating according to a business plan which includes a product
strategy in which the Company has begun developing a new generation of products,
which incorporates certain functionality and features from several of the
Company's existing products. As part of the business plan, the Company will
cease to develop enhanced versions of certain of the Company's products beyond a
specific, identified product version release. The Company will, however,
continue to support and maintain the existing products for a number of years in
the future, depending upon the economic feasibility of doing so for each
specific product. Consequently, the recoverability of a portion of the
Company's intangible assets classified as goodwill has become impaired, based
upon projected future net cash flows related to the aforementioned products
compared to the net carrying value of the related assets.
The Company's business plan includes continued consolidation and elimination of
duplicate facilities. In conjunction with the plan, the Company made and
communicated the decision to relocate certain of the Company's development and
support functions from one of the Company's facilities to another. As a result,
the Company incurred a charge for severance and excess facilities costs.
25
<PAGE>
As a result of the foregoing events, the Company incurred a charge to operations
in fiscal 1996 resulting from the following (in thousands):
Writedown of goodwill and noncompete
agreements $5,017
Write down of capitalized software
development costs 173
Severance and excess facilities cost 534
- -----------------------------------------------------------------------
$5,724
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
In fiscal 1994, as a result of the acquisition of Mountain States and its
products, the Company's market and sales focus shifted. In evaluating the
position of the Company, it was determined that it was necessary to write down
certain assets to their net realizable vaule. Therefore, the Company incurred a
charge to operations of $4,206,000 in the third quarter of fiscal 1994.
Capitalized software was written down to reflect the decreased value of such
software in light of the acquisition. Additionally, the need for the leased
facilities diminished as a result of downsizing, resulting in a charge for
excess lease commitments as well as headcount reductions. In the fourth quarter
of fiscal 1994, the Company incurred an additional charge of $2,284,000. The
initial charge reflected the Company's diminished use of its lease capacity in
one of its facilities. In connection with its restructuring strategy, the
Company considered ways to address such excess capacity, including subletting
the entire facility and relocating to a smaller, more cost-effective operation.
Based on such consideration and additional information relating to sublease
opportunities, management decided to attempt to sublease the entire facility.
The charge associated with excess lease capacity was, therefore, partially
reduced by an estimate of future sublease revenue, which is subject to update
upon signing of a sublease agreement. Upon finalization of any sublease
arrangement, the estimate will be adjusted.
The following summarizes the major restructuring charge in fiscal 1994 (in
thousands):
Write down of capitalized software
development costs $1,878
Reductions and changes in workforce and the
elimination of facilities 3,919
Impairment of asset value due to acquisitions 628
Other items 65
- ------------------------------------------------------------------
$6,490
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Of the above amounts, $2,471 remains accrued at March 31, 1996, virtually all of
which pertains to the original charge of $3,919 pertaining to reductions and
changes in workforce and the elimination of facilities. The majority of the
accrual will remain until the Company is successful in subleasing the remaining
portion of the facility.
26
<PAGE>
NOTE 5- PROPERTY AND EQUIPMENT:
Property and equipment at March 31, 1996 and 1995 consists of the following (in
thousands):
1996 1995
- ---------------------------------------------------------------------------
Computer equipment and purchased software $6,802 $6,996
Leasehold improvements 1,199 362
Furniture, fixtures and other 3,199 2,308
- ---------------------------------------------------------------------------
11,200 9,666
Less accumulated depreciation and amortization (8,331) (6,036)
- ---------------------------------------------------------------------------
$2,869 $3,630
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
NOTE 6 - NOTES PAYABLE:
Notes payable at March 31, 1996, and 1995, are comprised of the following (in
thousands):
1996 1995
- ---------------------------------------------------------------------------
Notes payable to bank $ 2,606 $ 2,486
Note payable 424 0
Convertible promissory notes 1,500 1,500
Subordinated note payable 0 2,750
- ---------------------------------------------------------------------------
4,530 6,736
Current portion (3,030) (2,486)
- ---------------------------------------------------------------------------
$ 1,500 $4,250
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
The Company had a $5,000,000 line of credit agreement with a bank of which
$2,606,000 was outstanding at March 31, 1996. At March 31, 1996, $1,438,000
remained available for borrowing under the line of credit.
The line, which expired on June 5, 1996, carried an interest rate at the bank's
prime lending rate plus 3.5 percent. Permitted borrowings under the line varied
as a function of qualified accounts receivable and were collateralized by
substantially all of the Company's assets. The agreement contained certain
restrictive covenants including achievement by the Company of specified
operating results and balance sheet ratios. The line also restricted certain
activities of the Company without the approval of the bank, including the
incurrence of senior debt, mergers and acquisitions, and the payment of
dividends.
The Company is currently in active negotiations to replace the expired line of
credit agreement. While the Company expects to be successful in such
negotiations, there can be no assurances that this will occur.
At the date of expiration, the Company had no borrowings outstanding under the
line of credit.
27
<PAGE>
Additional information related to line of credit borrowings for the two years
ended March 31, 1996, is as follows (in thousands):
1996 1995
- ----------------------------------------------------------------------
Maximum amount borrowed during the year $4,036 $4,036
Average amount borrowed during the year $2,846 $3,340
Interest rate at the end of the year 11.8% 12.5%
Weighted average interest rate incurred during
the year 13.9% 12.8%
Average borrowings were determined based on the amounts outstanding at each
month end. The weighted average interest rate during the year was computed by
dividing actual interest by average borrowings outstanding during each of the
years.
The convertible promissory notes of $1,500,000 were due March 15, 1998, and
bore interest at the prime rate and were convertible at the option of the
holder into shares of the Company's common stock at a per share conversion
price of $2.00, subject to certain anti-dilution provisions, for a total of
750,000 shares of common stock. In conjunction with the Company's May, 1996
private placement of equity at $1.00 per unit, the convertible promissory
notes were converted into 1,500,000 shares of common stock and 1,500,000
redeemable warrants (see Note 3).
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities at March 31, 1996, and 1995, consist of
the following (in thousands):
1996 1995
- ----------------------------------------------------------------------
Trade accounts payable $1,775 $1,743
Taxes other than income tax 354 330
Accrued severance and reorganization costs 1,963 1,297
Other 2,731 3,032
- ----------------------------------------------------------------------
$6,823 $6,402
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
NOTE 8 - INCOME TAXES:
Pretax loss consisted of (in thousands):
1996 1995 1994
- --------------------------------------------------
Domestic $ (11,714) $ (1,624) $ (8,910)
Foreign (5) 83 109
- --------------------------------------------------
Total $ (11,719) $ (1,541) $ (8,801)
- --------------------------------------------------
- --------------------------------------------------
28
<PAGE>
The provisions for income taxes consisted of (in thousands):
1996 1995 1994
- --------------------------------------------------
Current:
U.S. Federal $ -- $ -- $ --
State 114 74 73
Foreign -- 66 48
- --------------------------------------------------
Total $114 $140 $121
- --------------------------------------------------
Deferred:
U.S. Federal $ -- $ -- $ --
State -- -- --
Foreign -- -- --
- --------------------------------------------------
Total $ -- $ -- $ --
- --------------------------------------------------
Total Provision $114 $140 $121
- --------------------------------------------------
- --------------------------------------------------
The income tax provision differs from the amount obtained by applying the
federal statutory rate because of the following items:
1996 1995 1994
- ----------------------------------------------------------------------------
Statutory rate (35.0)% (35.0)% (35.0)%
State income tax, net of federal tax effect 1.0 4.8 0.8
Amortization of intangible assets relating to
acquired businesses XX.X 18.7 2.1
Losses producing no current tax benefit XX.X 16.3 32.9
Other, net 0.0 0.6
- ----------------------------------------------------------------------------
Effective rate 1.0% 9.0% 1.4%
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. These temporary differences are determined in
accordance with SFAS No. 109 and are more inclusive in nature than "timing
differences" as determined under previously applicable accounting principles.
29
<PAGE>
Temporary differences and carryforwards which give rise to a significant portion
of deferred tax assets and liabilities for 1996 and 1995 are as follows (in
thousands):
1996 1995
--------------------- ---------------------
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
- ----------------------------------------------------------------------------
Product enhancements $ -- $1,763 $ -- $1,756
Deferred rent 40 -- 41 --
Reserves 1,382 -- 1,071 --
NOL not utilized 7,290 -- 5,683 --
Tax credits not utilized 1,057 -- 1,057 --
- ----------------------------------------------------------------------------
9,769 1,763 7,852 1,756
Valuation allowance (8,006) -- (6,096) --
- ----------------------------------------------------------------------------
Total deferred taxes $1,763 $1,763 $1,756 $1,756
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
As of March 31, 1996, the Company had investment business tax credit
carryforwards of $1,057,000 for both financial statement and federal income tax
purposes. In addition, the Company has net operating losses available for
offset against future taxable income of $20,828,000 for federal income tax. The
utilization of these net operating losses may be limited due to changes in
ownership and other restrictions imposed by the Internal Revenue Code.
Federal net operating loss carryforwards and a substantial portion of tax
credits will begin to expire after 1997, becoming fully expired by the year 2011
if not offset against future taxable income.
Due to the uncertainity of realizing any of the net deferred tax assets, the
Company has provided a valuation allowance against the entire net amount.
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
Leases - The Company leases office space under non-cancelable operating leases
with expiration dates ranging through 2000, with various renewal options. Other
operating leases range from three to five years and are primarily for computer
equipment.
30
<PAGE>
The aggregate minimum annual lease payments under leases in effect on March 31,
1996 are set forth below (in thousands) as follows:
- --------------------------------------------------------
Capital Operating
Fiscal Year Ending
Leases Leases
- --------------------------------------------------------
1997 $ 54 $ 1,822
1998 46 1,671
1999 30 1,412
2000 2 395
2001 0 12
- --------------------------------------------------------
Total minimum lease
commitments $ 132 $ 5,312
Less: amount representing
interest (17)
- ----------------------------------------
Present value of obligations
under capital leases 115
Less: current portion (54)
- ----------------------------------------
Long-term obligations under
capital leases $ 61
- ----------------------------------------
Rental expense covering the Company's office facilities and equipment for the
fiscal years 1996, 1995 and 1994 aggregated $2,541,000, $2,778,000 and
$2,901,000, respectively.
Noncompete Agreements - The Company entered into various noncompete agreements
with the shareholders of McCracken Computer, Inc., purchased in January, 1991,
which expire over a period of 5 to 10 years. These agreements require the
Company to make payments totaling $4,700,000 to the McCracken shareholders over
six years of which $4,300,000 has been paid to date. The final installment of
$400,000 is due on January 31, 1997. Commitments related to the noncompete
agreements are amortized and expensed ratably over the life of each agreement.
Contingencies - The Company is involved in certain legal actions and claims
arising in the ordinary course of its business. It is the opinion of management
and legal counsel that such litigation and claims will be resolved without a
material effect on the Company's future results of operations or its financial
position.
NOTE 10 - SUBORDINATED CONVERTIBLE DEBENTURES:
In connection with the acquisition of Insurnet on December 30, 1993, the Company
issued $5,000,000 face value, $2,750,000 discounted carrying value, of
subordinated convertible debt to shareholders of Pacific Insurance Company. The
note was converted into 63,426 shares of Series E Preferred Stock in April,
1995. The Series E Preferred Stock was converted into 1,421,060
31
<PAGE>
shares of common stock in conjunction with the Company's private placement of
equity (see Note 3).
