<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, 1997
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 NASDAQ SmallCap Market
value $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, 1997, the number of shares of Common Stock outstanding was
36,391,168. 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 $43,965,000.
Documents Incorporated by Reference:
Portions of the registrant's definitive proxy statement relating to its 1997
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 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 32
PART III
Item 10. Directors and Executive Officers of the Registrant 32
Item 11. Executive Compensation 32
Item 12. Security Ownership of Certain Beneficial
Owners and Management 33
Item 13. Certain Relationships and Related Transactions 33
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 34
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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 worldwide. Delphi develops, markets and
supports software products that automate its customer's operations. 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.
In the recent past, the Company's management has focused its efforts on
restructuring its organization and redefining its product strategy. The
Company's strategy is to expand its product offering from primarily agency
automation software products to end-to-end information management solutions
encompassing a base engine plus value-added business modules such as rating and
prospecting, work group and transmission applications, outsourcing and
consulting services, and content on demand. The Company believes that this
strategy will reduce the overall cost of producing and marketing insurance
products.
The Company's customer list includes a majority of the largest 100
brokerages and top 200 agencies in the United States and Canada, and most of the
global brokers internationally, thereby providing a base for the introduction of
new products and services. The Company's software operates on approximately
75,000 workstations and terminals at more than 4,500 customer sites representing
approximately two-thirds of all workstations and terminals installed in
independent agencies.
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 currently has six "legacy" products. "Legacy"
products include INfinity, INSIGHT, PC-ELITE, Insurnet, SMART, and Vista. These
legacy software products provide basic functions such as policy administration,
claims handling, and accounting and financial reporting.
In September 1996 the Company reviewed its product development strategy
and progress and made several major adjustments. The Company had intended to
combine the complementary features of the six legacy products into one
software system that would eliminate the research and development, marketing
and customer support of multiple systems. Delphi has now embarked on a
development strategy of scaleable tailored solutions, whereby Delphi provides
a standard agency management software engine to which value-added "plug and
play" modules can be added based on specific user requirements. The current
product
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offering consists of cd.global, a modular, state of the art, agency management
solution providing flexibility and the ability to handle unstructured data and
complex risk; cd.connect which provides electronic transmission between carriers
and brokers; and cd.one, a structured system utilizing many features of the
legacy products.
The systems offered by the Company range in price from $14,000 to over
$1,000,000 for multiple site global brokers. No individual customer represented
more than 10% of total revenues in fiscal 1997, 1996, or 1995.
A significant portion of the Company's business comes from the maintenance
of the Company's proprietary software. In addition, some 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 for varying amounts of time after the expiration of the
warranty period. Consulting services, customized programming and training,
which are billed separately, are also provided to customers who desire specific
assistance or enhancement to their systems.
SYSTEM DESIGN AND ARCHITECTURE. The Company's latest product offerings
utilize the latest technology. cd.global currently is a client/server based
system, which supports Oracle relational database software technology.
cd.connect is Lotus Notes-based and Internet/intranet enabled groupware, while
cd.one is operational on Btrieve
PRODUCT DEVELOPMENT. At the end of fiscal 1997, the Company employed 46
full-time employees engaged in product development activities. These activities
consist of researching and developing enhancements to the software such as
adding new functionality, improving usefulness, adapting the Company's software
to newer software and hardware technologies and increasing systems
responsiveness.
Product development expenditures prior to capitalization of software were
$5,866,000, $6,486,000 and $6,550,000 in fiscal 1997, 1996 and 1995,
respectively. The Company strongly believes in the importance of maintaining
and enhancing its technology and expects to continue to invest substantial
amounts in product development in the future.
COMPETITION. The Company believes its principal competition is presented
by two 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
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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 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, 1997, the Company had 174 employees, including 30
in sales and marketing, 46 in product development, 78 in customer service and
operations, and 20 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
The Company's corporate headquarters is in Rolling Meadows (Chicago),
Illinois, where it leases approximately 20,000 square feet of office space.
Substantially all corporate executive and administrative functions are located
in Rolling Meadows. The Company leases approximately 12,000 square feet of
office space in Billerica, Massachusetts; approximately 17,500 square feet of
office space in Pittsburgh, Pennsylvania; approximately 6,000 square feet in
Scarborough, Ontario Canada; and approximately 15,000 square feet in Walnut
Creek, California. 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, 1997.
5
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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, 1997, there were 412 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, 1997.
FISCAL 1997 HIGH LOW
- -----------------------------------------------
First quarter $ 2.06 $ 1.13
Second quarter 1.44 0.84
Third quarter 1.44 0.69
Fourth quarter 2.00 0.94
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
In January 1997, the Company issued 5,630,500 units in a private placement
pursuant to Regulation D. Each units 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-dilutive provisions. The units were
sold to a limited number of accredited investors. The units were sold at $1.00
each and no commissions were paid.
6
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ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----------------------------------------------------------------
RESULTS OF OPERATIONS:
<S> <C> <C> <C> <C> <C>
Revenues $ 27,714 $ 44,081 $ 53,040 $ 53,605 $51,607
Operating (loss) income (5,880) (11,120) (597) (8,160) 947
Net (loss) income $(5,884) $(11,833) $(1,681) $(8,922) $ 531
EARNINGS PER SHARE:
Net (loss) income $ (0.19) $ (1.37) $ (0.23) $ (1.34) $ 0.07
Shares used in computing per
share data (1) 30,463 8,621 7,306 6,672 7,897
FINANCIAL POSITION:
Assets $ 22,577 $ 20,389 $ 27,547 $ 31,947 $24,735
Short term debt 1,600 3,030 2,486 4,029 3,574
Long term debt - - 1,500 4,250 4,125 - -
Stockholders' equity (deficit) $ 8,448 $ (3,346) $ 4,553 $ 6,231 $ 9,727
</TABLE>
(1) Weighted average common and common equivalent shares, where
applicable, were used to compute per share data in all periods.
7
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The insurance industry has undergone significant consolidation over the
past several years. Consolidation has been driven by the need for, and benefits
from, economies of scale and scope in providing low-cost insurance packages to
customers. This trend has involved both insurance brokerages, who are the
Company's primary customers, and insurance companies, and is directly impacting
the manner in which insurance products are distributed. The Company's
management believes that the insurance industry will continue to experience
significant changes in the next two to three years to meet the changing
distribution model. These changes should create opportunities for the Company
to become a customer focused automation and information management solutions
provider.
The Company's management believes that this consolidation will force
brokerages to decrease their distribution costs via automation and/or
elimination of labor intensive tasks such as the reduction of paper processing
and the elimination of non value-added distribution points via on-line
distribution. They also will need to increase service levels with quicker and
improved automated processes such as quoting and claims processing. The
Company's management believes that it can partner with these participants to
provide these automation services.
The Company's success and profitability will be dependent upon its ability
to partner with its customers, creating an aligned interest to add value to its
customer's business needs, providing completely integrated information
management solutions, and fully leveraging information technology and services.
The Company has developed or acquired three new products, cd.global, cd.one, and
cd.connect that are in general release. With further development of these
products, the Company believes that these products can fulfill the needs of its
customers. However, there can be no assurances that the company can introduce
services and products to the marketplace in a timely manner, or that its new
services and 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 was profitable for the last two quarters of the current fiscal
year, although it had experienced losses for the prior two years and the first
two quarters of the current fiscal year. The unprofitable operation of the
Company prior to the last two quarters of fiscal 1997 was due primarily to
revenue shortfalls to the Company's operating expense matrix. The Company has
recognized the changing market and has made significant progress in integrating
its acquisitions and rationalizing the Company's operations by reducing
expenses, strengthening management and improving its product and services
offerings. The Company successfully restructured its business and raised
additional funds.
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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
Year to Year Percentage
Increase (Decrease)
-------------------------
Percentage of Revenues Fiscal 1997 Fiscal 1996
Year Ended March 31, versus versus
------------------------
1997 1996 1995 Fiscal 1996 Fiscal 1995
- --------------------------------------------------------------------------------
REVENUES:
Systems 22.0% 32.8% 39.8% (57.8)% (31.6)%
Services 78.0% 67.2% 60.2% (27.0)% (7.2)%
- -----------------------------------------------------------------------------
TOTAL REVENUES 100.0% 100.0% 100.0% (37.1)% (16.9)%
COSTS OF REVENUES:
Systems 25.2% 26.3% 26.5% (39.8)% (17.3)%
Services 42.6% 39.1% 33.9% (31.5)% (4.1)%
- -----------------------------------------------------------------------------
TOTAL COST OF REVENUES 67.8% 65.4% 60.4% (34.9)% (9.9)%
- -----------------------------------------------------------------------------
GROSS MARGIN 32.2% 34.6% 39.6% (41.4)% (27.5)%
OPERATING EXPENSES:
Product development 15.4% 11.5% 10.2% (15.8)% (6.2)%
Sales and marketing 15.9% 14.6% 12.9% (31.6)% (6.4)%
General and administrative 15.7% 17.4% 14.6% (43.1)% (0.8)%
Amortization of goodwill,
customer lists and non-
compete agreements 1.8% 3.4% 3.1% (66.6)% (9.7)%
Consolidation, repositioning
and restructuring charges 4.7% 13.0% - - (77.3)% *
- -----------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 53.5% 59.9% 40.8% (43.8)% 21.9%
- -----------------------------------------------------------------------------
OPERATING LOSS (21.2)% (25.3)% (1.2)% (47.1)% 1762.6%
Interest expense (0.1)% 1.4% 1.8% (103.8)% (36.5)%
- -----------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (21.1)% (26.7)% (3.0)% (50.0)% 660.5%
Income tax provision 0.1% 0.3% (0.3)% (76.3)% (18.6)%
NET LOSS (21.2)% (27.0)% (3.3)% (50.3)% (603.9)%
- -----------------------------------------------------------------------------
* PERCENTAGE HAS BEEN INTENTIONALLY OMITTED BECAUSE SUCH PERCENTAGE IS NOT
MEANINGFUL.
9
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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 of third parties. During the first quarter of the current year, systems
revenues included computer hardware, but during the remainder of the year
systems revenues included hardware commissions earned from vendors subsequent to
the Company's exit from the hardware business. Service fees include fees for
maintenance, training and consulting services related to the Company's
proprietary software. The Company recognizes revenue consistent with the
provisions of the American Institute of Certified Public Accountants (AICPA)
Statement of Position No. 91-1.
Revenues decreased 37.1% in fiscal 1997, and decreased 16.9% in fiscal 1996.
Systems revenues decreased 57.8% in fiscal 1997 due to decreased sales of system
upgrades to existing customers and the Company's exit from the hardware business
after the first quarter of the current year. Services revenues decreased 27.0%
in fiscal 1997 due to decreased support, custom programming and consulting
revenues generated in conjunction with system sales.
Costs of Systems Revenues - Costs of systems revenues include costs of third
party software and computer hardware from the first quarter of the current year,
provisions for doubtful accounts, and the amortization of capitalized software
development costs. Costs of systems revenues, as a percentage of systems
revenues, were 114.7%, 80.3% and 66.5% in fiscal 1997, 1996, and 1995,
respectively. The increase in costs of systems expressed as a percentage of
revenues in fiscal 1997 is primarily due to an increase in provisions for
doubtful accounts and increased amortization of capitalized software costs due
to a greater number of products being available for general release to
customers. The increase in fiscal 1996 is 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 54.6%, 58.2% and 56.3% in fiscal 1997, 1996, and 1995,
respectively. In fiscal 1997 the decrease was primarily due to the decrease of
the largest component of cost of services revenues, direct labor, due to the
reduction of headcount. In fiscal 1996, the increase was primarily due to the
reduction of direct labor expense not proportionate to the reduction in services
revenues.