NOTE 11 - PREFERRED STOCKS:
Series A Preferred Stock - During May 1991, and January 1993, the Company issued
and sold in two private placements 9,945 and 6,632 shares, respectively, of its
Series A Preferred stock par value of $.10 per share for a total of $2,249,559
and $1,500,138, respectively. The preferred stock was convertible by its
holders at $4.35 per share into 862,000 shares of common stock of the Company
not earlier than two years subsequent to its issuance and automatically converts
to common stock three years after its issuance. The preferred stock includes
voting rights equivalent to the number of common shares into which the preferred
stock is convertible; certain registration rights on the common stock into which
the preferred stock is converted; and certain anti-dilution covenants. No
dividends are required under the terms governing the preferred stock. Issuance
costs related to the sales of preferred stock totaled $35,000 in May, 1991, and
$12,000 in January, 1993.
The issuance of the Series C Preferred Stock on December 23, 1993, caused an
adjustment in the conversion price of the Company's Series A Preferred Stock
down to the conversion price of the Series C Preferred Stock. The issuance of
the Company's convertible promissory notes in March, 1994 caused an additional
adjustment in the conversion price of the Series A Preferred Stock down to
$2.00.
During May, 1994, the holders of the Company's Series A Preferred Stock
exchanged such preferred stock for an equal number of shares of the Company's
Series D Preferred Stock. The exchange was effected pursuant to agreements
entered into in connection with the Company's issuance of the Series C Preferred
Stock. The terms of the Series D Preferred Stock are substantially similar to
those of the Series A Preferred Stock but do not require the conversion of the
Series D Preferred Stock into common stock at a specified date. The Series A
Preferred Stock was, by its terms, forced to convert to common stock on May 24,
1994.
Series C Preferred Stock - On December 23, 1993, the Company issued 36,268
shares of its Series C Preferred Stock. Each share was sold for $100 per share
and had an initial conversion price into common Stock of $3.05058. Such shares
were sold to a group of accredited investors for cash in the amount of
$1,750,000 and for the conversion of $1,750,000 principal amount of notes
payable plus accrued interest of approximately $127,000 owed by the Company.
Issuance costs related to the sale of the Series C Preferred Stock totaled
approximately $57,000.
The issuance of the Company's convertible promissory notes in March 1994, caused
an adjustment in the conversion price of the Company's Series C Preferred Stock
down to $2.00. The effect of such adjustment is that the Series C will be
convertible into 1,813,400 shares of Common Stock.
In April 1996, the Company's Series C Preferred Stock was converted into
3,626,800 shares of common stock and the Company's Series D Preferred Stock was
converted into 3,699,710 shares of common stock. Both conversions occurred at a
conversion price of $1.00 per share, and were
32
<PAGE>
in conjunction with the Company's private placement of equity completed May 1996
(see Note 3).
NOTE 12 - COMMON STOCKHOLDERS' EQUITY:
Stock Options - The Company has a stock incentive plan which provides for the
granting of 3,000,000 stock options and stock appreciation rights to officers,
directors and employees. Options granted under the program may be incentive
stock options as defined under current tax laws or nonstatutory options.
Options are granted at prices determined by the Board of Directors (not less
than 100 percent of the market price of the stock at the time of grant and 110
percent with respect to incentive stock options granted to optionees who own 10
percent or more of the Company's stock). Stock options under this plan
generally become exercisable in 25 percent increments maturing on each of the
first through fourth anniversaries of the date of grant. All options must be
exercised within ten years of the date of grant (with respect to incentive stock
optionees owning ten percent or more of the Company's stock, the term may be no
longer than five years). No stock appreciation rights are outstanding.
The Company has granted nonstatutory options outside the stock incentive plan to
purchase up to an aggregate of 100,000 shares. These options are granted at
prices determined by the Board of Directors (no less than 100 percent of the
market price). The options have various vesting periods and must be exercised
within seven to ten years of the date of the grant.
33
<PAGE>
Information with respect to the Company's stock options is as follows:
<TABLE>
<CAPTION>
Within Plan Outside Plan
----------- ------------
Shares Shares
Under Option Under Option
Option Prices Option Prices
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance,
March 31, 1993 793,183 $2.50-$6.88 506,778 $2.50-$7.38
Granted 245,500 4.88-5.50 20,000 4.75
Exercised (17,000) 2.50-5.75 -- --
Canceled (385,538) 2.50-6.88 (198,750) 6.00-7.38
- ---------------------------------------------------------------------------------
Balance,March 31, 1994 636,145 $2.50-$6.88 328,028 $2.50-$7.38
Granted 1,326,173 0.78-1.13 20,000 0.78
Exercised -- -- -- --
Canceled (533,937) 1.00-6.88 (253,028) 2.50-7.38
- ---------------------------------------------------------------------------------
Balance,
March 31, 1995 1,428,381 $0.78-$6.75 95,000 $0.78-$7.38
Granted 230,000 1.00-1.56 20,000 1.25
Exercised (121,000) 1.00-3.00 -- --
Canceled (297,650) 0.78-4.88 (15,000) 5.75
- ---------------------------------------------------------------------------------
Balance,
March 31, 1996 1,239,731 $0.78-$6.75 100,000 $0.78-$7.38
- ---------------------------------------------------------------------------------
Exercisable
at March 31, 1996 382,211 $0.78-$6.75 61,660 $0.78-$7.38
- ---------------------------------------------------------------------------------
Available for Grant
at March 31, 1996 1,009,433 -- -- --
- ---------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
Stock Purchase Plan - The Company has a stock purchase plan for eligible
employees. Employees may subscribe up to ten percent of their compensation to
purchase the Company's common stock at the lower of 85 percent of the fair
market value at the date of grant or 85 percent of the fair market value six
months after the date of grant. Shares subscribed to must be exercised one year
after the date of grant or are canceled. The Company has reserved 1,800,000
shares of common stock for the plan. New subscriptions are granted by the
Company to eligible employees on August 1 of each year. If fully exercised, the
26,586 shares remaining under the plan would be issued. These shares are due to
be exercised on July 31, 1996.
In connection with its line of credit agreement renewal with its bank in
December 1994 the Company issued to the bank a five-year warrant option to
purchase 375,000 shares of common stock, at a price of $3.50 per share.
In connection with its line of credit agreement with its bank in May 1992, the
Company issued warrants to the bank to purchase up to 75,000 shares of the
Company's common stock over a five year term at $6.75 per share.
NOTE 13 - CASH OPTION PROFIT SHARING PLAN AND TRUST:
Effective January 1, 1988, the Company adopted and implemented a 401(k) Cash
Option Profit Sharing Plan which allows employees to contribute part of their
compensation to the Profit Sharing Plan and Trust, on a pre-tax basis. The
Company is under no obligation to contribute to the Plan. For the fiscal years
ended March 31, 1996, 1995, and 1994, the Company did not make any contributions
to the plan.
35
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information regarding directors of the Company required by this
item is incorporated by reference to the Company's definitive proxy statement
relating to its September 5, 1996, Annual Meeting of Stockholders under the
captions "Election of Directors" and "Compliance with SEC Filing Requirements"
which will be filed with the Securities and Exchange Commission within 120 days
after March 31, 1996.
The executive officers and senior management of the Company are as follows:
Name Age Position
- ---- --- --------
M. Denis Connaghan 46 President, Chief Executive Officer
Michael J. Marek 37 Corporate Controller
The executive officers of the Company are elected annually by the Board.
M. Denis Connaghan joined the Company in July, 1994, as Executive Vice
President and Chief Operating Officer. In August, 1994, Mr. Connaghan was
promoted to President, and in November, 1994, to Chief Executive Officer. From
February, 1991, to June, 1994. Mr. Connaghan was with IBAX Healthcare Systems,
most recently as Vice President, Technology and Business Unit General Manager.
IBAX was a joint venture between IBM and Baxter in the development and marketing
of computerized solutions to healthcare providers. From May, 1978, to February,
1990, Mr. Connaghan held a number of managerial and executive positions with
Pansophic Systems, Inc., a publicly held computer software company.
36
<PAGE>
Michael J. Marek joined the Company as Corporate Controller in April, 1993.
From April, 1992, to April, 1993, Mr. Marek was Director of Finance for Bang &
Olufsen of America, Inc., the U.S. subsidiary of a European-based electronic
component manufacturer. From November, 1991, to April, 1992, Mr. Marek was an
independent financial consultant. From September, 1990, to November, 1991, Mr.
Marek was Director of Financial Reporting for Pansophic Systems, Inc., a
publicly held computer software company. From October, 1986, to September 1990
Mr. Marek held various positions with Applied Learning International, Inc., a
subsidiary of National Education Corporation, most recently as U.S. Controller.
Mr. Marek is a Certified Public Accountant.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information appearing under
the caption "Compensation of Directors and Executive Officers" in the Company's
proxy statement for its September 5, 1996, Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission within 120 days after
March 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
There is hereby incorporated by reference the information appearing under
the captions "Security Ownership of Management" and "Principal Stockholders of
Delphi" in the Company's proxy statement for its September 5, 1996, Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission within 120 days after March 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information appearing under
the captions "Compensation of Directors and Executive Officers" in the Company's
proxy statement for its September 5, 1996, Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission within 120 days after
March 31, 1996.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. FINANCIAL STATEMENTS.
The following consolidated financial statements and supplementary data
of the Company and its subsidiaries, required by Part II, Item 8 are
filed herewith:
- Report of Independent Public Accountants
- Consolidated Balance Sheets as of March 31, 1996, and 1995
- Consolidated Statements of Operations for the Years Ended March
31, 1996, 1995, and 1994
- Consolidated Statements of Stockholders' Equity (Deficit) for the
Years Ended March 31, 1996, 1995, and 1994
- Consolidated Statements of Cash Flows for the Years Ended March
31, 1996, 1995, and 1994
- Notes to Consolidated Financial Statements
(a) 2. FINANCIAL STATEMENTS.
The following financial statement schedule is filed herewith:
Schedule II - Valuation and Qualifying Accounts for the Years Ended
March 31, 1996, 1995, and 1994.
Schedules other than those listed above have been omitted because they
are not applicable or the required information is included in the
financial statements or notes thereto.
(b) EXHIBITS
3.1 Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1991, and incorporated herein by reference).
3.4 Certificate of Designations of Series D Preferred Stock filed with the
Secretary of State of Delaware on May 20, 1994.
3.5 Bylaws of the Company, as amended (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (No. 33-14501) and incorporated
herein by reference).
4.2 Registration Rights Agreement dated as of January 31, 1991, among the
Company, Frank H. McCracken and Gustavus Esselen (filed as Exhibit 4.3
to the Company's Registration Statement on Form S-1 (No. 33-57680) and
incorporated herein by reference).
38
<PAGE>
4.3 Registration Rights Agreement dated as of January 31, 1991, between the
Company and The Chubb Corporation (filed as Exhibit 4.3 to the Company's
Registration Statement on Form S-1 (No. 33-45153) and incorporated
herein by reference).
4.5 Registration Rights Agreement dated as of March 1, 1993, among the
Company and David J. Jordan, Karen E. Jordan, Kenneth M. Johnson and
James H. Potter (filed as Exhibit 4.5 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1993, and incorporated
herein by reference).
4.6 Investors' Rights Agreement of the Company's Series C Preferred Stock
dated as of December 21, 1993.
4.7 Registration Rights Agreement dated as of December 30, 1993, between the
Company and Pacific Insurance Company.
4.8 Registration Rights Agreement dated as of December 10, 1993, between the
Company and Phil Frandsen and Brenda Frandsen.
4.9 Investors' Rights Agreement of the Company's Convertible Promissory
Notes dated as of March 15, 1994.
4.10 Promissory Note due June 30, 1996, dated as of December 30, 1993, to the
order of Pacific Insurance Company.
4.11 Promissory Note due June 30, 1994, dated as of December 30, 1993, to the
order of Pacific Insurance Company.
4.12* Form of Redeemable Warrant to Purchase Shares of Common Stock of Delphi
Information Systems, Inc.
4.13* Form of Unit Investment Agreement to purchase Common Stock and Warrants
of Delphi Information Systems, Inc.