Product Development Expenses - Product development expenses, net of
capitalized software costs, were $4,255,000, $5,051,000 and $5,384,000 in
fiscal 1997, 1996, and 1995, respectively. The decrease in fiscal 1997 is
primarily the result of decreased expenditures for the use of outside
consultants. The decrease in fiscal 1996 is primarily a result of increased
capitalization of software due to increased outside consulting expenditures
for new product development. Product development expenditures, including
those which were capitalized, were $5,867,000, $6,486,000 and $6,550,000,
respectively, in fiscal years 1997, 1996, and 1995.
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
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general release. The Company strongly believes in the importance of maintaining
its technological strengths and will continue to invest substantial amounts in
software development.
Sales and Marketing Expenses - Sales and marketing expenses decreased 31.6% in
fiscal 1997, compared to a decrease of 6.4% in fiscal 1996. The decrease in
fiscal 1997 is primarily due to a new consolidated marketing approach and a
reduction in trade show participation. The decrease in fiscal 1996 was
primarily due to a reduction in the sales force headcount.
General and Administrative Expenses - General and administrative expenses
decreased 43.1% in fiscal 1997, and decreased 0.8% in fiscal 1996. The
decrease in fiscal 1997 was primarily due to lower headcount and overall
spending reductions compared to the prior year. 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.
Amortization of Goodwill, Customer Lists and Noncompete Agreements -
Amortization expense decreased 66.6% in fiscal 1996, compared to a decrease of
9.7% in fiscal 1996. The decrease in fiscal 1997 is primarily due to a
reduction in the carrying value of the intangible assets as a result of a write
down of goodwill in the fourth quarter of the prior fiscal year. The increase
in the prior fiscal year is the result of some assets becoming fully amortized
in the current year. 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 Income/Expense - The Company had net interest income of $23,000 in
fiscal 1997, compared to interest expense of $599,000 in fiscal 1996 and
$944,000 in fiscal 1995. The decrease in net interest in fiscal 1997 was due
to the reduction in borrowings on the line of credit, the conversion of the
interest-bearing subordinated note payable into common stock, and the
inclusion of investment income. The decreased interest expense in fiscal
1996 was due to decreased average borrowings compared to the prior fiscal
year.
Income Tax Provision - The effective tax rates under SFAS No. 109 for fiscal
years 1997, 1996, and 1995, were 0.5%, 1.0% and 9.0%, respectively.
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 $2,128,000 at
March 31, 1997, compared to a negative $11,367,000 at March 31, 1996. The
improvement in working capital was primarily the result of the increase in cash
due to the private equity placements, the reduction of deferred revenue due to
the Company's exit from the hardware business after the first quarter of the
current year, partially offset by a reduction in accounts receivable.
The Company's negative net working capital position is primarily a result of
deferred revenues of $7,205,000 at March 31, 1997, representing prepaid software
maintenance fees from its customers which are recognized as revenue ratably over
the maintenance agreement terms. This
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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 (used for) operating activities was ($4,908,000),
$1,094,000 and $2,700,000 for fiscal years ended in 1997, 1996, and 1995,
respectively.
Cash used in investing activities was $3,062,000, $2,028,000 and $2,305,000 for
the fiscal years ended 1997, 1996, and 1995, 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 Company's various stock option and employee stock purchase
plans, and the proceeds from the private equity placements. In fiscal 1997, the
Company raised net proceeds of $14,971,000 from two private equity placements,
and $105,000 from the exercise of employee stock options and employee stock
purchase plans. In fiscal 1996, the Company raised $433,000 in cash from the
exercise of employee stock options.
In January 1997, the Company established a $4,000,000 credit line with Coast
Business Credit, Los Angeles, California. The line will provide working
capital to fund the Company's growth opportunities and to continue consolidation
of operations. Generally, under the credit line the Company is able to borrow
up to 75% of eligible accounts receivable. The Company also can borrow up to
$400,000 for capital expenditures. The credit line bears interest at prime plus
2.5%. At March 31, 1997, the Company had borrowed $1,600,000 on its line of
credit, compared to $2,606,000 on March 31, 1996 on a previous bank line.
The Company completed two private equity placements in fiscal 1997. The first
placement was completed in May 1996 and provided gross proceeds of $10,700,000
to the Company. In January 1997, the Company completed a second private equity
placement providing gross proceeds of $5,630,500 to the Company. Under the
terms of the placements, the Company issued 10,700,000 units at a price of $1.00
per unit for the May placement, and 5,630,500 units at a price of $1.00 per unit
for the January placement. Each unit consists 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-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 at or above $2.00 per
share for twenty consecutive trading days subsequent to when the redeemable
warrants first are redeemable.
The two private equity placements provided net proceeds of approximately
$14,971,000 to the Company. The proceeds have been and 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.
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In conjunction with the May 1996 equity placement, the Company converted all of
its outstanding Series C Preferred Stock, Series E Preferred Stock, and 16,135
of the 16,356 outstanding shares of Series D Preferred Stock into 8,697,594
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, Series D Preferred Stock, and the promissory notes
converted in April 1996, while the Series E Preferred Stock converted in March
1996.
The statements contained in this section and elsewhere in this Annual Report on
Form 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 1997
and beyond to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.
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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, 1997, and 1996, 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, 1997. 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 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 financial position of Delphi Information Systems,
Inc. and subsidiaries as of March 31, 1997, and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1997, 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 8, 1997
14
<PAGE>
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)
AS OF MARCH 31
ASSETS 1997 1996
------- -------
CURRENT ASSETS:
Cash $ 6,596 $ 920
Accounts receivable, less allowances of $1,613
and $922, respectively 5,241 8,079
Inventories 16 592
Prepaid expenses and other current assets 111 365
------- -------
TOTAL CURRENT ASSETS 11,964 9,956
Property and equipment, net 2,242 2,869
Capitalized and purchased software, net 6,175 6,252
Goodwill and customer lists, net 2,032 1,182
Other assets 164 130
------- -------
TOTAL ASSETS $22,577 $20,389
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable $ 1,600 $ 3,030
Accounts payable and accrued expenses 4,667 6,823
Accrued payroll and related benefits 620 1,439
Deferred revenue 7,205 10,031
------- -------
TOTAL CURRENT LIABILITIES 14,092 21,323
Notes payable-long term -- 1,500
Excess lease liability -- 824
Other liabilities 37 88
------- -------
TOTAL LIABILITIES 14,129 23,735
------- -------
Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.10 par value, 2,000,000 shares authorized:
Series C, 0 and 36,268 shares issued and
outstanding, respectively -- 3,570
Seried D, 221 and16,356 shares issued and
outstanding, respectively 49 3,655
Common stock, $.10 par value:
Non-designated, 75,000,000 shares authorized,
36,351,168 and 10,307,700 issued and
outstanding, respectively 3,635 1,031
Additional paid-in capital 45,259 23,019
Accumulated deficit (40,611) (34,727)
Cumulative foreign currency translation adjustment 116 106
------- -------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 8,448 (3,346)
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $22,577 $20,389
------- -------
------- -------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
15
<PAGE>
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
YEAR ENDED MARCH 31 1997 1996 1995
------- ------ ------
REVENUES:
Systems $6,089 $14,440 $21,100
Services 21,625 29,641 31,940
------- ------ ------
TOTAL REVENUES 27,714 44,081 53,040
COSTS OF REVENUES:
Systems 6,985 11,601 14,027
Services 11,802 17,238 17,983
------- ------ ------
TOTAL COST OF REVENUES 18,787 28,839 32,010
------- ------ ------
GROSS MARGIN 8,927 15,242 21,030
OPERATING EXPENSES:
Product development 4,255 5,051 5,384
Sales and marketing 4,405 6,442 6,879
General and administrative 4,354 7,658 7,718
Amortization of goodwill, customer lists and
noncompete agreements 496 1,487 1,646
Consolidation, repositioning
and restructuring charges 1,297 5,724 --
------- ------ ------
TOTAL OPERATING EXPENSES 14,807 26,362 21,627
------- ------ ------
OPERATING LOSS (5,880) (11,120) (597)
Interest income (131) 0 0
Interest expense 108 599 944
------- ------ ------
Loss before income taxes (5,857) (11,719) (1,541)
Income tax provision 27 114 140
------- ------ ------
Net loss ($5,884) ($11,833) ($1,681)
------- ------ ------
Net loss per common share ($0.19) ($1.37) ($0.23)
------- ------ ------
Weighted average common shares
and common share equivalents outstanding 30,463 8,621 7,306
------- ------ ------
------- ------ ------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
16
<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:
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1994 16,577 $3,703 61,950 $5,250 36,268 $3,570
- ---------------------------------------------------------------------------------------------------
Net loss -- -- -- -- -- --
Conversion of Series A Preferred Stock (16,577) (3,703) -- -- -- --
Conversion of Series B Preferred Stock -- -- (52,745) (4,470) -- --
Mountain States acquisiton adjustment -- -- -- -- -- --
Translation adjustment -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1995 0 0 9,205 780 36,268 3,570
- ---------------------------------------------------------------------------------------------------
Net loss -- -- -- -- -- --
Exercise of stock options
Shares sold under employee stock -- -- -- -- -- --
purchase plan
Mountain States' acquisition adjustment -- -- -- -- -- --
Conversion of Note Payable to
Series E Preferred Stock -- -- -- -- -- --
Conversion of Series B
Preferred Stock -- -- (9,205) (780) -- --
Conversion of Series E
Preferred Stock -- -- -- -- -- --
Translation adjustment -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 0 0 0 0 36,268 3,570
- ---------------------------------------------------------------------------------------------------
Net loss -- -- -- -- -- --
Exercise of stock options -- -- -- -- -- --
Shares sold under employee stock
purchase plan -- -- -- -- -- --
Conversion of convertible promissory
notes to common stock -- -- -- -- -- --
Conversion of Series C Preferred Stock
to common stock -- -- -- -- (36,268) (3,570)
Conversion of Series D Preferred Stock
to common stock -- -- -- -- -- --
Issuance of common stock in connection
with private equity placements -- -- -- -- -- --
CBS acquisition -- -- -- -- -- --
Issuance of common stock as consideration
for services provided -- -- -- -- -- --
Translation adjustment -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1997 0 $0 0 $0 0 $0
- ---------------------------------------------------------------------------------------------------
<CAPTION>
COMMON STOCK
- -------------------------------------------------------------------------------------------------------------
SERIES D: SERIES E
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1994 -- $ -- -- $ -- 7,011,415 $701
- -------------------------------------------------------------------------------------------------------------
Net loss -- -- -- -- -- --
Conversion of Series A Preferred Stock 16,356 3,655 -- -- 24,995 3
Conversion of Series B Preferred Stock -- -- -- -- 879,083 88
Mountain States acquisiton adjustment -- -- -- -- 63,680 6
Translation adjustment -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1995 16,356 3,655 0 0 7,979,173 798
- -------------------------------------------------------------------------------------------------------------
Net loss -- -- -- -- -- --
Exercise of stock options -- -- 121,000 12
Shares sold under employee stock -- -- -- -- 255,406 26
purchase plan ----
Mountain States' acquisition adjustment -- -- -- -- 339,280 34
Conversion of Note Payable to
Series E Preferred Stock -- -- 63,426 3,125 -- --
Conversion of Series B
Preferred Stock -- -- -- -- 191,781 19
Conversion of Series E
Preferred Stock -- -- (63,426) (3,125) 1,421,060 142
Translation adjustment -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 16,356 3,655 0 0 10,307,700 1,031
- -------------------------------------------------------------------------------------------------------------
Net loss -- -- -- -- -- --
Exercise of stock options -- -- -- -- 54,500 5
Shares sold under employee stock
purchase plan -- -- -- -- 24,634 2
Conversion of convertible promissory
notes to common stock -- -- -- -- 1,500,000 150
Conversion of Series C Preferred Stock
to common stock -- -- -- -- 3,626,800 363
Conversion of Series D Preferred Stock
to common stock (16,135) (3,606) -- -- 3,649,734 365
Issuance of common stock in connection
with private equity placements -- -- -- -- 16,330,500 1,633
CBS acquisition -- -- -- -- 807,300 81
Issuance of common stock as consideration
for services provided -- -- -- -- 50,000 5
Translation adjustment -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1997 221 $49 0 $0 36,351,168 $3,635
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
ADDITIONAL FOREIGN
PAID-IN ACCUMULATED TRANSLATION
CAPITAL DEFICIT ADJUSTMENT
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, MARCH 31, 1994 $14,085 ($21,213) $135
- -----------------------------------------------------------------------------------------
Net loss -- (1,681) --
Conversion of Series A Preferred Stock 46 -- --
Conversion of Series B Preferred Stock 4,382 -- --
Mountain States acquisiton adjustment (6) -- --
Translation adjustment -- -- 2
- -----------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1995 18,507 (22,894) 137
- -----------------------------------------------------------------------------------------
Net loss -- (11,833) --
Exercise of stock options 64
Shares sold under employee stock 333 -- --
purchase plan
Mountain States' acquisition adjustment 371 -- --
Conversion of Note Payable to
Series E Preferred Stock -- -- --
Conversion of Series B
Preferred Stock 761 -- --
Conversion of Series E
Preferred Stock 2,983 -- --
Translation adjustment -- -- (31)
- -----------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 23,019 (34,727) 106
- -----------------------------------------------------------------------------------------
Net loss -- (5,884) --
Exercise of stock options 73 -- --
Shares sold under employee stock
purchase plan 25 -- --
Conversion of convertible promissory
notes to common stock 1,350 -- --
Conversion of Series C Preferred Stock
to common stock 3,207 -- --
Conversion of Series D Preferred Stock
to common stock 3,241 -- --
Issuance of common stock in connection
with private equity placements 13,338 -- --
CBS acquisition 961 -- --
Issuance of common stock as consideration
for services provided 45
Translation adjustment -- -- 10
- -----------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1997 $45,259 ($40,611) $116
- -----------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
17
<PAGE>
DELPHI INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1997 1996 1995
------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss ($5,884) ($11,833) ($1,681)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization 1,284 1,434 1,495
Amortization of capitalized and purchased software 2,183 1,827 1,564
Amortization of goodwill, customer lists and noncompete agreements 496 1,487 1,646
Write off of capitalized software development costs -- 173 --
Write off of goodwill, customer lists, and noncompete agreements -- 5,017 --
Loss on disposal of fixed assets 14 (85) 76
Excess lease cost (824) (620) (638)
CHANGES IN ASSETS AND LIABILITIES NET OF EFFECT OF
ACQUISITION OF BUSINESSES:
Accounts receivable, net 3,111 (440) 1,876
Inventories 576 391 25
Prepaid expenses and other assets 190 (635) (550)
Accounts payable and accrued expenses (2,250) 797 (1,250)
Accrued payroll and related benefits (826) (2) (48)
Other liabilities and deferred revenue (2,988) 3,614 183
------------------------------------
Net cash provided by (used in) operating activities (4,918) 1,125 2,698
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (593) (590) (718)
Expenditures for capitalized and purchased software (1,761) (1,438) (1,343)
Cash outlays for acquisitions, net of cash acquired (708) 0 (244)
------------------------------------
Net cash used in investing activities (3,062) (2,028) (2,305)
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable (3,030) (10,071) (3,550)
Borrowings on notes payable 1,600 10,615 2,250
Proceeds from exercise of stock options and
employee stock purchase plan 105 433 --
Proceeds from issuance of convertible promissory notes -- -- 125
Net proceeds from private equity placement 14,971 -- --
------------------------------------
Net cash provided by (used in) financing activities 13,646 977 (1,175)
------------------------------------
Foreign currency translation adjustment 10 (31) 2
Net increase (decrease) in cash 5,676 43 (780)
Cash at the beginning of the year 920 877 1,657
------------------------------------
Cash at the end of the year $6,596 $920 $877
------------------------------------
------------------------------------
SUPPLEMENTAL DISCLOSURES:
Interest paid $163 $884 $594
Income taxes paid 39 65 140
NON-CASH TRANSACTIONS:
Common stock, preferred stock, subordinated convertible
debentures and notes payable issued for acquisitions $0 $3,591 $450
Preferred stock and convertible promissory notes converted
to common stock $8,675 $0 $0
Issuance of common stock as consideration for services provided $50 $0 $0
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
18
<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 July 1996, the Company acquired nine companies in similar
or complementary lines of business, including the July 23, 1996, acquisition of
Complete Broking Systems ("CBS") of Auckland, New Zealand in exchange for
$500,000 cash and 807,300 shares of the Company's common stock. All of these
acquisitions have been accounted for as purchases. Accordingly, the results
of CBS have been recorded in the financial statements commencing on August 1,
1996. 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 goodwill and amortized on a straight-line basis over five years.
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, revenues from computer hardware purchased by customers of
the Company, and hardware commissions earned subsequent to the Company's exit
from the hardware business in the second quarter of the current year. 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. Maintenance is
generally billed to the customers in advance 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
when performed.
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 considers external factors
including, but not limited to, anticipated future gross product revenues,
estimated economic life and changes in
19
<PAGE>
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 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 $1,611,000, $1,245,000 and $1,128,000 in fiscal 1997, 1996, and 1995,
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.
Net software development and purchased software costs at March 31, 1997 and 1996
consist of the following (in thousands):
1997 1996
- --------------------------------------------------------------------------------
Total software development costs capitalized $8,778 $6,672
Total purchased software costs capitalized 2,863 2,863
Less accumulated amortization (5,466) (3,283)
- --------------------------------------------------------------------------------
$6,175 $6,252
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, during the first quarter of the current year the
Company reserved 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 - Goodwill relates 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 goodwill may warrant
revision or that the remaining balance of the goodwill may not be recoverable.
When factors indicate that the goodwill 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 goodwill in measuring whether the goodwill's value is recoverable. If
20
<PAGE>
management's assessment or other facts and circumstances pertaining to the
recoverability of goodwill 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 goodwill as appropriate.
In fiscal 1996, the Company decreased the carrying value of goodwill by
$5,017,000, to reflect the impairment of the recoverability of goodwill
related to certain business acquisitions (see Note 4). As of March 31, 1997,
and 1996, the accumulated amortization was $1,382,000 and $968,000,
respectively. Amortization of goodwill and customer lists was $496,000,
$833,000 and $823,000 in fiscal 1997, 1996, and 1995, respectively.
Other Assets - Other assets consist primarily of 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 1997, 1996, and 1995 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 1997, 1996 and 1995 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
subsidiaries 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 subsidiaries' 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
21
<PAGE>
Company adopted SFAS No. 121 in fiscal 1996. This adoption did not have a
significant impact on the Company's consolidated financial statements.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," was issued in October, 1995. This new pronouncement
establishes financial accounting and reporting standards for the stock-based
employee compensation plans and requires a fair value based method to determine
the compensation cost of such plan. Management has determined that the Company
will not adopt the accounting method prescribed by the new standard but has, as
allowed by the standard, only provide supplemental pro forma disclosure of the
effect of such adoption in Note 11.
In February, 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share", which simplifies the standards for computing earnings per
share. It replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the face of
the income statement and requires a reconciliation between the basic EPS
computation to the diluted EPS computation. The SFAS No. 128 presentation is
required effective December 31, 1997, and will be adopted by the Company at that
time. Had the Company calculated EPS using SFAS No. 128 for the year ended
March 31, 1997, basic EPS would have approximated $(0.19) per share.
NOTE 3 - PRIVATE EQUITY PLACEMENTS:
The Company completed two private equity placements in fiscal 1997. The first
placement was completed in May 1996 and provided gross proceeds of $10,700,000
to the Company. In January 1997, the Company completed a second private equity
placement providing gross proceeds of $5,630,500 to the Company. Under the
terms of the placements, the Company issued 10,700,000 units at a price of $1.00
per unit for the May placement, and 5,630,500 units at a price of $1.00 per unit
for the January placement. Each unit consists 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-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 at or above $2.00 per
share for twenty consecutive trading days subsequent to when the redeemable
warrants first are redeemable.
The two private equity placements provided net proceeds of approximately
$14,971,000 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 May 1996 equity placement, the Company converted all of
its outstanding Series C Preferred Stock, Series E Preferred Stock, and 16,135
of the 16,356 outstanding shares of Series D Preferred Stock into 8,697,594
shares of common stock. In
22
<PAGE>
addition $1,500,000 in outstanding promissory notes were converted into
1,500,000 units, identical to those described above.
NOTE 4 - CONSOLIDATION, REPOSITIONING AND RESTRUCTURING CHARGES:
The operating results for the first two quarters of fiscal 1997 generated a
significant loss. In order to return the Company to profitability it was
determined that headcount and operating expenses needed to be reduced. In
addition, as the Company transitioned out of the hardware business, a portion of
the inventory on hand was deemed obsolete.
As a result of the foregoing events, the Company incurred a charge to operations
in fiscal 1997 resulting from the following (in thousands):
Severance and other payroll related cost $ 897
Write down of inventory 400
- ----------------------------------------------------------------------
$1,297
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
In fiscal 1996, the Company operated according to a business plan which included
a product strategy in which the Company had begun developing a new generation of
products, which incorporated certain functionality and features from several of
the Company's existing products. As part of the business plan, the Company
ceased 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 had 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 also included 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.
The following summarizes the components of the restructuring charge in fiscal
1996 (in thousands):
Write down of goodwill and noncompete
agreements $5,017
Write down of capitalized software
development costs 173
Severance and excess facilities cost 534
- ----------------------------------------------------------------------
$5,724
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
NOTE 5- PROPERTY AND EQUIPMENT:
Property and equipment at March 31, 1997 and 1996 consists of the following (in
thousands):
23
<PAGE>
1997 1996
- -----------------------------------------------------------------------
Computer equipment and purchased software $5,722 $6,802
Leasehold improvements 989 1,199
Furniture, fixtures and other 1,727 3,199
- -----------------------------------------------------------------------
8,438 11,200
Less accumulated depreciation and amortization (6,196) (8,331)
- -----------------------------------------------------------------------
$2,242 $2,869
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NOTE 6 - NOTES PAYABLE:
Notes payable at March 31, 1997, and 1996, are comprised of the following (in
thousands):
1997 1996
- -----------------------------------------------------------------------
Notes payable to bank $1,600 $2,606
Note payable 0 424
Convertible promissory notes 0 1,500
- -----------------------------------------------------------------------
1,600 4,530
Current portion (1,600) (3,030)
- -----------------------------------------------------------------------
$ 0 $1,500
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
The Company had a $4,000,000 line of credit agreement with a bank of which
$1,600,000 was outstanding at March 31, 1997. At March 31, 1997, $2,053,000
remained available for borrowing under the line of credit. As of March 31,
1997, based upon applicable advance rates the Company could have borrowed
approximately $3,653,000.
The line, which expires on January 31, 1998, carries an interest rate at the
bank's prime lending rate plus 2.5 percent. Permitted borrowings under the line
vary as a function of qualified accounts receivable and are collateralized by
substantially all of the Company's assets. The agreement contains certain
restrictive covenants including achievement by the Company of specified
operating results and balance sheet ratios. The line also restricts certain
activities of the Company without the approval of the bank, including the
incurrence of senior debt, mergers and acquisitions, and the payment of
dividends.