4.14* Form of Warrant to purchase Shares of Common Stock of Delphi Information
Systems, Inc. held by R.J. Steichen & Company.
MANAGEMENT CONTRACTS AND COMPENSATION PLANS AND ARRANGEMENTS
10.1 Delphi Information Systems, Inc. 1983 Stock Incentive Plan, as amended
(filed as Exhibit 10.1 to the Company's Registration Statement on Form
S-1 (No. 33-45153) and incorporated herein by reference).
10.2 Delphi Information Systems, Inc. Cash Option Profit Sharing Plan (filed
as Exhibit 4.2 to the Company's Registration Statement on Form S-8 (No.
33-19310) and incorporated herein by reference).
10.3 Delphi Information Systems, Inc. 1989 Stock Purchase Plan (included in
the prospectus filed as part of the Company's Registration Statement on
Form S-8 (No. 33-35952) and incorporated herein by reference).
10.4 Delphi Information Systems, Inc. Non-Qualified Stock Option Plan for
Directors (filed as Exhibit 10.4 to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1992, and incorporated herein
by reference).
10.9 Agreement for Authorized Dealers and Industry Remarketers between the
Company and International Business Machines Corporation, as amended
(filed as Exhibit 10.11 to the Company's Registration Statement on Form
S-1 (No. 33-45153) and incorporated herein by reference).
39
<PAGE>
10.10 Stock Purchase Warrant dated June 5, 1992, issued by the Company to
Silicon Valley Bank, and related Registration Rights Agreement (filed as
Exhibit 10.12 to the Company's Registration Statement on Form S-1 (No.
33-45153) and incorporated herein by reference).
10.17 Lease between the Company and Westlake Renaissance Court for office
space in Westlake Village, California, as amended (filed as Exhibit 10.5
to the Company's Registration Statement on Form S-1 (No. 33-14501) and
incorporated herein by reference).
10.18 Lease dated April 17, 1986, between Mortimer B. Zuckerman and Edward H.
Linde, as Trustees, as Landlord and McCracken Computer Inc., as Tenant,
relating to premises at 10-20 Burlington Mall Road, Burlington,
Massachusetts, as amended (filed as Exhibit 10.22 to the Company's Form
S-1 Registration Statement (No. 33-45153) and incorporated herein by
reference).
10.23 Employment agreement dated July 7, 1994, between the Company and M.
Denis Connaghan.
10.24 Employment agreement dated January 31, 1995, between the Company and
John R. Sprieser.
10.25 Severance Compensation Agreement dated October 19, 1994, between the
Company and David J. Torrence.
10.26 Form of Stock Purchase Warrant between the Company and Silicon Valley
Bank.
22.1 The subsidiaries of the Company and State of incorporation.
23.1* Consent of Independent Public Accountants
27.1 Financial Data Schedule.
99.1* Information, Financial Statements, and Exhibits required by Form 11-K in
accordance with Rule 15d-21 under the Securities Exchange Act of 1934.
- -------------------------
* Filed herewith
(c) REPORTS ON FORM 8-K
None.
40
<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 report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DELPHI INFORMATION SYSTEMS, INC.
(Registrant)
By /s/ M. Denis Connaghan
--------------------------
M. Denis Connaghan, President
Date: June 19, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/Yuval Almog Chairman of the Board June 19, 1996
- -------------------------
(Yuval Almog)
/s/M. Denis Connaghan Director, President and June 19, 1996
- -------------------------
(M. Denis Connaghan) Chief Executive Officer
/s/Michael J. Marek Corporate Controller June 19, 1996
- -------------------------
(Michael J. Marek)
41
<PAGE>
/s/Donald L. Lucas Director June 19, 1996
- -------------------------
(Donald L. Lucas)
/s/Larry G. Gerdes Director June 19, 1996
- -------------------------
(Larry G. Gerdes)
42
<PAGE>
SCHEDULE II
DELPHI INFORMATION SYSTEMS, INC.
Schedule II - Valuation and Qualifying Accounts
for the Years Ended March 31, 1996, 1995 and 1994
Allowance for doubtful accounts receivable.
March 31, March 31, March 31,
1996 1995 1994
---- ---- ----
Beginning Balance $687,000 $1,000,000 $735,000
Provisions for Allowance 741,000 396,000 547,000
Write Off of Accounts Receivable
Against Allowance (506,000) (847,000) (664,000)
Allowance Acquired in Acquisitions -- 138,000 382,000
--------- -------- ----------
$ 922,000 $687,000 $1,000,000
--------- -------- ----------
--------- -------- ----------
43
<PAGE>
Exhibit 4.12
REDEEMABLE WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
DELPHI INFORMATION SYSTEMS, INC.
April 29, 1996
This Certifies that for good and valuable consideration,_________________
_____________________, circle one: an individual, a corporation, a partnership,
a limited liability company, a trust (the "Warrantholder"), is entitled to
subscribe for and purchase from the Company, at any time after the date of this
Warrant and prior to the expiration hereof, up to _____________ shares of the
Company's Common Stock at the Purchase Price set forth herein, subject to
adjustment as hereinafter set forth.
1. DEFINITIONS. For the purposes of this Warrant, the following terms
shall have the following meanings:
"COMMISSION" shall mean the Securities and Exchange Commission, or any
other federal agency then administering the Securities Act.
"COMPANY" shall mean Delphi Information Systems, Inc., a Delaware
corporation, and any corporation which shall succeed to, or assume, the
obligations of said corporation hereunder.
"COMMON STOCK" shall mean the shares of Common Stock of the Company,
$0.10 par value.
"EXPIRATION DATE" shall mean April 19, 1999.
"OTHER SECURITIES" shall mean any stock (other than Common Stock) or
other securities of the Company which the Warrantholder at any time shall
be entitled to receive, or shall have received, upon the exercise of the
Warrants, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities.
"PURCHASE PRICE" shall mean $1.50 per share. The Purchase Price is
subject to adjustment as hereinafter provided.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, as in effect at
the time.
<PAGE>
"SUBSCRIPTION FORM" shall mean the subscription forms attached hereto.
"TRANSFER" shall mean any sale, assignment, pledge, or other
disposition of any Warrants and/or Warrant Shares, or of any interest in
either thereof, which would constitute a sale thereof within the meaning of
Section 2(3) of the Securities Act.
"WARRANT SHARES" shall mean the shares of Common Stock purchased or
purchasable by the Warrantholder upon the exercise of the Warrants pursuant
to Section 2 hereof.
"WARRANTHOLDER" shall mean the holder or holders of the Warrants or
any related Warrant Shares.
"WARRANTS" shall mean the Warrants (including this Warrant), identical
as to terms and conditions and issued by the Company pursuant to its
private placement of up to 8,000,000 Units (excluding over-allotment
option), and all Warrants issued in exchange, transfer or replacement
thereof.
All terms used in this Warrant which are not defined in Section 1 hereof
have the meanings respectively set forth elsewhere in this Warrant.
2. EXERCISE OF WARRANT, ISSUANCE OF CERTIFICATE AND PAYMENT FOR WARRANT
SHARES. Subject to Section 5 hereof, the rights represented by this Warrant may
be exercised at any time after the date of this Warrant and prior to the
Expiration Date, by the Warrantholder, in whole or in part (but not as to any
fractional share of Common Stock), by: (a) delivery to the Company of a
completed Subscription Form, (b) surrender to the Company of this Warrant
properly endorsed and signature guaranteed, and (c) delivery to the Company of a
certified or cashier's check made payable to the Company in an amount equal to
the aggregate Purchase Price of the shares of Common Stock being purchased, at
its principal office, 3501 Algonquin Road, Suite 500, Rolling Meadows, Illinois
60008 (or such other office or agency of the Company as the Company may
designate by notice in writing to the holder hereof). The Company agrees and
acknowledges that the shares of Common Stock so purchased shall be deemed to be
issued to the holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant, properly endorsed, and the
Subscription Form shall have been surrendered and payment made for such shares
as aforesaid. Upon receipt thereof, the Company shall, as promptly as
practicable, and in any event within fifteen (15) days thereafter, execute or
cause to be executed and deliver to the Warrantholder a certificate or
certificates representing the aggregate number of shares of Common Stock
specified in said Subscription Form. Each stock certificate so delivered shall
be in such denomination as may be requested by the Warrantholder and shall be
registered in the name of the Warrantholder or such other name as shall be
designated by the Warrantholder. If this Warrant shall have been exercised only
in part, the Company shall, at the time of delivery of said stock certificate or
certificates, deliver to the Warrantholder a new Warrant evidencing the rights
of such holder to purchase the remaining shares of Common Stock
2
<PAGE>
covered by this Warrant. The Company shall pay all expenses, taxes, and other
charges payable in connection with the preparation, execution, and delivery of
stock certificates pursuant to this Section 2, except that, in case any such
stock certificate or certificates shall be registered in a name or names other
than the name of the Warrantholder, funds sufficient to pay all stock transfer
taxes which shall be payable upon the execution and delivery of such stock
certificate or certificates shall be paid by the Warrantholder to the Company at
the time of delivering this Warrant to the Company as mentioned above.
3. OWNERSHIP OF THIS WARRANT. The Company may deem and treat the
registered Warrantholder as the holder and owner hereof (notwithstanding any
notations of ownership or writing made hereon by anyone other than the Company)
for all purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for transfer as provided herein and then only if
such transfer meets the requirements of Section 5.
4. EXCHANGE, TRANSFER, AND REPLACEMENT. Subject to Section 5 hereof, this
Warrant is exchangeable upon the surrender hereof by the Warrantholder to the
Company at its office or agency described in Section 2 hereof for new Warrants
of like tenor and date representing in the aggregate the right to purchase the
number of shares purchasable hereunder, each of such new Warrants to represent
the right to purchase such number of shares (not to exceed the aggregate total
number purchasable hereunder) as shall be designated by the Warrantholder at the
time of such surrender. Subject to Section 5 hereof, this Warrant and all rights
hereunder are transferable, in whole or in part, upon the books of the Company
by the Warrantholder in person or by duly authorized attorney, and a new Warrant
of the same tenor and date as this Warrant, but registered in the name of the
transferee, shall be executed and delivered by the Company upon surrender of
this Warrant, duly endorsed, at such office or agency of the Company. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction, or mutilation of this Warrant, and, in the case of loss,
theft, or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant. This
Warrant shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange, transfer, or replacement. The Company shall pay
all expenses, taxes (other than stock transfer taxes), and other charges payable
in connection with the preparation, execution, and delivery of Warrants pursuant
to this Section 4.
5. RESTRICTIONS ON TRANSFER AND EXERCISE. Notwithstanding any provisions
contained in this Warrant to the contrary, neither this Warrant nor the Warrant
Shares shall be transferable except upon the conditions specified in this
Section 5, which conditions are intended, among other things, to ensure
compliance with the provisions of the Securities Act in respect of the transfer
of this Warrant or such Warrant Shares. The holder of this Warrant agrees that
such holder will not transfer this Warrant or the related Warrant Shares (a)
prior to delivery to the Company of an opinion of counsel selected by the
Warrantholder and reasonably satisfactory to the Company, stating that such
transfer is exempt from registration under the Securities Act, or (b) until
registration of such Warrants and/or Warrant Shares under the Securities Act has
become effective and continues to be effective at the time of such transfer. An
appropriate legend may
3
<PAGE>
be endorsed on the Warrants and the certificates of the Warrant Shares
evidencing these restrictions. Notwithstanding any provision contained in this
Warrant to the contrary, the Warrantholder shall not be entitled to exercise
this Warrant to the extent that such exercise would cause the Company or the
Warrantholder to violate the Securities Act or applicable state securities laws.