Additional information related to line of credit borrowings for the two years
ended March 31, 1997, is as follows (in thousands):
1997 1996
- ----------------------------------------------------------------------
Maximum amount borrowed during the year $1,600 $4,036
Average amount borrowed during the year $427 $2,846
Interest rate at the end of the year 11.0% 11.8%
Weighted average interest rate incurred during
the year 9.9% 13.9%
24
<PAGE>
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 EXPENSES:
Accounts payable and accrued expenses at March 31, 1997, and 1996, consist of
the following (in thousands):
1997 1996
- -----------------------------------------------------------------------
Trade accounts payable $958 $1,775
Taxes other than income tax 329 354
Accrued severance and reorganization costs 1,284 1,963
Other 2,096 2,731
- -----------------------------------------------------------------------
$4,667 $6,823
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
NOTE 8 - INCOME TAXES:
Pretax loss consisted of (in thousands):
1997 1996 1995
- ------------------------------------------------------
Domestic $(5,681) $(11,714) $(1,624)
Foreign (176) (5) 83
- ------------------------------------------------------
Total $(5,857) $(11,719) $(1,541)
- -------------------------------------------------------
- -------------------------------------------------------
The provisions for income taxes consisted of (in thousands):
1997 1996 1995
- ------------------------------------------------------
Current:
U.S. Federal $-- $ -- $--
State 27 114 74
Foreign -- -- 66
- ------------------------------------------------------
TOTAL $27 $114 $140
- ------------------------------------------------------
Deferred:
U.S. Federal $-- $-- $--
State -- -- --
25
<PAGE>
Foreign -- -- --
- ------------------------------------------------------
TOTAL $ -- $-- $--
- ------------------------------------------------------
Total Provision $27 $114 $140
- ------------------------------------------------------
- ------------------------------------------------------
The income tax provision differs from the amount obtained by applying the
federal statutory rate because of the following items:
1997 1996 1995
- ----------------------------------------------------------------------------
Statutory rate (35.0)% (35.0)% (35.0)%
State income tax 0.5 1.0 4.8
Amortization of intangible
assets relating to
acquired businesses 3.3 6.5 18.7
Increase in valuation allowances 24.7 28.5 16.3
Other, net 7.0 0.0 4.2
- ----------------------------------------------------------------------------
Effective rate 0.5% 1.0% 9.0%
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. These temporary differences are determined in
accordance with SFAS No. 109 and are more inclusive in nature than "timing
differences" as determined under previously applicable accounting principles.
Temporary differences and carryforwards which give rise to a significant portion
of deferred tax assets and liabilities for 1997 and 1996 are as follows (in
thousands):
1997 1996
-------------------- ---------------------
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
- ---------------------------------------------------------------------------
Product enhancements $-- $1,872 $-- $1,763
Reserves 1,259 -- 1422 --
NOL not utilized 10,050 -- 8,331 --
Tax credits not utilized 903 -- 903 --
- --------------------------------------------------------------------------
12,212 1,872 10,696 1,763
Valuation allowance (10,340) -- (8,893) --
-------- ------ ------- ------
Total deferred taxes $1,872 $1,872 $1,763 $1,763
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
As of March 31, 1997, the Company had investment business tax credit
carryforwards of $903,000 for both financial statement and federal income tax
purposes. In addition, the
26
<PAGE>
Company has net operating losses available for offset against future taxable
income of approximately $25,125,000 for federal and state income tax purposes.
The utilization of these net operating losses may be limited due to changes in
ownership and other restrictions imposed by the Internal Revenue Code.
Net operating loss carryforwards and a substantial portion of tax credits will
begin to expire after 1997, becoming fully expired by the year 2012 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 2002, with various renewal options. Other
operating leases range from three to five years and are primarily for computer
equipment.
The aggregate minimum annual lease payments under leases in effect on March 31,
1997 are set forth below (in thousands) as follows:
- ----------------------------------------------------------------------------
Capital Operating
Fiscal Year Ending Leases Leases
- -------------------------------------------------------------------------
1998 $ 46 $ 1,027
1999 30 672
2000 2 196
2001 0 185
2002 0 64
Thereafter 0 6
- -------------------------------------------------------------------------
Total minimum lease
commitments $ 78 $ 2,150
-------
Less: amount representing
interest (10)
- -------------------------------------------------------
Present value of obligations
under capital leases 68
Less: current portion (46)
- -------------------------------------------------------
Long-term obligations under
capital leases $ 22
- -------------------------------------------------------
Rental expense covering the Company's office facilities and equipment for the
fiscal years 1997, 1996 and 1995 aggregated $2,421,000, $2,541,000 and
$2,778,000, respectively.
27
<PAGE>
Noncompete Agreements - The Company entered into various noncompete agreements
in connection with a January, 1991, acquisition. These agreements require the
Company to make payments totaling $4,700,000 over six years of which $4,300,000
has been paid to date. The final installment of $400,000 was due on January
31, 1997 and is accrued for on the Company's balance sheet as a current
liability. The Company is negotiating extending payment of this amount through
2002. Commitments related to the noncompete agreements were 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
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 a December 1993 acquisition, the Company issued $5,000,000
face value, $2,750,000 discounted carrying value, of subordinated convertible
debt. The debt 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 shares
of common stock in 1996 (see Note 3).
NOTE 11 - COMMON STOCKHOLDERS' EQUITY:
Stock Options - The Company has adopted the 1996 Stock Incentive Plan which
provides for the granting of 6,000,000 stock options and stock appreciation
rights to officers, directors and employees. This plan replaces both the
Director's Plan and the 1983 Stock Incentive Plan. 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.
At March 31, 1997, the Company had four stock-based compensation plans. The
Company applies APB Opinion 25 and related Interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized for its stock
option plans and its stock purchase plan. Had compensation cost for these stock
based compensation plans been determined based on the fair value at the grant
dates for awards under those plans consistent with the method prescribed by FASB
Statement No. 123, the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below:
28
<PAGE>
1997 1996
---------------------------
Net loss, as reported ($5,884) ($11,833)
Pro forma net loss ($6,313) ($11,996)
Net loss per share, as reported $(0.19) $(1.37)
Net loss per share, pro forma $(0.21) $(1.39)
Because the FASB No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that expected in future years. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions used for the
grants in 1997 and 1996, respectively; no dividends; risk free interest rates of
6.61% and 5.64% and an expected life of 10 years.
29
<PAGE>
Information with respect to the Company's stock options is as follows: A
summary of the status of the Company's stock options plans at December 31,
1997, 1996, and 1995, and changes during the years then ended, is presented
below:
<TABLE>
<CAPTION>
Within Plan Outside Plan
-------------------------------------- --------------------------------------
Weighted Weighted
Shares Average Shares Average
Under Option Exercise Under Option Exercise
Option Prices Price Option Prices Price
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
March 31, 1994 636,145 $2.50-$6.88 5.43 381,778 $2.50-$7.38 6.36
Granted 1,326,173 0.78-1.00 0.95 20,000 0.78 0.78
Exercised -- -- -- -- -- --
Canceled (533,937) 1.00-6.88 5.76 (311,778) 2.50-7.38 6.40
- -----------------------------------------------------------------------------------------------------------------
Balance,
March 31, 1995 1,428,381 $0.78-$6.76 1.15 90,000 $0.78-$7.38 4.97
Granted 230,000 1.00-1.57 1.10 20,000 1.25 1.25
Exercised (121,000) 0.78-1.00 0.95 -- -- --
Canceled (297,650) 0.78-4.88 0.96 (10,000) 5.75 5.75
- -----------------------------------------------------------------------------------------------------------------
Balance,
March 31, 1996 1,239,731 $0.78-$6.75 1.21 100,000 $0.78-$7.38 4.14
Granted 2,658,250 0.69-1.19 0.99 -- -- --
Exercised (15,500) 1.00 1.00 -- -- --
Canceled (1,132,190) 0.78-6.75 1.13 (95,000) 0.78-7.38 4.09
- -----------------------------------------------------------------------------------------------------------------
Balance,
March 31, 1997 2,750,291 $0.78-$6.75 $1.03 5,000 $5.25 $5.25
- -----------------------------------------------------------------------------------------------------------------
Exercisable
at March 31, 1997 680,607 $0.78-$6.75 $1.19 5,000 $5.25 $5.25
- -----------------------------------------------------------------------------------------------------------------
Available for Grant
at March 31,1997 3,249,709 -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The remaining lives for the options outstanding at March 31, 1997 are
9.2 years. The weighted average fair market value of options granted at
March 31, 1997 and 1996 is $0.77.
30
<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 issuance under the plan. New subscriptions are
granted by the Company to eligible employees on August 1 of each year. At March
31, 1997, 12,611 shares are available to be purchased under the plan. These
shares can be exercised on July 31, 1997.
In connection with the private equity placements, the Company issued warrants to
the placement agent to purchase up to 1,000,000 shares of the Company's common
stock over a five year term at $1.00 per share. The Company also issued the
various investors warrants to purchase up to 16,330,500 shares of the Company's
stock for $1.50 (see Note 3).
NOTE 12 - 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, 1997, 1996, and 1995, the Company did not make any contributions
to the plan.
31
<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 1997 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,
1997.
The executive officers and senior management of the Company are as follows:
Name Age Position
- ---- --- --------
John W. Trustman 41 President, Chief Executive Officer
James A. Harsch 45 Vice President-Administration and Chief
Financial Officer
The executive officers of the Company are elected annually by the Board.
John Trustman joined the Company as President and Chief Executive Officer
in June, 1997. From 1995 through 1996 Mr. Trustman was Senior Vice President
and Chief Information Officer of Aetna. From 1990 through 1995 he was with
Fidelity Investments as Senior Vice President. Prior to Fidelity he served
as a manager and consultant for Bain Consulting. Mr. Trustman has an MBA
from Harvard University and an AB Degree from Yale University.
James A. Harsch joined the Company in July 1996 as Vice President,
Administration and Chief Financial Officer. From 1993 to 1996 Mr. Harsch was
Vice President of Finance and Operations of Softdesk, Inc., a software
applications provider. From 1989 to 1993 he was Vice President of Finance and
Chief Financial Officer of Fiberglas Holdings, Inc., a manufacturer of
fiberglass sporting equipment.
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
32
<PAGE>
1997 Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission within 120 days after March 31, 1997.
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 1997 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after March 31, 1997.
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 1997 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission within 120 days
after March 31, 1997.
33
<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, 1997, and 1996
- Consolidated Statements of Operations for the Years Ended March
31, 1997, 1996, and 1995
- Consolidated Statements of Stockholders' Equity (Deficit) for the
Years Ended March 31, 1997, 1996, and 1995
- Consolidated Statements of Cash Flows for the Years Ended March
31, 1997, 1996, and 1995
- 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, 1997, 1996, and 1995.
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 Registration Statement on Form S-8 (No. 333-23261), and
incorporated herein by reference).
3.2* Bylaws of the Company
4.1 Form of Redeemable Warrant to purchase shares of common stock of Delphi
Information Systems, Inc. (filed as Exhibit 4.12 to the Company's Annual
Report on Form 10K for the fiscal year ended March 31, 1996, and
incorporated herein by reference).
4.2 Form of Unit Investment Agreement to purchase common stock and warrants of
Delphi Information Systems, Inc. (filed as Exhibit 4.13 to the Company's
Annual Report on Form 10K for the fiscal year ended March 31, 1996, and
incorporated herein by reference).
4.3 Form of Warrant to purchase shares of common stock of Delphi Information
Systems, Inc. held by R.J. Steiken & Company (filed as Exhibit 4.14 to the
Company's Annual
34
<PAGE>
Report on Form 10K for the fiscal year ended March 31, 1996, and
incorporated herein by reference).
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).
10.5 Delphi Information Systems, Inc. 1996 Stock Incentive Plan (filed as
Exhibit 4.3 to the Company's Registration Statement on Form S-8
(File No. 333-23261), and incorporated herein by reference).
10.6 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).
10.7 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).
10.8 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).
10.9 Employment agreement dated July 7, 1994, between the Company and M.
Denis Connaghan (filed as Exhibit 10.23 to the Company's Annual
Report on Form 10K for the fiscal year ended March 31, 1995, and
incorporated herein by reference).
10.10 Form of Stock Purchase Warrant between the Company and Silicon Valley
Bank (filed as Exhibit 10.26 to the Company's Annual Report on Form
10K for the fiscal year ended March 31, 1995, and incorporated
herein by reference).
35
<PAGE>
10.11* Loan and Security Agreement between the Company and Coast Business
Credit dated January 1997 and related Schedule and Capex Promissory
Note.
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.
36
<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/ John W. Trustman
------------------------------
John W. Trustman
President and Chief Executive
Officer
Date: June 30, 1997
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 30, 1997
- ---------------
(Yuval Almog)
/s/ John W. Tustman Director, President. and June 30, 1997
- ------------------- Chief Executive Officer
(John W. Trustman)
/s/ James A. Harsch Vice President-Administration June 30, 1997
- ------------------- and Chief Financial Officer
(James A. Harsch)
/s/ William R. Baumel Director June 30, 1997
- ---------------------
(William R. Baumel)
/s/ M. Denis Connaghan Director June 30, 1997
- ----------------------
(M. Denis Connaghan)
/s/ Larry G. Gerdes Director June 30, 1997
- -------------------
(Larry G. Gerdes)
/s/ Joseph J. Oddo Director June 30, 1997
- ------------------
(Joseph J. Oddo)
37
<PAGE>
SCHEDULE II
DELPHI INFORMATION SYSTEMS, INC.
Schedule II - Valuation and Qualifying Accounts
for the Years Ended March 31, 1997, 1996 and 1995
Allowance for doubtful accounts receivable.
March 31, March 31, March 31,
1997 1996 1995
-------- -------- ---------
Beginning Balance $922,000 $687,000 $1,000,000
Provisions for Allowance 1,662,000 741,000 396,000
Write Off of Accounts Receivable
Against Allowance (971,000) (506,000) (847,000)
Allowance Acquired in Acquisitions 0 0 138,000
---- --- --------
$ 1,613,000 $922,000 $687,000
-------------- -------- --------
-------------- -------- --------
38
<PAGE>
AS AMENDED THROUGH SEPTEMBER 3, 1996
BYLAWS
OF
DELPHI INFORMATION SYSTEMS, INC.
A DELAWARE CORPORATION
ARTICLE I
OFFICES
SECTION 1.01 REGISTERED OFFICE. The registered office of Delphi
Information Systems, Inc. (hereinafter called the "Corporation") shall be at
such place in the State of Delaware as shall be designated by the Board of
Directors (hereinafter called the "Board").
SECTION 1.02 PRINCIPAL OFFICE. The principal office for the
transaction of the business of the Corporation shall be at such location, within
or without the State of Delaware, as shall be designated by the Board.
SECTION 1.03 OTHER OFFICES. The Corporation may also have an office
or offices at such other place or places, either within or without the State of
Delaware, as the Board may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders
of the Corporation for the purpose of electing directors and for the transaction
of such other proper business as may come before such meetings may be held at
such tine, date and place as the Board shall determine by resolution.
SECTION 2.02 SPECIAL MEETINGS. Special meetings of the stockholders
of the Corporation for any purpose or purposes may be called by the Board, by
the holders of shares of stock of the Corporation entitled to cast not less than
ten percent of the votes at such meetings, or by a committee of the Board which
has been duly designated by the Board and whose powers and authority, as
provided in a resolution of the Board or in the Bylaws, include the power to
call such meetings, but such special meetings may not be called by any other
person or persons; provided, however, that if and to the extent that any special
meeting of stockholders may be called
<PAGE>
by any other person or persons specified in any provision of the Certificate of
Incorporation or any amendment thereto or any certificate filed under Section
151(g) of the General Corporation law of Delaware (or its successor statute as
in effect from time to time hereafter), then such special meeting may also be
called by the person or persons, in the manner, at the time and for the purposes
so specified. (Amended May 17, 1987)
SECTION 2.03 PLACE OF MEETINGS. All meetings of the stockholders
shall be held at such places, within or without the State of Delaware, as may
from time to time be designated by the person or persons calling the respective
meetings and specified in the respective notices or waivers of notice thereof.
SECTION 2.04 NOTICE OF MEETINGS. Except as otherwise required by
law, notice of each meeting of the stockholders, whether annual or special,
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of record entitled to vote at such
meeting by delivering a typewritten or printed notice thereof to him personally,
or by depositing such notice in the United States mail, in a postage prepaid
envelope, directed to him at his address furnished by him to the Secretary of
the Corporation for such purpose or, if he shall not have furnished to the
Secretary his address for such purpose, then at his address last known to the
Secretary, or by transmitting a notice thereof to him at such address by
telegraph, cable or wireless. Except as otherwise expressly required by law, no
publication of any notice of a meeting of the stockholders shall be required.
Every notice of a meeting of the stockholders shall state the place, date and
hour of the meeting and, in the case of a special meeting, shall also state the
purpose or purposes for which the meeting is called. Except as otherwise
expressly required by law, notice of any adjourned meeting of the stockholders
need not be given if the time and place thereof are announced at the meeting at
which the adjournment is taken.
SECTION 2.05 QUORUM. The holders of record of a majority in voting
interest of the shares of stock of the Corporation entitled to be voted, present
in person or by proxy, shall constitute a quorum for the transaction of business
at any meeting of the stockholders of the Corporation or any adjournment
thereof. The stockholders present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. In the
absence of a quorum at any meeting or any adjournment thereof, a majority in
voting interest of the stockholders present in person or by proxy and entitled
to vote thereat or, in the absence therefrom of all the stockholders, any
officer entitled to preside at or to act as secretary of such meeting may
adjourn such meeting from time to time. At any such adjourned meeting at which
a quorum is present any business may be transacted which might have been
transacted at the meeting as originally called.
SECTION 2.06 VOTING.
(a) At each meeting of the stockholders, each stockholder shall
be entitled to vote in person or by proxy each share or fractional share of
the stock of the
-2-
<PAGE>
Corporation which has voting rights on the matter in question and which
shall have been held by him and registered in his name on the books of the
Corporation:
(i) on the date fixed pursuant to Section 6.05 of these
Bylaws as the record date for the determination of stockholders
entitled to notice of and to vote at such meeting, or
(ii) if no such record date shall have been so fixed, then
(A) at the close of business on the day next preceding the day on
which notice of the meeting shall be given or (B) if notice of the
meeting shall be waived, at the close of business on the day next
preceding the day on which the meeting shall be held.
(b) Shares of its own stock belonging to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held directly or
indirectly by the Corporation, shall neither be entitled to vote nor be
counted for quorum purposes. Persons holding stock of the Corporation in a
fiduciary capacity shall be entitled to vote such stock. Persons whose
stock is pledged shall be entitled to vote, unless in the transfer by the
pledgor on the books of the Corporation he shall have expressly empowered
the pledgee to vote thereon, in which case only the pledgee or his proxy
may represent such stock and vote thereon. Stock having voting power
standing of record in the names of two or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety or otherwise, or with respect to which two or more
persons have the same fiduciary relationship, shall be voted in accordance
with the provisions of the General Corporation Law of Delaware.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder or by his attorney thereunto
authorized and delivered to the secretary of the meeting; provided,
however, that no proxy shall be voted or acted upon after three years from
its date unless said proxy shall provide for a longer period. The
attendance at any meeting of a stockholder who may theretofore have given a
proxy shall not have the effect of revoking the same unless he shall in
writing so notify the secretary of the meeting prior to the voting of the
proxy. At any meeting of the stockholders all matters, except as otherwise
provided in the Certificate of Incorporation, in these Bylaws or by law,
shall be decided by the vote of a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat and
thereon. The stockholders present at a duly called or held meeting at
which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. The vote at any meeting of the stockholders on any question need
not be by ballot, unless so directed by the chairman of the meeting. On a
vote by ballot, each ballot shall be signed by the stockholder voting, or
by his proxy if there by such proxy, and it shall state the number of
shares voted.
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SECTION 2.07 LIST OF STOCKHOLDERS. The Secretary of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the entire duration thereof and may be inspected by any stockholder who
is present.
SECTION 2.08 INSPECTOR OF ELECTION. If at any meeting of the
stockholders a vote by written ballot shall be taken on any question, the
chairman of such meeting may appoint an inspector or inspectors of election to
act with respect to such vote. Each inspector so appointed shall first
subscribe an oath faithfully to execute the duties of an inspector at such
meeting with strict impartiality and according to the best of his ability. Such
inspectors shall decide upon the qualification of the voters and shall report
the number of shares represented at the meeting and entitled to vote on such
question, shall conduct and accept the votes and, when the voting is completed,
shall ascertain and report the number of shares voted respectively for and
against the question. Reports of the inspectors shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation.
Inspectors need not be stockholders of the Corporation, and any officer of the
Corporation may be an inspector on any question other than a vote for or against
a proposal in which he shall have a material interest.
SECTION 2.09 STOCKHOLDER ACTION WITHOUT MEETINGS. Any action
required by the General Corporation Law of Delaware to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing setting forth
the action so taken shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01 GENERAL POWERS. The property, business and affairs of
the Corporation shall be managed by or under the direction of the Board, which
may exercise all of the powers of the Corporation, except such as are by the
Certificate of Incorporation, by these Bylaws or by law conferred upon or
reserved to the stockholders.
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SECTION 3.02 NUMBER. The number of directors that shall
constitute the whole Board shall be established by the Board from time to time,
but in no event shall be less than four nor more than six.
SECTION 3.03 ELECTION OF DIRECTORS. The directors shall be elected
by the stockholders of the Corporation, and at each election the persons
receiving the greatest number of votes, up to the number of directors then to be
elected, shall be the persons then elected. The election of directors is
subject to any provisions contained in the Certificate of Incorporation relating
thereto, including any provisions for a classified board.
SECTION 3.04 RESIGNATIONS. Any director of the Corporation may
resign at any time by giving written notice to the Board or to the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time is not specified, it shall take effect immediately upon
its receipt, and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.05 VACANCIES. Except as otherwise provided in the
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of directors or
any other cause, may be filled by vote of the majority of the remaining
directors, although less than a quorum, or by a sole remaining director. Each
director so chosen to fill a vacancy shall hold office until his successor shall
have been elected and shall qualify or until he shall resign or shall have been
removed. No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of his term of office.
Upon the resignation of one or more directors from the Board,
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such vacancy
or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided hereinabove in the filling of other vacancies.
SECTION 3.06 PLACE OF MEETING; TELEPHONE CONFERENCE MEETING. The
Board may hold any of its meetings at such place or places within or without the
State of Delaware as the Board may from time to time by resolution designate or
as shall be designated by the person or persons calling the meeting or in the
notice or waiver of notice of any such meeting. Directors may participate in
any regular or special meeting of the Board by means of conference telephone or
similar communications equipment pursuant to which all persons participating in
the meeting of the Board can hear each other, and such participation shall
constitute presence in person at such meeting.
SECTION 3.07 FIRST MEETING. The Board shall meet as soon as
practicable after each annual election of directors and notice of such first
meeting shall not be required.
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SECTION 3.08 REGULAR MEETINGS. Regular meetings of the Board may be
held at such times as the Board shall from time to time by resolution determine.
If any day fixed for a meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting shall be held at the same hour and place
on the next succeeding business day which is not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.
SECTION 3.09 SPECIAL MEETINGS. Special meetings of the Board may be
called at any time by the Chairman of the Board or the President or by any two
(2) directors, to be held at the principal office of the Corporation, or at such
other place or places, within or without the State of Delaware, as the person or
persons calling the meeting may designate.
Notice of the time and place of special meetings shall be given to
each director either (i) by mailing or otherwise sending to him a written notice
of such meeting, charges prepaid, addressed to him at his address as it is shown
upon the records of the Corporation, or if it is not so shown on such records or
is not readily ascertainable, at the place in which the meetings of the
directors are regularly held, at least seventy-two (72) hours prior to the time
of the holding of such meeting or (ii) by orally communicating the time and
place of the special meeting to him at least forty-eight (48) hours prior to the
time of the holding of such meeting. Either of the notices as above provided
shall be due, legal and personal notice to such director.
Whenever notice is required to be given, either to a stockholder or a
director, under any provision of the General Corporation Law of Delaware, the
Certificate of Incorporation or these Bylaws, a written waiver thereof, signed
by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting, whether in person or by proxy, shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of directors or committee of directors need be specified in any written waiver
of notice.