6. ANTIDILUTION PROVISIONS. The rights granted hereunder are subject to
the following:
(a) STOCK SPLITS AND REVERSE SPLITS. In case at any time the Company
shall subdivide its outstanding shares of Common Stock into a greater
number of shares, the Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant
Shares purchasable pursuant to this Warrant immediately prior to such
subdivision shall be proportionately increased, and conversely, in case at
any time the Company shall combine its outstanding shares of Common Stock
into a smaller number of shares, the Purchase Price in effect immediately
prior to such combination shall be proportionately increased and the number
of Warrant Shares purchasable upon the exercise of this Warrant immediately
prior to such combination shall be proportionately reduced. Except as
provided in this paragraph (a), no adjustment in the Purchase Price and no
change in the number of Warrant Shares so purchasable shall be made
pursuant to this Section 6 as a result of or by reason of any such
subdivision or combination.
(b) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION MERGER, OR SALE.
If any capital reorganization or reclassification or merger of the Company
with another corporation, or the sale of all or substantially all of its
assets to another corporation, shall be effected in such a way that holders
of shares of Common Stock shall be entitled to receive Common Stock, Other
Securities or assets with respect to or in exchange for shares of Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be made
whereby the Warrantholder shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in the
Warrants and in lieu of the shares of Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
Warrants such shares of Common Stock, Other Securities or assets as may be
issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of Common
Stock immediately theretofore purchasable and receivable upon the exercise
of the Warrants had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate provision
shall be made with respect to the rights and interests of the Warrantholder
so that the provisions of the Warrants (including, without limitation,
provisions for adjustment of the Purchase Price and the number of shares
purchasable upon the exercise of the Warrants) shall thereafter be
applicable, as nearly as may be, in relation to any shares of Common Stock,
Other Securities or assets thereafter deliverable upon the exercise of the
Warrants.
4
<PAGE>
(c) LIMITATION OF ADJUSTMENT. Notwithstanding paragraphs (a) and
(b), in the event of any capital event or series of capital events that
otherwise would require an increase or change in the kind of securities or
property issuable upon exercise of this Warrant or a decrease in the
Purchase Price, no adjustment shall be made unless and until such increase
or decrease, respectively, exceeds 5%.
7. SPECIAL AGREEMENTS OF THE COMPANY.
(a) WILL RESERVE SHARES. The Company will reserve and set apart and
have at all times the number of shares of authorized but unissued Common
Stock deliverable upon the exercise of the Warrants, and it will have at
all times any other rights or privileges provided for herein sufficient to
enable it at any time to fulfill all of its obligations hereunder.
(b) WILL AVOID CERTAIN ACTIONS. The Company will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, issue or sale of securities or otherwise,
avoid or take any action which would have the effect of avoiding the
observance or performance hereunder by the Company, but will at all times
in good faith assist in carrying out of all the provisions of the Warrants
and in taking all such actions as may be necessary or appropriate in order
to protect the rights of the Warrantholder against dilution or other
impairment.
8. REDEMPTION. This Warrant is subject to redemption at the election of
the Company upon 10 days advance written notice to the registered Warrantholder
at any time subsequent to 180 days after the date of its issuance at a
redemption price of $.01 per share of Warrant Stock then purchasable upon
exercise, PROVIDED that prior to the giving of such notice of redemption the
closing bid price for the Common Stock on the Nasdaq SmallCap Market (or such
other organized market or exchange on which it then is trading) exceeded $2.00
per share, subject to adjustment in accordance with Section 6 hereof, for twenty
consecutive trading days. The Warrantholder shall be entitled to exercise this
Warrant up until the date designated in the redemption notice as the redemption
date, which redemption date shall be not less than 10 nor more than 30 days
after the notice is given.
9. NOTICES. Any notice or other document required or permitted to be
given or delivered to the Warrantholder shall be delivered or sent by certified
mail to the Warrantholder at the last address shown on the books of the Company
maintained for the registry and transfer of the Warrants. Any notice or other
document required or permitted to be given or delivered to the Company shall be
delivered or sent by certified or registered mail to the principal office of the
Company. For purposes of section 8, notice shall be deemed to be given on the
date of mailing.
10. NO RIGHTS AS SHAREHOLDERS, LIMITATION OF LIABILITY. This Warrant shall
not entitle any holder hereof to any of the rights of a stockholder of the
Company. No provisions hereof, in the absence of affirmative action by the
holder hereof to purchase shares of Common Stock,
5
<PAGE>
and no mere enumeration herein of the rights or privileges of the holder hereof,
shall give rise to any liability of such holder for the Purchase Price or as a
stockholder of the Company whether such liability is asserted by the Company or
by creditors of the Company.
11. GOVERNING LAW. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware, without regard
to conflicts of laws principles.
12. MISCELLANEOUS. This Warrant and any provision hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by the
party (or any predecessor in interest thereof) against which enforcement of the
same is sought. The headings in this Warrant are for purposes of reference only
and shall not affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by a
duly authorized officer, and to be dated as of the 1st day of May, 1996.
DELPHI INFORMATION SYSTEMS, INC.
By:
----------------------------------------------
Its:
----------------------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE TRANSFERRED WITHOUT (i) THE OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT
REGISTRATION UNDER THE ACT OR THE SECURITIES LAWS OF ANY APPLICABLE STATE; OR
(ii) SUCH REGISTRATION.
6
<PAGE>
FULL SUBSCRIPTION FORM
To Be Executed By the Registered Warrantholder if It/
She/He Desires to Exercise in Full the Within Warrant
The undersigned hereby exercises the right to purchase the _________ shares
of Common Stock covered by the within Warrant at the date of this subscription
and herewith makes payment of the sum of $_______________ representing the
Purchase Price of $__________ per share in effect at that date. Certificates for
such shares shall be issued in the name of and delivered to the undersigned,
unless otherwise specified by written instructions, signed by the undersigned
and accompanying this subscription.
Dated:
------------------------
Signature:
---------------------------------------
Address:
7
<PAGE>
PARTIAL SUBSCRIPTION FORM
To be Executed by the Registered Warrantholder if It/
She/He Desires to Exercise in Part Only the Within Warrant
The undersigned hereby exercises the right to purchase __________ shares of
the total shares of Common Stock covered by the within Warrant at the date of
this subscription and herewith makes payment of the sum of $____________
representing the Purchase Price of $_________ per share in effect at this date.
Certificates for such shares and a new Warrant of like tenor and date for
the balance of the shares not subscribed for (if any) shall be issued in the
name of and delivered to the undersigned, unless otherwise specified by written
instructions, signed by the undersigned and accompanying this subscription.
[The following paragraph need be completed only if the Purchase Price and number
of shares of Common Stock specified in the within Warrant have been adjusted
pursuant to Section 6.]
The shares hereby subscribed for constitute ______________ shares of Common
Stock (to the nearest whole share) resulting from adjustment of ______________
shares of the total of _________________ shares of Common Stock covered by the
within Warrant, as said shares were constituted at the date of the Warrant.
Dated:
------------------------
Signature:
---------------------------------------
Address:
8
<PAGE>
Exhibit 4.13
UNIT INVESTMENT AGREEMENT
THIS UNIT INVESTMENT AGREEMENT (the "Agreement") dated as of
_________________, 1996, is by and between Delphi Information Systems, Inc., a
Delaware corporation (the "Company"), and
___________________________________________ (the "Investor"), a resident of the
State of ______________.
RECITALS:
(a) Whereas, the Company needs financing for its operations; and
(b) Whereas, the Investor desires to purchase the Company's common stock
and warrants on the terms and conditions set forth in this Agreement; and
(c) Whereas, other investors may purchase the Company's common stock and
warrants from the Company on terms and conditions equivalent to those set forth
in this Agreement ("Other Investors").
Accordingly, in consideration of the foregoing, the mutual promises set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. PURCHASE OF UNITS. The Investor agrees to purchase _________ Units
(the "Units"), each Unit consisting of one share of the Company's common stock,
$.10 par value (the "Common Stock") and a Warrant to purchase one share of
Common Stock (the "Warrants"), for a purchase price of $1.00 per Unit and the
Company agrees to issue a stock certificate and Warrant to Investor representing
such shares of Common Stock and Warrants. The Warrant shall be exercisable to
purchase Common Stock commencing upon its issuance and terminating three (3)
years from the date of issuance. The shares of Common Stock issuable upon
exercise of the Warrants are referred to hereinafter as the "Warrant Shares."
The delivery of such certificate and Warrant shall be made concurrently with
delivery of funds to the Company from escrow in the amount set forth above.
Checks should be made payable to "Resource Trust Company -- Delphi Information
Systems Impoundment Account" and should be sent along with a completed and
executed copy of this Agreement to R. J. Steichen & Company.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Investor that this Agreement has been duly authorized by all
necessary corporate action on behalf of the Company, has been duly executed and
delivered by an authorized officer of the Company, and is a valid and binding
agreement on the part of the Company. All corporate action necessary for the
authorization, issuance, and delivery of the Common Stock, the Warrant, and the
Warrant Stock has been taken on or prior to the date hereof.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. The Investor
represents and warrants to the Company as follows:
<PAGE>
(a) The Investor has had the opportunity to ask questions of, and
receive answers from the Company, or an agent of the Company,
concerning the terms and conditions of the investment and the
business and affairs of the Company, and to obtain any additional
information necessary to verify such information, as the Investor
considers necessary or advisable in order to form a decision
concerning an investment in the Company.
(b) The Common Stock, the Warrant, and the Warrant Shares are being
acquired for investment for the Investor's own account and not
with the view to, or for resale in connection with, any
distribution or public offering thereof. The Investor understands
that neither the Common Stock, nor the Warrant nor the Warrant
Shares has been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or any state securities laws by
reason of the contemplated issuance in transactions exempt from
the registration requirements of the Securities Act and
applicable state securities laws, and that the reliance of the
Company and others upon these exemptions is predicated in part
upon this representation by the Investor. The Investor further
understands that the Common Stock, the Warrant, and the Warrant
Shares may not be transferred or resold without registration
under the Securities Act and any applicable state securities laws
unless in the opinion of counsel to the Company such registration
is not required.
(c) The Investor's principal residence is as described on Page 1
hereof.
(d) The Investor has carefully reviewed the Company's Confidential
Private Placement Memorandum dated March 29, 1996 (the
"Memorandum").
(e) The Investor is able to bear the loss of the entire investment in
the Common Stock, the Warrant, and the Warrant Shares without any
material adverse effect on the Investor's financial position or
prospects, and the Investor (either individually or together with
his or purchaser representative) has such knowledge and
experience of financial and business matters to be capable of
evaluating the merits and risks of the investment to be made
pursuant to this Agreement. Without limiting the foregoing, the
Investor understands that the securities offered hereby are
highly speculative, involve a high degree of risk and immediate
substantial dilution, and should be purchased only by persons who
can afford the loss of their entire investment. The Investor has
carefully considered the risks and speculative factors described
under "Risk Factors" in the Memorandum.
(f) The Investor is (check all that apply):
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<PAGE>
----- (i) A natural person whose individual net worth (assets
less liabilities), or joint net worth with his or her
spouse, exceeds $1,000,000.
----- (ii) A natural person whose individual income was in excess
of $200,000, or whose joint income with his or her spouse
was in excess of $300,000, in each of the two most recent
years, and who has a reasonable expectation of reaching the
same income level for the current year.
----- (iii) A bank, insurance company, registered investment
company, business development company, small business
investment company, or employee benefit plan.
----- (iv) A savings and loan association, credit union, or
similar financial institution, or a registered broker or
dealer.
----- (v) A private business development company.
----- (vi) An organization described in Section 501(c)(3) of the
Internal Revenue Code with assets in excess of $5,000,000.
----- (vii) A corporation, Massachusetts or similar business
trust, or partnership with assets in excess of $5,000,000.
----- (viii) A trust with assets in excess of $5,000,000.
----- (ix) A director or an executive officer of the Company.