All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
SECTION 3.10 QUORUM AND ACTION. Except as otherwise provided in
these Bylaws or by law, the presence of a majority of the authorized number of
directors shall be required to constitute a quorum for the transaction of
business at any meeting of the Board, and all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority of
the directors present. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given. The
directors shall act only as a Board, and the individual directors shall have no
power as such.
SECTION 3.11 ACTION BY CONSENT. Any action required or permitted to
be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting
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if a written consent thereto is signed by all members of the Board or of such
committee, as the case way be, and such written consent is filed with the
minutes of proceedings of the Board or such committee. Such action by written
consent shall have the same force and effect as the unanimous vote of such
directors.
SECTION 3.12 COMPENSATION. No stated salary need be paid to
directors, as such, for their services but, as fixed from time to time by
resolution of the Board, the directors may receive directors' fees, compensation
and reimbursement for expenses for attendance at directors' meetings, for
serving on committees and for discharging their duties; provided, however, that
nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
SECTION 3.13 COMMITTEES. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Any such committee,
to the extent provided in the resolution of the Board, shall have and may
exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it, but no such
committee shall have any power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the Bylaws of the Corporation, and unless the resolution of the
Board expressly so provides, no such committee shall have the power or authority
to declare a dividend or to authorize the issuance of stock. Any such committee
shall keep written minutes of its meetings and report the same to the Board when
required.
In the absence of any member of any such committee, the members
thereof present at any meeting and not disqualified from voting, whether or not
they constitute a quorum, may appoint another member of the Board to act at the
meeting in the place of such absent member.
A majority of the members, or replacements thereof, of any such
committee shall constitute a quorum for the transaction of business. Every act
or decision done or made by a majority of the members, or replacements thereof,
of any such committee shall be regarded as the act or decision of the entire
committee.
SECTION 3.14 OFFICERS OF THE BOARD. The Board shall have a Chairman
of the Board and may, at the discretion of the Board, have one or more Vice
Chairmen. The Chairman of the Board and the Vice Chairmen shall be appointed
from time to time by the Board and shall have such powers and duties as shall be
designated by the Board.
SECTION 3.15 REMOVAL. Any or all of the directors may be removed,
either for or without cause, at any meeting of stockholders called expressly for
that purpose, by the
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affirmative vote, in person or by proxy, of the holders of a majority of the
shares of stock of the Corporation then entitled to vote for the election of
directors. (Amended May 17, 1987)
ARTICLE IV
OFFICERS
SECTION 4.01 OFFICERS. The Officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, a Secretary and a
Treasurer. The Corporation may also have, at the discretion of the Board, one
or more Vice Presidents, one or more Assistant Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers and such other officers
as may be appointed in accordance with the provisions of Section 4.03 of these
Bylaws. One person may hold two or more offices, except that the Secretary may
not also hold the office of President. The salaries of all officers of the
Corporation shalt be fixed by the Board.
SECTION 4.02 ELECTION. The officers of the Corporation, except such
officers as may be appointed in accordance with the provisions of Section 4.03
or Section 4.05 of these Bylaws, shall be chosen annually by the Board, and each
shall hold his office until he shall resign or shall be removed or otherwise
disqualified to serve or until his successor shall be elected and qualified.
SECTION 4.03 SUBORDINATE OFFICERS. The Board may appoint, or may
authorize the Chief Executive Officer to appoint, such other officers as the
business of the Corporation may require, each of whom shall have such authority
and perform such duties as are provided in these Bylaws or as the Board or the
President from time to time may specify and shall hold office until he shall
resign or shall be removed or otherwise disqualified to serve.
SECTION 4.04 REMOVAL AND RESIGNATION. Any officer may be removed,
with or without cause, by a majority of the directors at the time in office, at
any regular or special meeting of the Board or, except in case of an officer
chosen by the Board, by the Chief Executive Officer upon whom such power of
removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the
Board, the Chairman of the Board, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein, and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 4.05 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the Bylaws for the regular appointments to such office.
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SECTION 4.06 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
of the Corporation shall, subject to the control of the Board, have general
supervision, direction and control of the business and affairs of the
Corporation. He shall preside at all meetings of stockholders and the Board.
He shall have the general powers and duties of management usually vested in the
chief executive officer of a corporation and shall have such other powers and
duties with respect to the administration of the business and affairs of the
Corporation as may from time to time be assigned to him by the Board or as
prescribed by the Bylaws. In the absence or disability of the President, the
Chief Executive Officer, in addition to his assigned duties and powers, shall
perform all the duties of the President and when so acting shall have all the
powers and be subject to all restrictions upon the President.
SECTION 4.07 PRESIDENT. The President shall exercise and perform
such powers and duties with respect to the administration of the business and
affairs of the Corporation as may from time to time be assigned to him by the
Chief Executive Officer (unless the President is also the Chief Executive
Officer) or by the Board or as is prescribed by the Bylaws. In the absence or
disability of the Chief Executive Officer, the President shall perform all of
the duties of the Chief Executive Officer and when so acting shall have all the
powers and be subject to all the restrictions upon the Chief Executive Officer.
SECTION 4.08 VICE PRESIDENT. The Vice President(s), if any, shall
exercise and perform such powers and duties with respect to the administration
of the business and affairs of the Corporation as from time to time may be
assigned to each of them by the President, by the Chief Executive Officer, by
the Board or as is prescribed by the Bylaws. In the absence or disability of
the President, the Vice Presidents, in order of their rank as fixed by the
Board, or if not ranked, the Vice President designated by the Board, shall
perform all of the duties of the President and when so acting shall have all of
the powers of and be subject to all the restrictions upon the President.
SECTION 4.09 SECRETARY. The Secretary shall keep, or cause to be
kept, a book of minutes at the principal office for the transaction of the
business of the Corporation, or such other place as the Board may order, of all
meetings of directors and stockholders, with the time and place of holding,
whether regular or special, and if special, how authorized and the notice
thereof given, the names of those present at directors' meetings, the number of
shares present or represented at stockholders' meetings and the proceedings
thereof.
The Secretary shall keep, or cause to be kept, at the principal office
for the transaction of the business of the Corporation or at the office of the
Corporation's transfer agent, a share register, or a duplicate share register,
showing the names of the stockholders and their addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the stockholders and of the Board required by these Bylaws or by law
to be given, and he shall keep
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the seal of the Corporation in safe custody and shall have such other powers and
perform such other duties as may be prescribed by the Board or these Bylaws. If
for any reason the Secretary shall fail to give notice of any special meeting of
the Board called by one or more of the persons identified in Section 3.09 of
these Bylaws, or if he shall fail to give notice of any special meeting of the
stockholders called by one or more of the persons identified in Section 2.02 of
these Bylaws, then any such person or persons may give notice of any such
special meeting.
SECTION 4.10 TREASURER. The Treasurer shall keep and maintain, or
cause to be kept and maintained, adequate and correct accounts of the properties
and business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
shares. Any surplus, including earned surplus, paid-in surplus and surplus
arising from a reduction of capital, shall be classified according to source and
shown in a separate account. The books of account at all reasonable times shall
be open to inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name
and to the credit of the Corporation with such depositories as may be designated
by the Board. He shall disburse the funds of the Corporation as may be ordered
by the Board, shall render to the President, to the Chief Executive Officer and
to the directors, whenever they request it, an account of all of his
transactions as Treasurer and of the financial condition of the Corporation and
shall have such other powers and perform such other duties as may be prescribed
by the Board or these Bylaws.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.01 EXECUTION OF CONTRACTS. The Board, except as otherwise
provided in these Bylaws, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in the name and on
behalf of the Corporation, and such authority may be general or confined to
specific instances, and unless so authorized by the Board or by these Bylaws, no
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or in any amount.
SECTION 5.02 CHECKS; DRAFTS, ETC. All checks, drafts or other
orders for payment of money, notes or other evidence of indebtedness, issued in
the name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such person shall give such bond, if any, as
the Board may require.
SECTION 5.03 DEPOSIT. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select or
as may be selected by any officer or
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officers, assistant or assistants, agent or agents, or attorney or attorneys of
the Corporation to whom such power shall have been delegated by the Board. For
the purpose of deposit and for the purpose of collection for the account of the
Corporation, the President, the Chief Executive Officer, any Vice President or
the Treasurer (or any other officer or officers, assistant or assistants, agent
or agents, or attorney or attorneys of the Corporation who shall be determined
by the Board from time to time) may endorse, assign and deliver checks, drafts
and other orders for the payment of money which are payable to the order of the
Corporation.
SECTION 5.04 GENERAL AND SPECIAL BANK ACCOUNTS. The Board from time
to time may authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board may
select or as may be selected by an officer or officers, assistant or assistants,
agent or agents, or attorney or attorneys of the Corporation to whom such power
shall have been delegated by the Board. The Board may make such special rules
and reguLations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 6.01 CERTIFICATES FOR STOCK. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, in such
form as the Board shall prescribe, certifying the number and class of shares of
the stock of the Corporation owned by him. The certificates representing shares
of such stock shall be numbered in the order in which they shall be issued and
shall be signed in the name of the Corporation by the Chairman of the Board, the
President or a Vice President and by the Secretary or an Assistant Secretary or
by the Treasurer or an Assistant Treasurer. Any or all of the signatures on the
certificates may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon any
such certificate shall thereafter have ceased to be such officer, transfer agent
or registrar before such certificate is issued, such certificate may
nevertheless be issued by the Corporation with the same effect as though the
person who signed such certificate, or whose facsimile signature shall have been
placed thereupon, were such officer, transfer agent or registrar at the date of
issue. A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class of shares represented by such certificates, respectively, and the
respective dates thereof, and in case of cancellation, the respective dates of
cancellation. Every certificate surrendered to the Corporation for exchange or
transfer shall be cancelled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so cancelled, except in cases provided for in Section 6.04 of
these Bylaws.
SECTION 6.02 TRANSFER OF STOCK. Transfer of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, or with a transfer clerk or a
transfer agent appointed as provided in Section 6.03 of
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these Bylaws, and upon surrender of the certificate or certificates for such
shares properly endorsed and the payment of all taxes thereon. The person in
whose name shares of stock stand on the books of the Corporation shall be deemed
the owner thereof for all purposes as regards the Corporation. Whenever any
transfer of shares shall be made for collateral security, and not absolutely,
such fact shall be stated expressly in the entry of transfer if, when the
certificate or certificates shall be presented to the Corporation for transfer,
both the transferor and the transferee request the Corporation to do so.
SECTION 6.03 REGULATIONS. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation. The Board may appoint, or authorize any officer
or officers to appoint, one or more transfer clerks or one or more transfer
agents and one or more registrars and may require all certificates for stock to
bear the signature or signatures of any of them.
SECTION 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. In
any case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sums as the Board may direct; provided, however, that a
new certificate may be issued without requiring any bond when, in the judgment
of the Board, it is proper to do so.
SECTION 6.05 RECORD DATE. In order that the Corporation may
determine the stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any other change, conversion or exchange of stock or for the purpose
of any other lawful action, the Board may fix, in advance, a record date, which
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting nor more than sixty (60) days prior to any other action. If, in
any case involving the determination of stockholders for any purpose other than
notice of or voting at a meeting of stockholders, the Board shall not fix such a
record date, the record date for determining stockholders for such purpose shall
be the close of business on the day on which the Board shall adopt the
resolution relating thereto. A determination of stockholders entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
such meeting; provided, however, that the Board may fix a new record date for
the adjourned meeting.
SECTION 6.06 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
President or any Vice President and the Secretary or any Assistant Secretary of
this Corporation are authorized to vote, represent and exercise on behalf of
this Corporation all rights incident to all shares of any other corporation or
corporations standing in the name of this Corporation. The authority herein
granted to said officers to vote or represent on behalf of this Corporation any
and all shares held by this Corporation in any other corporation or corporations
may be exercised either by such officers in person or by any person authorized
so to do by proxy or power of attorney duly executed by said officers.
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ARTICLE VII
INDEMNIFICATION
SECTION 7.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION. The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise or as a member of any committee or similar
body, against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.
SECTION 7.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or as a member of any committee or similar
body, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
SECTION 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under Section 7.01 or 7.02 of these Bylaws (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 7.01 and 7.02 of these Bylaws.
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Such determination shall be made (i) by the Board by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders.
SECTION 7.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article VII, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 7.01 or 7.02 of these Bylaws, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
SECTION 7.05 ADVANCE OF EXPENSES. Expenses incurred in defending a
civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board in the specific case upon receipt of an undertaking by
or on behalf of the director, officer, employee or agent to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article. (as amended)
SECTION 7.06 OTHER RIGHTS AND REMEDIES. The indemnification and
advancement of expenses provided by, or guaranteed pursuant to, the other
subsections of this Article VII shall not be deemed exclusive and is declared
expressly to be nonexclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. (as amended)
SECTION 7.07 INSURANCE. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise or as a member of any committee or similar body, against any
liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Article VII.
SECTION 7.08 CONSTITUENT CORPORATIONS. For the purposes of this
Article VII, references to "the Corporation" include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another
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corporation, partnership, joint venture, trust or other enterprise or as a
member of any committee or similar body shall stand in the same position under
the provisions of this Article VII with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
SECTION 7.09 EMPLOYEE BENEFIT PLANS. For the purposes of this
Article VII, references to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and references to "serving at the
request of the Corporation" shall include any service as a director, officer,
employee or agent which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit plan,
its participants or beneficiaries. A person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" within the meaning
of this Article VII.
SECTION 7.10 SEVERABILITY. If any part of this Article VII shall be
found, in any action, suit or proceeding or appeal therefrom or in any other
circumstances or as to any particular officer, director, employee or agent to be
unenforceable, ineffective or invalid for any reason, the enforceability, effect
and validity of the remaining parts or of such parts in other circumstances
shall not be affected, except as otherwise required by applicable law.
SECTION 7.11 AMENDMENTS. The foregoing provisions of this Article
VII shall be deemed to constitute an agreement between the corporation and each
of the persons entitled to indemnification hereunder, for as long as such
provisions remain in effect. Any amendment to the foregoing provisions of this
Article VII which limits or otherwise adversely affects the scope of
indemnification or rights of any such persons hereunder shall, as to such
persons, apply only to claims arising, or causes of action based on actions or
events occurring, after such amendment and delivery of notice of such amendment
to the person or persons so affected. Until notice of such amendment is given
to the person or persons whose rights hereunder are adversely affected, such
amendment shall have no effect on such rights of such persons hereunder. Any
person entitled to indemnification under the foregoing provisions of this
Article VII, as to any act or omission occurring prior to the date of receipt of
such notice, shall be entitled to indemnification to the same extent as if such
provisions had continued as Bylaws of the Corporation without such amendment.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 SEAL. The Board shall provide a corporate seal, which
shall be in the form of a circle and shall bear the name of the Corporation and
words and figures showing that the Corporation was incorporated in the State of
Delaware and showing the year of incorporation.
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SECTION 8.02 WAIVER OF NOTICES. Whenever notice is required to be
given by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or after
the time stated therein, and such waiver shall be deemed equivalent to notice.
SECTION 8.03 LOANS AND GUARANTIES. The Corporation may lend money
to, or guarantee any obligation of, and otherwise assist any officer or other
employee of the Corporation or of its subsidiaries, including any officer who is
a director, whenever, in the judgment of the Board, such loan, guaranty or
assistance may reasonably be expected to benefit the Corporation. The loan,
guaranty, or other assistance may be with or without interest and may be
unsecured or secured in such manner as the Board shall approve, including,
without limitation, a pledge of shares of stock of the Corporation.
SECTION 8.04 GENDER. All personal pronouns used in these Bylaws
shall include the other genders, whether used in the masculine, feminine or
neuter gender, and the singular shall include the plural, and visa versa,
whenever and as often as may be appropriate.
SECTION 8.05 AMENDMENTS. These Bylaws, or any of them, may be
rescinded, altered, amended or repealed, and new Bylaws may be made (i) by the
Board, by vote of a majority of the number of directors then in office as
directors, acting at any meeting of the Board or (ii) by the stockholders, by
the vote of a majority of the outstanding shares of voting stock of the
Corporation, at an annual meeting of stockholders, without previous notice, or
at any special meeting of stockholders, provided that notice of such proposed
amendment, modification, repeal or adoption is given in the notice of special
meeting; provided, however, that Section 2.02 of these Bylaws can only be
amended if that Section as amended would not conflict with the Corporation's
Certificate of Incorporation. Any Bylaw made or altered by the stockholders may
be altered or repealed by the Board or may be altered or repealed by the
stockholders.
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COAST
LOAN AND SECURITY AGREEMENT
Borrower: Delphi Information Systems, Inc.
Address: 3501 Algonquin Road, Suite 500
Rolling Meadows, Illinois 60008
Date: January __, 1997
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan Association
("Coast"), a California corporation, with offices at 12121 Wilshire Boulevard,
Suite 1111, Los Angeles, California 90025, and the borrower(s) named above
(jointly and severally, the "Borrower"), whose chief executive office is located
at the above address ("Borrower's Address"). The Schedule to this Agreement
(the "Schedule") shall for all purposes be deemed to be a part of this
Agreement, and the same is an integral part of this Agreement. (Definitions of
certain terms used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 LOANS. Coast will make loans to Borrower (the "Loans"), in amounts
determined by Coast in its discretion, reasonably exercised, up to the amounts
(the "Credit Limit") shown on the Schedule, provided no Default or Event of
Default has occurred and is continuing.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear interest
at the rate shown on the Schedule, except where expressly set forth to the
contrary in this Agreement. Interest shall be payable monthly, on the last day
of the month. Interest may, in Coast's discretion, be charged to Borrower's
loan account, and the same shall thereafter bear interest at the same rate as
the other Loans. Regardless of the amount of Obligations that may be
outstanding from time to time, Borrower shall pay Coast minimum monthly interest
during the term of this Agreement with respect to all of the Loans based upon
the minimum daily loan balance set forth on the Schedule (the "Minimum Monthly
Interest").
1.3 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule, which are
in addition to all interest and other sums payable to Coast and are not
refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Coast a security interest in all
of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located: All Receivables, Inventory, Equipment, and
General Intangibles, including, without limitation, all of Borrower's Deposit
Accounts, and all money, and all property now or at any time in the future in
Coast's possession (including claims and credit balances), and all proceeds of
any of the foregoing (including proceeds of any insurance policies, proceeds of
proceeds, and claims against third parties), all products of any of the
foregoing, and all books and records related to any of the foregoing (all of the
foregoing, together with all other property in which Coast may now or in the
future be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make Loans,
Borrower represents and warrants to Coast as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and will
continue to be, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Borrower is and will continue to
be qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or
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obligation under any material agreement or instrument which is binding upon
Borrower or its property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast 30 days' prior written notice before changing its name
or doing business under any other name. Borrower has complied, and will in the
future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Coast at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Coast now has, and
will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Coast and the Collateral against all claims of
others. None of the Collateral now is or will be affixed to any real property
in such a manner, or with such intent, as to become a fixture. Borrower is not
and will not become a lessee under any real property lease pursuant to which the
lessor may obtain any rights in any of the Collateral and no such lease now
prohibits, restrains, impairs or will prohibit, restrain or impair Borrower's
right to remove any Collateral from the leased premises. Whenever any
Collateral is located upon premises in which any third party has an interest
(whether as owner, mortgagee, beneficiary under a deed of trust, lien or
otherwise), Borrower shall, whenever requested by Coast, use its best efforts to
cause such third party to execute and deliver to Coast, in form acceptable to
Coast, such waivers and subordinations as Coast shall specify, so as to ensure
that Coast's rights in the Collateral are, and will continue to be, superior to
the rights of any such third party. Borrower will keep in full force and
effect, and will comply with all the terms of, any lease of real property where
any of the Collateral now or in the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good
working condition, and Borrower will not use the Collateral for any unlawful
purpose. Borrower will immediately advise Coast in writing of any material loss
or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at Borrower's
Address complete and accurate books and records, comprising an accounting system
in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now
or in the future delivered to Coast have been, and will be, prepared in
conformity with generally accepted accounting principles (except, in the case of
unaudited financial statements, for the absence of footnotes and subject to
normal year-end adjustments) and now and in the future will fairly reflect the
financial condition of Borrower, at the times and for the periods therein
stated. Between the last date covered by any such statement provided to Coast
and the date hereof, there has been no material adverse change in the financial
condition or business of Borrower. Borrower is now and will continue to be
solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Coast in writing
of the commencement of, and any material development in, the proceedings, and
(iii) posts bonds or takes any other steps required to keep the contested taxes
from becoming a lien upon any of the Collateral. As of the date hereof,
Borrower is unaware of any claims or adjustments proposed for any of Borrower's
prior tax years which could result in additional taxes becoming due and payable
by Borrower. Borrower has paid, and shall continue to pay all amounts necessary
to fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll
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service providing for the automatic deposit of all payroll taxes payable by
Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all material foreign, federal, state
and local laws and regulations relating to Borrower, including, but not limited
to, those relating to Borrower's ownership of real or personal property, the
conduct and licensing of Borrower's business, and environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim, suit,
litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Coast in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for lawful
business purposes. Borrower is not purchasing or carrying any "margin stock"
(as defined in Regulation G of the Board of Governors of the Federal Reserve
System) and no part of the proceeds of any Loan will be used to purchase or
carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants
to Coast as follows: Each Receivable with respect to which Loans are requested
by Borrower shall, on the date each Loan is requested and made, represent an
undisputed bona fide existing unconditional obligation of the Account Debtor
created by the sale, delivery, and acceptance of goods or the rendition of
services in the ordinary course of Borrower's business.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Coast as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and indorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver to
Coast transaction reports and loan requests, schedules of Receivables, and
schedules of collections, all on Coast's standard forms; provided, however, that
Borrower's failure to execute and deliver the same shall not affect or limit
Coast's security interest and other rights in all of Borrower's Receivables, nor
shall Coast's failure to advance or lend against a specific Receivable affect or
limit Coast's security interest and other rights therein. Loan requests
received after 10:30 AM will not be considered by Coast until the next Business
Day. Together with each such schedule, or later if requested by Coast, Borrower
shall furnish Coast with copies (or, at Coast's request, originals) of all
contracts, orders, invoices, and other similar documents, and all original
shipping instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Receivables, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Coast an aged accounts receivable trial balance
in such form and at such intervals as Coast shall request. In addition,
Borrower shall deliver to Coast the originals of all instruments, chattel paper,
security agreements, guarantees and other documents and property evidencing or
securing any Receivables, upon receipt thereof and in the same form as received,
with all necessary indorsements, all of which shall be with recourse. Borrower
shall also provide Coast with copies of all credit memos as and when requested
by Coast.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all
Receivables, unless and until an Event of Default has occurred. Borrower shall
hold all payments on, and proceeds of, Receivables in trust for Coast, and
Borrower shall deliver all such payments and proceeds to Coast within one
Business Day after receipt by Borrower, in their original form, duly endorsed to
Coast, to be applied to the Obligations in such order as Coast shall determine;
provided if Borrower receives checks or other payments in sums less than $5,000,
Borrower shall have 5 days to remit same to Coast. Coast may, in its
discretion, require that all proceeds of Collateral be deposited by Borrower
into a lockbox account, or such other "blocked account" as Coast may specify,
pursuant to a blocked account agreement in such form as Coast may specify.
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Coast or its designee may, at any time, notify Account Debtors that Coast has
been granted a security interest in the Receivables.
4.5 REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of any
Collateral shall be delivered to Coast within one Business Day after receipt by
Borrower, in their original form, duly endorsed to Coast, to be applied to the
Obligations in such order as Coast shall determine. Borrower agrees that it
will not commingle proceeds of Collateral with any of Borrower's other funds or
property, but will hold such proceeds separate and apart from such other funds
and property and in an express trust for Coast. Nothing in this Section limits
the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.