----- (x) An entity in which all of the equity owners are
accredited investors. (Not available for an Irrevocable
Trust).
----- (xi) A self-directed IRA, Keogh, or similar plan of which
the individual directing the investments qualifies as an
"accredited investor" under one or more items (i) to (x),
above. Also check the item(s) (i) to (x) which applies.
(g) This Agreement has been duly authorized by all necessary action on the
part of the Investor, has been duly executed and delivered by the
Investor, and is a valid and binding agreement of the Investor.
(h) If the Investor is an entity, the Investor was not organized for the
specific purpose of acquiring the Common Stock, the Warrant, or the
Warrant Shares.
3
<PAGE>
(i) Investor is NOT subject to backup withholding provisions of Section
3406(a)(i)(C) of the Internal Revenue Code of 1986, as amended.
(Note: you are subject to backup withholding if (i) you fail to
furnish your Social Security number or taxpayer identification number
herein; (ii) the Internal Revenue Service notifies the Company that
you furnished an incorrect Social Security number or taxpayer
identification number; (iii) you are notified that you are subject to
backup withholding; or (iv) you fail to certify that you are not
subject to backup withholding or fail to certify your Social Security
number or taxpayer identification number).
(j) RELATIONSHIP TO BROKERAGE FIRMS. (Please answer the following
questions by checking the appropriate response:)
(1) ____ YES ____ NO: Are you a director, officer, partner, branch
manager, registered representative, employee, shareholder of, or
similarly related to or employed by, a brokerage firm? (IF YES, please
contact the Company to provide additional information before your
subscription can be considered.)
(2) ____ YES ____ NO: Is your spouse, father, mother, father-in-law,
mother-in-law, or any of your brothers, sisters, brothers-in-law,
sisters-in-law or children, or any relative which you support, a
director, officer, partner, branch manager, registered representative,
employee, shareholder of, or similarly related to or engaged by, a
brokerage firm? (IF YES, please contact the Company to provide
additional information before your subscription can be considered.)
(3) ____ YES ____ NO: Do you own voting securities of any brokerage
firm? (IF YES, please contact the Company to provide additional
information before your subscription can be considered.)
(4) ____ YES ____ NO: If the undersigned is an entity, is any
director, officer, partner or five percent (5%) owner of the
undersigned also a director, officer, partner, branch manager,
registered representative, employee, shareholder of, or similarly
related to or employed by, a brokerage firm? (IF YES, please contact
the Company to provide additional information before your subscription
can be considered.)
4. PROVISIONS FOR REGISTRATION. The holders of Common Stock and Warrant
Shares shall have the following rights regarding registration of the Common
Stock and Warrant Shares.
(a) REQUIRED REGISTRATION. The Company shall prepare and file a
registration statement under the Securities Act covering the Common Stock
and Warrant Shares and shall use all reasonable efforts to cause such
registration statement to become effective within 180 days after the first
issuance of Units and remain effective until such time as the Company
reasonably believes each holder of Common Stock and Warrant Shares may
4
<PAGE>
sell such securities under Rule 144 of the Securities Act until such time
as the Company reasonably believes each holder of Common Stock and Warrant
Shares may sell such securities under Rule 144 of the Securities Act
assuming no tolling of the holding period thereunder. The Company shall
promptly give written notice to the Investor and the Other Investors that
such registration is to be effected. The Company shall include in such
registration statement such Common Stock and Warrant Shares for which it
has received written requests to register within fifteen (15) days after
the Company's written notice. The Company shall be obligated to prepare,
file and cause to become effective only one registration statement pursuant
to this Section 4(a).
(b) REGISTRATION PROCEDURES. When the Company effects the
registration of any Common Stock and Warrant Shares under the Securities
Act, the Company will:
(i) prepare and file with the Commission a registration
statement with respect to such Common Stock and Warrant Shares, and
use all reasonable efforts to cause such registration statement to
become effective within 180 days after the first issuance of Units and
remain effective until such time the Company reasonably believes as
each holder of Common Stock and Warrant Shares may sell such
securities under Rule 144 of the Securities Act until such time as the
Company reasonably believes each holder of Common Stock and Warrant
Shares may sell such securities under Rule 144 of the Securities Act
assuming no tolling of the holding period thereunder;
(ii) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement
effective until such time as the Company reasonably believes each
holder of Common Stock and Warrant Shares may sell such securities
under Rule 144 of the Securities Act until such time as the Company
reasonably believes each holder of Common Stock and Warrant Shares may
sell such securities under Rule 144 of the Securities Act assuming no
tolling of the holding period thereunder;
(iii) furnish to the security holders participating in such
registration and to the underwriters of the Common Stock and Warrant
Shares being registered such reasonable number of copies of the
registration statement, preliminary prospectus, final prospectus and
such other documents as such security holders and underwriters may
reasonably request in order to facilitate the public offering of such
Common Stock and Warrant Shares;
(iv) use all reasonable efforts to register or qualify the Common
Stock and Warrant Shares covered by such registration statement under
such state securities or blue sky laws of such jurisdictions as such
participating holders may reasonably request within ten (10) days
following the original filing of such registration statement, except
that the Company shall not for any purpose be
5
<PAGE>
required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified;
(v) notify the security holders participating in such
registration, promptly after it shall receive notice thereof, of the
time when such registration statement has become effective or a
supplement to any prospectus forming a part of such registration
statement has been filed;
(vi) notify such holders promptly of any request by the
Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(vii) prepare and file with the Commission, promptly upon the
request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel
for such holders (and concurred in by counsel for the Company), is
required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Common Stock and
Warrant Shares by such holder;
(viii) prepare and promptly file with the Commission and promptly
notify such holders of the filing of such amendment or supplement to
such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus
relating to such securities is required to be delivered under the
Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light
of the circumstances in which they were made, not misleading;
(ix) advise such holders, promptly after it shall receive notice
or obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement
or the initiation or threatening of any proceeding for that purpose
and promptly use its best efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such stop order should be issued;
and
(x) not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of such
holders shall have reasonably objected on the grounds that such
amendment or supplement does not comply in all material respects with
the requirements of the Securities Act or the rules and regulations
thereunder, after having been furnished with a copy thereof at least
five (5) business days prior to the filing thereof, unless in the
opinion of counsel for the Company the filing of such amendment or
supplement is reasonably
6
<PAGE>
necessary to protect the Company from any liabilities under any
applicable federal or state law and such filing will not violate
applicable law.
(c) EXPENSES. With respect to any registration pursuant to Section
4(a), the Company shall bear the following fees, costs and expenses: all
registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, the premiums and
other costs of policies of insurance against liability arising out of the
public offering, and all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions in
which the securities to be offered are to be registered or qualified. Fees
and disbursements of counsel and accountants for the selling security
holders, underwriting discounts and commissions and transfer taxes for
selling security holders and any other expenses incurred by the selling
security holders not expressly included above shall be borne by the selling
security holders.
(d) COPIES OF PROSPECTUS; AMENDMENTS OF PROSPECTUS. The Company will
furnish the selling security holders with a reasonable number of copies of
any prospectus or offering circular and one copy of the registration
statement included in such filings and will amend or supplement the same as
required during the period in which the Company is obligated to maintain
the effectiveness of the registration statement.
(e) CONDITIONS OF THE COMPANY'S OBLIGATIONS. It shall be a condition
of the Company's obligation to register the Common Stock and Warrant Shares
hereunder that the holder of Common Stock and Warrant Shares agrees to
cooperate with the Company in the preparation and filing of any such
registration statement, or in its efforts to establish that the proposed
sale is exempt under the Securities Act, as to any proposed distribution.
It shall also be a condition of the Company's obligations under this
Agreement that, in the case of the filing of any registration statement,
and to the extent permissible under the Securities Act, and controlling
precedent thereunder, the Company and the holder of Common Stock and
Warrant Shares provide cross-indemnification agreements to each other in
customary scope covering the accuracy and completeness of the information
furnished by each.
5. OTHER.
(a) Except for the obligations of the Company under Section 4 hereof,
this Agreement and the rights and obligations of the parties
hereunder shall not be assignable, in whole or in part, by any
party without the prior written consent of the other party.
(b) This Agreement, including the appendices attached hereto,
constitutes the entire agreement of the parties relative to the
subject matter hereof and supersedes any and all other agreements
and understandings, whether written or oral, relative to the
matters discussed herein.
7
<PAGE>
(c) This Agreement shall be construed and enforced in accordance with
the laws of the State of Delaware, without regard to conflicts of
laws principles.
(d) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date set forth above.
INVESTOR: DELPHI INFORMATION SYSTEMS, INC.
By:
-----------------------------------------
- ------------------------------
Signature Its:
-------------------------------------
- ------------------------------
Print Name
- ------------------------------
- ------------------------------
Address
- ------------------------------
Telephone Number
- ------------------------------
Taxpayer ID Number
- ------------------------------
Social Security Number
9
<PAGE>
CERTIFICATE OF SIGNATORY
(To be completed if Investor is an entity)
I, ______________________________, am the _________________ of
______________________________ (the "Entity").
I certify that I am empowered and duly authorized by the Entity to execute
and carry out the terms of the Unit Investment Agreement and to purchase and
hold the Common Stock, and the Warrant and certify further that the Unit
Investment Agreement has been duly and validly executed on behalf of the Entity
and constitutes a legal and binding obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this ____ day of _________________,
1996.
---------------------------------------
Signature
---------------------------------------
Print Name
10
<PAGE>
APPENDIX A
WARRANT
TO PURCHASE ____________ SHARES OF
COMMON STOCK OF
DELPHI INFORMATION SYSTEMS, INC.
THIS CERTIFIES THAT, for good and valuable consideration, R. J. Steichen &
Company (the "Agent"), or its registered assigns, is entitled to subscribe for
and purchase from Delphi Information Systems, Inc., a Delaware corporation (the
"Company"), at any time after _______________, 1997, up to and including
_______________, 2002 _______________________________________________
(_________) fully paid and nonassessable shares of the Common Stock of the
Company at the price of $1.00 per share (the "Warrant Exercise Price"), subject
to the antidilution provisions of this Warrant. Reference is made to this
Warrant in the Agency Agreement dated ________________, 1996, by and between the
Company and the Agent. The shares which may be acquired upon exercise of this
Warrant are referred to herein as the "Warrant Shares." As used herein, the
term "Holder" means the Agent, any party who acquires all or a part of this
Warrant as a registered transferee of the Agent, or any record holder or holders
of the Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant; the term "Common Stock" means and includes the Company's presently
authorized common stock, $.10 par value per share, and shall also include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to a fixed sum or percentage in respect of the rights of the Holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution, or winding up of the Company;
and the term "Convertible Securities" means any stock or other securities
convertible into, or exchangeable for, Common Stock.
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE; TRANSFERABILITY.
(a) The rights represented by this Warrant may be exercised by the Holder
hereof, in whole or in part (but not as to a fractional share of Common Stock),
by written notice of exercise (in the form attached hereto) delivered to the
Company at the principal office of the Company prior to the expiration of this
Warrant and accompanied or preceded by the surrender of this Warrant along with
a check in payment of the Warrant Exercise Price for such shares.
(b) This Warrant and the Warrant Shares are restricted from sale,
transfer, assignment and hypothecation for a period of 12 months from the
effective date of the offering, except to officers and shareholders of the
Agent, and only to the extent that the Agent determines that such transfers are
permitted by the rules, regulations and interpretations of the National
Association of Securities Dealers, Inc. Further, this Warrant
<PAGE>
may not be sold, transferred, assigned, hypothecated or divided into two or more
Warrants of smaller denominations nor may any Warrant Shares be transferred,
except as provided in Section 7 hereof.
2. EXCHANGE AND REPLACEMENT. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant;
provided, however, that if the Agent shall be such Holder, an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section 2.
This Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer taxes), and other charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 2.
3. ISSUANCE OF THE WARRANT SHARES.
(a) The Company agrees that the shares of Common Stock purchased hereby
shall be and are deemed to be issued to the Holder as of the close of business
on the date on which this Warrant shall have been surrendered and the payment
made for such Warrant Shares as provided herein. Subject to the provisions of
the next section, certificates for the Warrant Shares so purchased shall be
delivered to the Holder within a reasonable time, not exceeding fifteen (15)
days after the rights represented by this Warrant shall have been so exercised,
and, unless this Warrant has expired, a new Warrant representing the right to
purchase the number of Warrant Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be delivered to the Holder
within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein shall obligate the Company to effect registrations under federal
or state securities laws, except as provided in Section 9. If registrations are
not in effect and if exemptions are not available when the Holder seeks to
exercise the Warrant, the Warrant exercise period will be extended, if need be,
to prevent the Warrant from expiring, until such time as either registrations
become effective or exemptions are available, and the Warrant shall then remain
exercisable for a period of at least 45 calendar days from the date the Company
delivers to the Holder written notice of the availability of such registrations
or exemptions. The Holder agrees to execute such documents and make such
representations, warranties, and agreements as may be required
2
<PAGE>
solely to comply with the exemptions relied upon by the Company, or the
registrations made, for the issuance of the Warrant Shares.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
Warrant Shares will, upon issuance and payment therefor in accordance with the
terms and conditions hereof, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
or transfer upon exercise of the purchase rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
5. ANTIDILUTION ADJUSTMENTS. The provisions of this Warrant are subject
to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time such
that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company payable in
Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
(iii) combine outstanding shares of Common Stock, by reclassification
or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Board of Directors (whose determination shall be conclusive)
shall determine the allocation of the adjusted Warrant Exercise Price between or
among shares of such classes of capital stock or shares of Common Stock and
other capital stock. All calculations under this subsection shall be made to
the nearest cent or to the nearest 1/100 of a share, as the
3
<PAGE>
case may be. In the event that at any time as a result of an adjustment made
pursuant to this subsection, the Holder of any Warrant thereafter surrendered
for exercise shall become entitled to receive any shares of the Company other
than shares of Common Stock, thereafter the Warrant Exercise Price of such
other shares so receivable upon exercise of any Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock contained in this
Section.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to
Section 5(a) above, the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as adjusted as a
result of all adjustments in the Warrant Exercise Price in effect prior to such
adjustment) by the Warrant Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the adjusted Warrant Exercise Price.
(c) In case of any consolidation or merger to which the Company is a
party, other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), there shall be no adjustment under
subsection (a) of this Section above but the Holder of each Warrant the
outstanding shall have the right thereafter to convert such Warrant into the
kind and amount of shares of stock and other securities and property which the
Holder would have owned or have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale, or conveyance had such Warrant
been converted immediately prior to the effective date of such consolidation,
merger, statutory exchange, sale, or conveyance and in any such case, if
necessary, appropriate adjustment shall be made in the application of the
provisions set forth in this Section with respect to the rights and interests
thereafter of any Holders of the Warrant, to the end that the provisions set
forth in this Section shall thereafter correspondingly be made applicable, as
nearly as may reasonably be, in relation to any shares of stock and other
securities and property thereafter deliverable on the exercise of the Warrant.
The provisions of this subsection shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances.
(d) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company.
4
<PAGE>
7. INVESTMENT INTENT; NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE
WARRANT SHARES.
(a) The Holder, by acceptance hereof, represents and warrants that (i) it
is acquiring this Warrant for its own account for investment purposes and not
with a view to its resale or distribution, and (ii) it has no present intention
to resell or otherwise dispose of all or a portion of this Warrant.
(b) Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Company before transferring this Warrant or
transferring any Warrant Shares of such Holder's intention to do so, describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, the Company shall present copies thereof to the Company's
counsel and to counsel to the original purchaser of this Warrant. If in the
opinion of each such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities laws), the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the Holder shall be entitled to transfer this Warrant or to dispose of
Warrant Shares received upon the previous exercise of this Warrant, all in
accordance with the terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on the Warrant or the
certificates for such Warrant Shares respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel and satisfactory to the
Company to prevent further transfers which would be in violation of Section 5 of
the Act and applicable state securities laws; and provided further that the
prospective transferee or purchaser shall execute such documents and make such
representations, warranties, and agreements as may be required solely to comply
with the exemptions relied upon by the Company or the Holder for the transfer or
disposition of the Warrant or Warrant Shares.
(c) If in the opinion of counsel referred to in this Section 7, the
proposed transfer or disposition of this Warrant or such Warrant Shares
described in the written notice given pursuant to this Section 7 may not be
effected without registration or qualification of this Warrant or such Warrant
Shares, the Company shall promptly give written notice thereof to the Holder.
8. FRACTIONAL SHARES. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price" with respect to shares of Common Stock of any class or series
means the last reported sale price or, if none, the average of the last reported
closing bid and asked prices on any national securities exchange, the Nasdaq
National Market or Nasdaq Small Cap Market, or if not listed on a national
securities exchange or quoted in Nasdaq, the average of the last
5
<PAGE>
reported closing bid and asked prices as reported in the "pink sheets" or other
standard compilation of quotations by market makers in the over-the-counter
market.
9. REGISTRATION RIGHTS.
(a) If at any time after ____________, 1997 and through ____________,
2004, the Company proposes to register under the Act (except by a Form S-4 or
Form S-8 Registration Statement or any successor forms thereto) or qualify for a
public distribution under Section 3(b) of the Act, any of its equity securities,
including securities convertible into equity, it will give written notice to all
Holders of this Warrant, any Warrants issued pursuant to Section 2 or
Section 3(a) hereof, and any Warrant Shares of its intention to do so and, on
the written request of any such Holder given within twenty (20) days after
receipt of any such notice (which request shall specify the interest in this
Warrant or the Warrant Shares intended to be sold or disposed of by such Holder
and describe the nature of any proposed sale or other disposition thereof), the
Company will use all reasonable efforts to cause all such Warrant Shares, the
Holders of which shall have requested the registration or qualification thereof,
to be included in such registration statement proposed to be filed by the
Company; provided, however, that if a greater number of Warrant Shares is
offered for participation in the proposed offering than in the reasonable
opinion of the managing underwriter of the proposed offering can be accommodated
without adversely affecting the proposed offering, then the amount of Warrant
Shares proposed to be offered by such Holders for registration, as well as the
number of securities of any other selling stockholders participating in the
registration, shall be proportionately reduced to a number deemed satisfactory
by the managing underwriter.
(b) On a one-time basis, upon request made any time after the earlier of
(i) 12 months from the date of this Warrant or (ii) when the Company first
becomes eligible to use Form S-3 for the purpose of registering the Warrant
Shares, and until _____________, 2002 by a majority in interest of Warrants, or
by the Holders of a majority of the shares of the common stock issued upon
exercise thereof, the Company will, at its expense, promptly take all necessary
steps to register or qualify the Warrant Shares under Section 3(b) or Section 5
of the Act and such state laws as such Holders may reasonably request. The
Company shall keep effective and maintain any registration, qualification,
notification or approval specified in this paragraph for such period as may be
necessary for the Holders of the Warrant Shares to dispose thereof and from time
to time shall amend or supplement, at the Company's expense, the prospectus used
in connection therewith to the extent necessary in order to comply with
applicable law, provided that the Company shall not be obligated to maintain any
registration for a period of more than six (6) months after effectiveness except
that a Form S-3 Registration Statement or successor thereof shall be maintained
for up to 12 months after effectiveness.
(c) With respect to each inclusion of securities in a registration
statement pursuant to Section 9(a), the Company shall bear the following fees,
costs, and expenses: all registration, filing and NASD fees, Nasdaq fees,
printing expenses, fees and disbursements of counsel and accountants for the
Company, fees and disbursements of counsel for the underwriter or underwriters
of such securities (if the offering is underwritten and the
6
<PAGE>
Company is required to bear such fees and disbursements), all internal expenses,
the premiums and other costs of policies of insurance against liability arising
out of the public offering, and legal fees and disbursements and other expenses
of complying with state securities laws of any jurisdictions in which the
securities to be offered are to be registered or qualified. Fees and
disbursements of special counsel and accountants for the selling Holders,
underwriting discounts and commissions, and transfer taxes for selling Holders
and any other expenses relating to the sale of securities by the selling Holders
not expressly included above shall be borne by the selling Holders.
(d) The Company hereby indemnifies each of the Holders of this Warrant and
of any Warrant Shares, and the officers and directors, if any, who control such
Holders, within the meaning of Section 15 of the Act and Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), against all
losses, claims, damages, and liabilities caused by (1) any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (and as amended or supplemented if the Company shall
have furnished any amendments thereof or supplements thereto), any Preliminary
Prospectus or any state securities law filings; (2) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, or liabilities are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Holder expressly for use therein; and each such Holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the Company, each of
its officers who signs such Registration Statement, and each person, if any, who
controls the Company, within the meaning of Section 15 of the Act and Section 20
of the Exchange Act, with respect to losses, claims, damages, or liabilities
which are caused by any untrue statement or omission contained in information
furnished in writing to the Company by such Holder expressly for use therein.
IN WITNESS WHEREOF, Delphi Information Systems, Inc. has caused this
Warrant to be signed by its duly authorized officer this ______ day of
_______________, 1996.
Delphi Information Systems, Inc.
By
-------------------------------------
Its
------------------------------------
7
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
WARRANT EXERCISE NOTICE
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
The undersigned, the Holder of the foregoing Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ___________________________ shares of the Common Stock of
Delphi Information Systems, Inc. to which such Warrant relates and herewith
makes payment of $____________ therefor in cash or by certified or cashier's
check and requests that the certificate for such shares be issued in the name
of, and be delivered to _________________________________________, whose address
is set forth below the signature of the undersigned. If the number of shares
purchased is less than all of the shares purchasable under the Warrant, a new
Warrant will be issued in the name of the undersigned for the remaining balance
remaining of the shares purchasable thereunder.
Name of Warrant Holder:
---------------------------------------
(Please print)
Address of Warrant Holder:
---------------------------------------
---------------------------------------
Tax Identification No. or
Social Security No. of Warrant Holder:
---------------------------------------
Signature:
-----------------------------
NOTE: THE ABOVE SIGNATURE SHOULD
CORRESPOND EXACTLY WITH THE NAME OF THE
WARRANT HOLDER AS IT APPEARS ON THE
FIRST PAGE OF THE WARRANT OR ON A DULY
EXECUTED WARRANT ASSIGNMENT.
Dated:
---------------------------------
8
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
WARRANT ASSIGNMENT
(TO BE SIGNED ONLY UPON TRANSFER OF WARRANT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
___________________________________________________________, the assignee, whose
address is ___________________________________________________________________,
and whose tax identification or social security number is
_______________________, the right represented by the foregoing Warrant to
purchase ___________________ shares of the Common Stock of Delphi Information
Systems, Inc. to which the foregoing Warrant relates and appoints
_________________________________________________________________ attorney to
transfer said right on the books of Delphi Information Systems, Inc., with full
power of substitution in the premises. If the number of shares assigned is less
than all of the shares purchasable under the Warrant, a new Warrant will be
issued in the name of the undersigned for the remaining balance of the shares
purchasable thereunder.
Name of Warrant Holder/Assignor:
---------------------------------------
(Please print)
Address of Warrant Holder/Assignor:
---------------------------------------
---------------------------------------
Tax Identification No. or
Social Security No. of Warrant Holder/
Assignor:
---------------------------------------
Signature:
-----------------------------
NOTE: THE ABOVE SIGNATURE SHOULD
CORRESPOND EXACTLY WITH THE NAME ON THE
FIRST PAGE OF THE WARRANT OR WITH THE
NAME OF THE ASSIGNEE APPEARING ON A DULY
EXECUTED ASSIGNMENT FORM.
Dated:
---------------------------------
9
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-62901.
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 920
<SECURITIES> 0
<RECEIVABLES> 9,001
<ALLOWANCES> (922)
<INVENTORY> 592
<CURRENT-ASSETS> 9,956
<PP&E> 11,200
<DEPRECIATION> (8,331)
<TOTAL-ASSETS> 20,329
<CURRENT-LIABILITIES> 21,323
<BONDS> 0
0
7,225
<COMMON> 1,031
<OTHER-SE> (11,602)
<TOTAL-LIABILITY-AND-EQUITY> 20,389
<SALES> 44,081
<TOTAL-REVENUES> 44,081
<CGS> 28,839
<TOTAL-COSTS> 28,839
<OTHER-EXPENSES> 25,621
<LOSS-PROVISION> 741
<INTEREST-EXPENSE> 599
<INCOME-PRETAX> (11,719)
<INCOME-TAX> 114
<INCOME-CONTINUING> (11,833)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,833)
<EPS-PRIMARY> (1.37)
<EPS-DILUTED> (1.37)
</TABLE>
<PAGE>
EXHIBIT 99.1
Information, Financial Statements, and Exhibits
Required by Form 11-K in accordance with
Rule 15d-21 under the
Securities Exchange Act of 1934
For the Fiscal Years Ended December 31, 1995
and December 31, 1994
Delphi Information Systems, Inc.
Cash Option Profit Sharing Plan
DELPHI INFORMATION SYSTEMS, INC.
--------------------------------
The principal executive offices of Delphi Information Systems, Inc.
are located at 3501 Algonquin Road, Rolling Meadows, Illinois 60008
<PAGE>
ITEM 1. CHANGES IN THE PLAN
Delphi Information Systems, Inc. (the "Company") adopted the Cash
Option Profit Sharing Plan (the "Plan") effective January 1, 1988.
There were no material changes in the provisions of the Plan during
1995 or 1994.
ITEM 2. CHANGES IN INVESTMENT POLICY
There were no material changes made during 1995 or 1994 with respect
to investment policy.
ITEM 3. CONTRIBUTIONS UNDER THE PLAN
The Company made no contributions to the Plan in 1995 or 1994.
ITEM 4. PARTICIPATING EMPLOYEES
As of December 31, 1995, there were approximately 528 employees who
were participants in the Plan compared to 479 employees as of December
31, 1994.
ITEM 5. ADMINISTRATION OF THE PLAN
(a) The Plan is administered by the Company's Administrative
Committee (the "Committee" or "Administrators"), the members of which
are appointed by the Board of Directors. The members of the Committee
and their titles with the Company as of April 1, 1995 are as follows:
Position with the
Member's Names Company or Affiliates
-------------- ---------------------
M. Denis Connaghan President and CEO
Meigan Putnam Vice President, Operations
The business address of each member of the Committee is 3501 Algonquin
Road, Rolling Meadows, Illinois 60008.
The Administrators of the Plan also serve as the Trustees of the Plan.
The trust established under the Plan is administered by the Trustees.
(b) During 1995 and 1994, no Committee members or Trustees received
any compensation from the Plan for services rendered in connection
with the administration of the Plan.
2
<PAGE>
ITEM 6. INVESTMENT CUSTODIAN
(a) Connecticut General Life Insurance Company ("CIGNA") acts as
custodian of the Plan's securities and investments. Its offices are
located at:
Connecticut General Life Insurance Company
Group Pension Division
Metro Center One
350 Church Street
M-80
Hartford, CT 06104
CIGNA manages participant contributions which are invested in an
employee directed combination of the Cigna Guaranteed Long Term
Account, Cigna Guaranteed Government Securities Account, Fidelity
Income and Growth Account and/or the Fidelity Growth Opportunities
Account.
CIGNA delivers participants' contributions that are to be invested in
the Company's common stock to Smith Barney Shearson ("Smith Barney")
who executes the buy or sell orders it is given and holds the stock
certificates. Smith Barney's offices are located at:
Smith Barney Shearson
350 California Street
San Francisco, CA 94104-1477
(b) The contract and administrative fees incurred by the Plan are
payable to CIGNA, the Plan Custodian. During 1995, the fees were
$21,339 compared to $14,979 in 1994. The Company paid these fees on
behalf of the Plan in both years.
(c) The Company and the Plan Administrators had a banker's blanket
bond in the amount of $500,000 at December 31, 1995 with a deductible
of $-0-.
ITEM 7. REPORTS TO PARTICIPATING EMPLOYEES
Participating employees are furnished quarterly statements during the
year reflecting the status of their accounts. The first such
statement was issued on March 31, 1988.
ITEM 8. INVESTMENTS OF PLAN
Brokerage fees of $1,151 were paid to Smith Barney in 1995 compared to
$634 in 1994. No brokerage fees were paid to any person described in
SEC requirements for disclosure in Item 8(a)(2) of this form.
3
<PAGE>
ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS
(a) Index of Financial Statements and Schedules
Page
----
Report of Independent Public Accountants F-1
Statement of Net Assets Available for Plan Benefits
as of December 31, 1995 F-2
Statement of Net Assets Available for Plan Benefits
as of December 31, 1994 F-3
Statement of Changes in Net Assets Available for
Plan Benefits for the Year Ended December 31, 1995 F-4
Statement of Changes in Net Assets Available for
Plan Benefits for the Year Ended December 31, 1994 F-5
Notes to Financial Statements F-6 to F-11
Schedule I - Item 27a--Schedule of Assets Held for
Investment Purposes F-12
Schedule II - Item 27d--Schedule of Reportable
Transactions F-13
(b) Exhibits
None
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Committee has duly caused this annual Report to be signed by the undersigned
thereunto duly authorized.
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
Date: June 5, 1996 Signature
----------------------- ------------------------
M. Denis Connaghan
President and CEO
5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees of
Delphi Information Systems, Inc.
Cash Option Profit Sharing Plan
We have audited the accompanying statements of net assets available for Plan
benefits of Delphi Information Systems, Inc. Cash Option Profit Sharing Plan as
of December 31, 1995 and 1994 and the related statements of changes in net
assets available for the Plan benefits for the years then ended. These
financial statements and schedules referred to below are the responsibility of
the Plan's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets of the Plan as of December 31, 1995 and
1994 and the changes in its net assets for the years then ended, in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
held for investment purposes and reportable transactions are presented for
purpose of additional analysis and are not a required part of the basic
financial statements, but are supplementary information required by the
Department of Labor's Rules and Regulations of Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental schedules
have been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
The schedule of assets held for investment purposes as of December 31, 1995 and
the schedule of reportable transactions for the year ended December 31, 1995 do
not disclose the historical cost of the Plan's investments. Disclosure of the
information is required by the Department of Labor Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974.
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 25, 1996
F-1
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
As of December 31, 1995
<TABLE>
<CAPTION>
FUND INFORMATION
----------------------------------------------------------------------------------- -----------
CIGNA Fidelity
CIGNA Guaranteed Income Fidelity
Delphi Guaranteed Government and Growth
Common Long Term Securities Growth Opportunities Loan
Stock Account Account Account Account Account Total
----------------------------------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
PLAN ASSETS:
Investments:
Delphi
Common Stock $ 32,037 $ - $ - $ - $ - $ - $ 32,037
Guaranteed
Long Term
Account - 1,548,571 - - - - 1,548,571
Guaranteed
Government
Securities
Account - - 107,800 - - - 107,800
Income and
Growth
Account - - - 1,116,156 - - 1,116,156
Growth
Opportunities
Account - - - - 3,004,221 - 3,004,221
Participant Loans - - - - - 168,583 168,583
-----------------------------------------------------------------------------------------------------
Total investments 32,037 1,548,571 107,800 1,116,156 3,004,221 168,583 5,977,367
Cash - - - - - - 0
Participants'
contributions
receivable 1,111 15,983 2,347 22,321 35,749 - 77,511
-----------------------------------------------------------------------------------------------------
Net assets available for
Plan benefits $ 33,148 $ 1,564,554 $ 110,147 $ 1,138,477 $ 3,039,969 $ 168,583 $ 6,054,878
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
As of December 31, 1994
<TABLE>
<CAPTION>
FUND INFORMATION
------------------------------------------------------------------------
CIGNA Fidelity
CIGNA Guaranteed Income Fidelity
Delphi Guaranteed Government and Growth
Common Long Term Securities Growth Opportunities Loan
Stock Account Account Account Account Account Total
------------------------------------------------------------------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
PLAN ASSETS:
Investments:
Delphi
Common Stock $ 17,454 $ - $ - $ - $ - $ - $ 17,454
Guaranteed
Long Term
Account - 1,785,877 - - - - 1,785,877
Guaranteed
Government
Securities
Account - - 124,765 - - - 124,765
Income and
Growth
Account - - - 1,099,845 - - 1,099,845
Growth
Opportunities
Account - - - - 2,070,965 - 2,070,965
Participant Loans - - - - - 211,656 211,656
---------------------------------------------------------------------------------------
Total investments 17,454 1,785,877 124,765 1,099,845 2,070,965 211,656 5,310,562
Cash - - - - - - 0
Participants'
contributions
receivable 837 23,971 2,606 23,481 39,173 - 90,068
---------------------------------------------------------------------------------------
Net assets available for
Plan benefits $ 18,291 $ 1,809,848 $ 127,371 $ 1,123,326 $ 2,110,138 $ 211,656 $ 5,400,630
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE
FOR PLAN BENEFITS, WITH FUND INFORMATION
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
FUND INFORMATION
----------------------------------------------------------------------------------------
CIGNA Fidelity
CIGNA Guaranteed Income Fidelity
Delphi Guaranteed Government and Growth
Common Long Term Securities Growth Opportunities Loan
Stock Account Account Account Account Account Total
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS:
Contributions:
Participants $12,092 $192,906 $26,646 $251,381 $426,354 $0 $909,379
Investment Income:
Net appreciation/(depreciation) in
fair value of investments 9,283 0 5,640 149,467 707,439 0 871,828
Interest 18 110,534 277 3,796 5,213 0 119,838
Dividends 0 0 0 0 0 0 0
-----------------------------------------------------------------------------------------
Total investment income/(loss) 9,300 110,534 5,918 153,262 712,652 0 991,666
-----------------------------------------------------------------------------------------
Total additions 21,392 303,439 32,564 404,643 1,139,006 0 1,901,045
-----------------------------------------------------------------------------------------
DEDUCTIONS:
Benefits paid to participants (4,786) (611,351) (45,988) (259,488) (323,927) 0 (1,245,540)
Other expenses (1,257) 0 0 0 0 0 (1,257)
-----------------------------------------------------------------------------------------
Total deductions (6,043) (611,351) (45,988) (259,488) (323,927) 0 (1,246,797)
-----------------------------------------------------------------------------------------
LOANS ISSUED TO PARTICIPANTS (384) (12,623) 0 (53,523) (41,060) 107,591 0
LOAN PRINCIPAL REPAYMENTS 253 49,829 6,798 50,981 42,803 (150,664) (0)
INTERFUND TRANSFERS (362) 25,409 (10,599) (127,461) 113,012 0 0
-----------------------------------------------------------------------------------------
NET INCREASE (DECREASE) 14,857 (245,296) (17,225) 15,152 929,833 (43,073) 654,248
NET ASSETS AVAILABLE FOR PLAN BENEFITS
Beginning of year 18,291 1,809,850 127,372 1,123,325 2,110,136 211,656 5,400,630
-----------------------------------------------------------------------------------------
End of year $33,148 $1,564,554 $110,147 $1,138,477 $3,039,969 $168,583 $6,054,878
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
F-4
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE
FOR PLAN BENEFITS, WITH FUND INFORMATION
For the Year Ended December 31, 1994
<TABLE>
FUND INFORMATION
---------------------------------------------------------------------------------------
CIGNA Fidelity
CIGNA Guaranteed Income Fidelity
Delphi Guaranteed Government and Growth
Common Long Term Securities Growth Opportunities Loan
Stock Account Account Account Account Account Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS:
Contributions:
Participants $24,780 $431,171 $45,190 $709,453 $858,721 $0 $2,069,315
Investment Income:
Net appreciation/(depreciation) in
fair value of investments (36,699) 0 3,332 (58,553) 18,320 0 (73,600)
Interest 0 99,325 307 2,742 1,959 0 104,333
Dividends 102 0 0 0 0 0 102
---------------------------------------------------------------------------------------
Total investment income/(loss) (36,597) 99,325 3,639 (55,811) 20,279 0 30,835
---------------------------------------------------------------------------------------
Total additions (11,817) 530,496 48,829 653,642 879,000 0 2,100,150
---------------------------------------------------------------------------------------
DEDUCTIONS:
Benefits paid to participants (4,127) (307,794) (14,943) (163,220) (184,222) 0 (674,306)
Other expenses (134) 0 0 0 0 0 (134)
---------------------------------------------------------------------------------------
Total deductions (4,261) (307,794) (14,943) (163,220) (184,222) 0 (674,440)
---------------------------------------------------------------------------------------
LOANS ISSUED TO PARTICIPANTS 0 (154,924) (1,306) (25,779) (12,336) 194,345 0
LOAN PRINCIPAL REPAYMENTS 0 81,023 2,082 12,583 12,638 (108,326) 0
INTERFUND TRANSFERS (3,354) 31,490 (28,934) (123,471) 124,269 0 0
---------------------------------------------------------------------------------------
NET INCREASE (DECREASE) (19,432) 180,291 5,728 353,755 819,349 86,019 1,425,710
NET ASSETS AVAILABLE FOR PLAN BENEFITS
Beginning of year 37,723 1,629,557 121,643 769,571 1,290,789 125,637 3,974,920
---------------------------------------------------------------------------------------
End of year $18,291 $1,809,848 $127,371 $1,123,326 $2,110,138 $211,656 $5,400,630
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
F-5
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. PLAN DESCRIPTION
The following is a general description of the Cash Option Profit Sharing
Plan (the "Plan"). Participants should refer to the Plan agreement for a
more complete description of the Plan's provisions.
GENERAL
The Plan, which commenced January 1, 1988, is a qualified cash option
profit sharing plan offered to all eligible employees of Delphi Information
Systems, Inc. (the "Company" or "Delphi") when hired. Enrollment to
participate and election changes occur quarterly. The Plan is subject to
the provisions of the Employee Retirement Income Security Act of 1974
(ERISA) and Section 401 (a) and Section 401 (k) of the Internal Revenue
Code of 1986, as amended (IRC). At December 31, 1995, there were 528
active participants in the Plan of whom 280, 92, 306, 258 and 68 were
electing to invest either wholly or partially in the CIGNA Guaranteed Long
Term Account, the CIGNA Guaranteed Government Securities Account, the
Fidelity Income and Growth Account, the Fidelity Growth Opportunities
Account and Delphi Common Stock, respectively. At December 31, 1994 there
were 479 active participants of whom 257, 73, 241, 268 and 59 were electing
to invest either wholly or partially in the CIGNA Guaranteed Long Term
Account, the CIGNA Guaranteed Government Securities Account, the Fidelity
Income and Growth Account, the Fidelity Growth Opportunities Account and
Delphi Common Stock, respectively.
CONTRIBUTIONS
Participants may elect to contribute an amount equaling from 1% to 20% of
their basic compensation up to a maximum of $9,240 for both 1995 and 1994
(salary reduction contributions). This maximum allowable contribution is
adjusted each year for increases in the cost of living as provided in
applicable regulations. This annual amount is an aggregate limitation that
applies to all of an individual's salary reduction contributions and
similar contributions under other plans. The Company may make an annual
discretionary contribution to the Plan. Each Plan year, the Company will
decide what portion of its profits, if any, it will contribute to the Plan.
The Company did not make any contribution to the Plan during 1995 and 1994.
The salary reduction contributions made on behalf of each participant are
paid to the Custodian as soon as practical after the last day of each
month, and deposited to the investment funds as directed by the
participant.
F-6
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
NOTES TO FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1995 AND 1994
PARTICIPANT ACCOUNTS
Each participant's account is credited with (1) the participant's
contributions, (2) the related Company matching contributions, if any, and
(3) fund earnings or losses. These accounts are summarized in the
accompanying financial statements as net assets available for plan
benefits.
VESTING
Each participant has an immediate, fully vested right to receive all salary
reduction contributions and earnings thereon, upon termination from the
Company, or upon separation caused by death of the participant or under
other special circumstances.
The Company's contributions to the Plan, if any, and the earnings on such
contributions, become vested in accordance with the following schedule:
Years Vested
of Service percentage
-----------------------------------------------
1 but less than 2 25%
2 but less than 3 50%
3 but less than 4 75%
4 or more 100%
FORFEITURES
If a participant stops working for the Company before their account is 100%
vested, they may forfeit the nonvested portion of their account. All
amounts that are forfeited by terminated Participants are added to the
Company's contributions to the Plan and divided up among the accounts of
eligible Participants.
INVESTMENTS
Each participant directs that salary reduction contributions for the
participants' benefit and any earnings thereon be invested in one or more
of the following funds:
a. CIGNA Guaranteed Long Term Account - Invests in longer term fixed income
securities, such as corporate bonds and commercial mortgages.
F-7
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
NOTES TO FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1995 AND 1994
b. CIGNA Guaranteed Government Securities Account - Invests in U.S.
Treasuries, government agency obligations and repurchase agreements
fully backed by such securities.
c. Fidelity Income and Growth Account - Invests in a diversified portfolio
of equity and fixed income securities.
d. Fidelity Growth Opportunities Account - Invests in common stocks and
securities convertible into common stocks.
e. Delphi Stock Account - Invests in the shares of the Company's common
stock. Participants are limited to a maximum of 25% of their annual
contributions that can be invested in the Company's stock.
F-8
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
NOTES TO FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1995 AND 1994
PAYMENT OF BENEFITS
Upon termination of employment, a participant's benefit is distributed in a
single, lump sum payment. The distribution is made in the form of cash,
unless the participant elects to receive the portion of his account that
was invested in the Company's stock in the form of whole shares of such
Company stock.
EXPENSES
Expenses in connection with the purchase or sale of stock or other
securities are charged to the fund for which such purchase or sale is made.
The Trust Agreement stipulates that expenses incurred by the Trustee in the
performance of its duties shall be paid from the Trust Fund unless paid by
the Company at its sole discretion. During 1995 and 1994 the Company
elected to pay these expenses which consisted of the following: (1)
accounting and legal fees of approximately $6,000 in both 1995 and 1994;
and (2) record keeping fees paid to the Custodian of $21,339 and $14,979 in
1995 and 1994, respectively.
TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of
Plan termination, participants will become fully vested in any Company
contributions to their accounts.
ADMINISTRATION
The Plan is administered by an Administrative Committee appointed by the
Board of Directors of the Company.
The Committee has responsibility for supervising the collection of
contributions, delivery of such contributions to the Trustee, and
maintenance of necessary records.
The Trustee's responsibilities include receipt of Plan contributions,
investment and maintenance of trust assets in the available funds, and
distributions under the plan of such amounts as the Committee shall direct
from time to time.
F-9
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
NOTES TO FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1995 and 1994
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements are prepared on the accrual basis of
accounting.
INVESTMENTS
Investments are stated at fair value. Purchases and sales of securities are
reflected on a settlement date basis. In accordance with the policy of
stating investments at fair value, realized and unrealized gains and losses
on investments are reflected as net appreciation/depreciation in the
Statements of Changes in Net Asset Available for Plan Benefits. Dividend
income is accrued on the ex-dividend date. Interest income from other
investments is accrued as earned.
The value of the investment in the CIGNA Guaranteed Long Term Account and
the CIGNA Guaranteed Government Securities Account is equal to the amounts
deposited in the account plus interest credited thereon less expenses,
charges and other distributions. The CIGNA Guaranteed Long Term Account
bore an interest rate of 5.65 percent at December 31, 1995 (5.40 percent at
December 31, 1994). The CIGNA Guaranteed Government Securities Account held
9,301.12 units with a unit value of $11.59 at December 31, 1995.
The value of a unit in the Fidelity Income and Growth Account and the
Fidelity Growth Opportunities Account is based on the market value of the
assets in the account at year-end. The Fidelity Income and Growth Account
held 53,661.35 units with a unit value of $20.80 at December 31, 1995. The
Fidelity Growth Opportunities Account held 73,148.79 units with a unit value
of $41.07 at December 31, 1995. Investments in these accounts, traded on
national securities exchanges, are valued at year-end closing prices, and in
the case of over-the-counter securities, at closing prices at December 31.
LOANS TO PARTICIPANTS
The Plan allows participants to borrow against their accounts subject to
certain limitations. The rate of interest on such borrowings is equal to
the rate of interest paid by the CIGNA Guaranteed Long Term Account at the
time the loan is made. Employee loans outstanding were $168,583 and
$211,656 at December 31, 1995 and 1994, respectively. Loans during the plan
year were distributed at interest rates ranging from 7.25 to 8.75 percent.
F-10
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
NOTES TO FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1995 and 1994
CONTRIBUTIONS
Participant contributions are recorded in the period that a participant's
payroll deductions are made. Participant rollovers are funds transferred
into the Plan during the respective year from new participants' previous
employer plans.
3. TAX STATUS
The Internal Revenue Service has determined and informed the Company by a
letter dated August 4, 1995, that the Plan is qualified and the trust
established under the Plan is tax-exempt, under the appropriate sections of
the Code.
F-11
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
SCHEDULE I - ITEM 27a - - SCHEDULE OF ASSETS
HELD FOR INVESTMENT PURPOSES
As of December 31, 1995
Market
Value at
Close of
Name of Issuer and Title of Issue Cost (a) Period
--------------------------------- ---------- -----------
* Delphi common stock, 25,629 shares,
$0.10 par value, $1.25 per share $ 32,036
* CIGNA Guaranteed Long Term Account,
5.65 percent 1,548,571
* CIGNA Guaranteed Government Securities
Account, 9,301.12 units, $11.59 per unit 107,800
* Fidelity Income and Growth Account,
53,661.35 units, $20.80 per unit 1,116,156
* Fidelity Growth Opportunities Account,
73,148.79 units, $41.07 per unit 3,004,221
* Participant Loans
7.25 to 8.75 percent interest 168,583
-----------
$ 5,977,367
-----------
-----------
(a) Historical cost information could not be obtained from the Plan's
* Represents a party in interest as of December 31, 1995.
F-12
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
SCHEDULE II - 27d -- SCHEDULE OF REPORTABLE TRANSACTIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Purchases Dispositions
--------- --------------------------------
Purchase Price
and Current Value
Involved Fund Description Number of of Assets on Selling Gain/
Party Name of Assets Transactions Transaction Date Price Cost Loss
- ---------- ---------- ------------ ------------ ----------------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
* CIGNA Guaranteed Fixed Income (a) $386,954 $742,514 $ --
Long Term
Account
* CIGNA Income and Equity and Fixed (a) $377,851 $505,572 $484,030 $21,542
Growth Income Securities
Account Fund
* Fidelity Growth Common Stock (a) $720,872 $465,183 $401,356 $63,827
Opportunities Fund
Account
</TABLE>
(a) Information could not be obtained from the Plan's custodian.
* Represents a party in interest as of December 31, 1995
The accompanying notes are an integral part of these statements.
F-13