4.6 DISPUTES. Borrower shall notify Coast promptly of all disputes or claims
relating to Receivables. Borrower shall not forgive (completely or partially),
compromise or settle any Receivable for less than payment in full, or agree to
do any of the foregoing, except that Borrower may do so, provided that: (i)
Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's length transactions, which are
reported to Coast on the regular reports provided to Coast; (ii) no Default or
Event of Default has occurred and is continuing; and (iii) taking into account
all such discounts settlements and forgiveness, the total outstanding Loans will
not exceed the Credit Limit. Coast may, at any time after the occurrence of an
Event of Default, settle or adjust disputes or claims directly with Account
Debtors for amounts and upon terms which Coast considers advisable in its
reasonable credit judgment and, in all cases, Coast shall credit Borrower's Loan
account with only the net amounts received by Coast in payment of any
Receivables.
4.7 RETURNS. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount. In the event any attempted return occurs after the occurrence of any
Event of Default, Borrower shall (i) hold the returned Inventory in trust for
Coast, (ii) segregate all returned Inventory from all of Borrower's other
property, (iii) conspicuously label the returned Inventory as subject to Coast's
security interest, and (iv) immediately notify Coast of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on Coast's request deliver such returned Inventory
to Coast.
4.8 VERIFICATION. Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Coast or such other name as Coast may choose.
4.9 NO LIABILITY. Coast shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall Coast be deemed to be responsible for any of Borrower's obligations under
any contract or agreement giving rise to a Receivable. Nothing herein shall,
however, relieve Coast from liability for its own gross negligence or willful
misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with the
financial and other covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast may
reasonably require, and Borrower shall provide evidence of such insurance to
Coast, so that Coast is satisfied that such insurance is, at all times, in full
force and effect. All liability insurance policies of Borrower shall name Coast
as an additional insured, and all property casualty and related insurance
policies of Borrower shall name Coast as a loss payee thereon and Borrower shall
cause a lenders loss payee endorsement in form reasonably acceptable to Coast.
Upon receipt of the proceeds of any such insurance, Coast shall apply such
proceeds in reduction of the Obligations as Coast shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Coast shall release to Borrower insurance proceeds with
respect to Equipment totaling less than $50,000, which shall be utilized by
Borrower for the replacement of the Equipment with respect to which the
insurance proceeds were paid. Coast may require reasonable assurance that the
insurance proceeds so released will be so used. If Borrower fails to provide or
pay for any insurance, Coast may, but is not obligated to, obtain the same at
Borrower's expense. Borrower shall promptly deliver to Coast copies of all
reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Coast with the written
reports set forth in the Schedule,
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and such other written reports with respect to Borrower (including budgets,
sales projections, operating plans and other financial documentation), as
Coast shall from time to time reasonably specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one
Business Day's notice, Coast, or its agents, shall have the right to inspect,
audit and copy Borrower's books and records and the Collateral (the "Audits").
Coast shall take reasonable steps to keep confidential all confidential
information obtained in any Audit, but Coast shall have the right to disclose
any such information to its auditors, regulatory agencies, and attorneys, and
pursuant to any subpoena or other legal process. The Audits shall be at
Borrower's expense and the charge for the Audits shall be $750 per person per
day (or such higher amount as shall represent Coast's then current standard
charge for the same), plus reasonable out of pocket expenses. Borrower will not
enter into any agreement with any accounting firm, service bureau or third party
to store Borrower's books or records at any location other than Borrower's
Address, without first notifying Coast of the same and obtaining the written
agreement from such accounting firm, service bureau or other third party to give
Coast the same rights with respect to access to books and records and related
rights as Coast has under this Loan Agreement.
5.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior written
consent, do any of the following:
(i) merge or consolidate with another corporation or entity, except in a
transaction in which (A) the shareholders of the Borrower hold at least 50% of
the common stock and all other capital stock of the surviving corporation
immediately after such merger or consolidation, and (B) the Borrower is the
surviving corporation;
(ii) acquire any assets, except (A) in the ordinary course of business,
or (B) in a transaction or a series of transactions not involving the payment
of an aggregate amount in excess of $50,000;
(iii) enter into any other transaction outside the ordinary course of
business;
(iv) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the sale
of obsolete or unneeded Equipment in the ordinary course of business;
(v) store any Inventory or other Collateral with any warehouseman or
other third party;
(vi) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis;
(vii) make any loans of any money or other assets, except (A) advances to
customers or suppliers in the ordinary course of business, (B) travel advances,
employee relocation loans and other employee loans and advances in the ordinary
course of business, and (C) loans to employees, officers and directors for the
purpose of purchasing equity securities of the Borrower;
(viii) incur any debts, outside the ordinary course of business, which
would have a material, adverse effect on Borrower or on the prospect of
repayment of the Obligations;
(ix) guarantee or otherwise become liable with respect to the obligations
of another party or entity;
(x) pay or declare any dividends on Borrower's stock (except for
dividends payable solely in stock of Borrower);
(xi) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's stock, except that Borrower may repurchase stock
owned by employees, directors and consultants of Borrower pursuant to terms of
employment, consulting or other stock restriction agreements at such time as any
such employee, director or consultant terminates his or her affiliation with the
Borrower, for an aggregate purchase price not to exceed $100,000 in any fiscal
year;
(xii) make any change in Borrower's capital structure which would have a
material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or
(xiii) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default would occur as a result of such
transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
5.7 INDEMNITY. Borrower hereby agrees to indemnify Coast and hold Coast
harmless from and against any and
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all claims, debts, liabilities, demands, obligations, actions, causes of
action, penalties, reasonable costs and expenses (including reasonable
attorneys' fees), of every nature, character and description, which Coast may
sustain or incur based upon or arising out of any of the Obligations, any
actual or alleged failure to collect and pay over any withholding or other
tax relating to Borrower or its employees, any relationship or agreement
between Coast and Borrower, any actual or alleged failure of Coast to comply
with any writ of attachment or other legal process relating to Borrower or
any of its property, or any other matter, cause or thing whatsoever occurred,
done, omitted or suffered to be done by Coast relating to Borrower or the
Obligations (except any such amounts sustained or incurred as the result of
the gross negligence or willful misconduct of Coast). Notwithstanding any
provision in this Agreement to the contrary, the indemnity agreement set
forth in this Section shall survive any termination of this Agreement and
shall for all purposes continue in full force and effect.
5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by Coast,
to execute all documents and take all actions, as Coast, may deem reasonably
necessary or useful in order to perfect and maintain Coast's perfected security
interest in the Collateral, and in order to fully consummate the transactions
contemplated by this Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the "Maturity Date"); provided that the Maturity
date shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than sixty days prior to the
next Maturity Date, that such party elects to terminate this Agreement effective
on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity
Date as follows: (i) by Borrower, effective three Business Days after written
notice of termination is given to Coast; or (ii) by Coast at any time after the
occurrence of an Event of Default, without notice, effective immediately. If
this Agreement is terminated by Borrower or by Coast under this Section 6.2,
Borrower shall pay to Coast a termination fee (the "Early Termination Fee") in
the amount shown on the Schedule. The Early Termination Fee shall be due and
payable on the effective date of termination and thereafter shall bear interest
at a rate equal to the rate applicable to the Receivable Loans.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding Letters of
Credit issued by Coast or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Coast,
then on such date Borrower shall provide to Coast cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Coast's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Coast's security interests in all of the Collateral and all of
the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Coast, Coast may, in its sole discretion, refuse to make any further Loans after
termination. No termination shall in any way affect or impair any right or
remedy of Coast, nor shall any such termination relieve Borrower of any
Obligation to Coast, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Coast shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate Coast's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Coast immediate written notice thereof:
(a) Any material warranty, representation, statement, report or
certificate made or delivered to Coast by Borrower or any of Borrower's
officers, employees or agents, now or in the future, shall be untrue or
misleading in a material respect; or
(b) Borrower shall fail to pay when due any Loan or any interest thereon
or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time shall
exceed the Credit Limit; or
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(d) Borrower shall fail to deliver the proceeds of Collateral to Coast as
provided in Section 4.5 above, or shall fail to give Coast access to its books
and records or Collateral as provided in Section 5.4 above, or shall breach any
negative covenant set forth in Section 5.5 above; or
(e) Borrower shall fail to comply with the financial covenants (if any)
set forth in the Schedule or shall fail to perform any other non-monetary
Obligation which by its nature cannot be cured; or
(f) Borrower shall fail to perform any other non-monetary Obligation,
which failure is not cured within 5 Business Days after the date due; or
(g) Any levy, assessment, attachment, seizure, lien or encumbrance (other
than a Permitted Lien) is made on all or any part of the Collateral which is not
cured within 10 days after the occurrence of the same; or
(h) any default or event of default occurs under any obligation secured by
a Permitted Lien, which is not cured within any applicable cure period or waived
in writing by the holder of the Permitted Lien; or
(i) Borrower breaches any material contract or obligation, which has or
may reasonably be expected to have a material adverse effect on Borrower's
business or financial condition; or
(j) Dissolution, termination of existence, insolvency or business failure
of Borrower; or appointment of a receiver, trustee or custodian, for all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding by Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; or
(k) the commencement of any proceeding against Borrower or any guarantor
of any of the Obligations under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 30 days after the date commenced; or
(l) revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations or any attempt to do any of the foregoing,
or commencement of proceedings by any guarantor of any of the Obligations under
any bankruptcy or insolvency law; or
(m) revocation or termination of, or limitation or denial of liability
upon, any pledge of any certificate of deposit, securities or other property or
asset of any kind pledged by any third party to secure any or all of the
Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or
(n) Borrower makes any payment on account of any indebtedness or
obligation which has been subordinated to the Obligations, other than as
permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits
his subordination agreement; or
(o) Borrower shall generally not pay its debts as they become due, or
Borrower shall conceal, remove or transfer any part of its property, with intent
to hinder, delay or defraud its creditors, or make or suffer any transfer of any
of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or
(p) there shall be a material adverse change in Borrower's business or
financial condition.
Coast may cease making any Loans hereunder during any of the above cure periods,
and thereafter if an Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence, and during the continuance, of any Event of
Default, Coast, at its option, and without notice or demand of any kind (all of
which are hereby expressly waived by Borrower), may do any one or more of the
following: (a) Cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other document or agreement; (b) Accelerate and
declare all or any part of the Obligations to be immediately due, payable, and
performable, notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any Obligation; (c) Take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes Coast without judicial process to enter onto any of Borrower's
premises without interference to search for, take possession of, keep, store, or
remove any of the Collateral, and remain on the premises or cause a custodian to
remain on the premises in exclusive control thereof, without charge for so long
as Coast deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; provided, however, that
should Coast seek to take possession of any of the Collateral by Court process,
Borrower hereby irrevocably waives: (i) any bond and any surety or security
relating thereto required by any statute, court rule or otherwise as an incident
to such possession; (ii) any demand for possession prior to the
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commencement of any suit or action to recover possession thereof; and (iii)
any requirement that Coast retain possession of, and not dispose of, any such
Collateral until after trial or final judgment; (d) Require Borrower to
assemble any or all of the Collateral and make it available to Coast at
places designated by Coast which are reasonably convenient to Coast and
Borrower, and to remove the Collateral to such locations as Coast may deem
advisable; (e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Coast shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private
sales, in lots or in bulk, for cash, exchange or other property, or on
credit, and to adjourn any such sale from time to time without notice other
than oral announcement at the time scheduled for sale. Coast shall have the
right to conduct such disposition on Borrower's premises without charge, for
such time or times as Coast deems reasonable, or on Coast's premises, or
elsewhere and the Collateral need not be located at the place of disposition.
Coast may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition. Any sale or other disposition of
Collateral shall not relieve Borrower of any liability Borrower may have if
any Collateral is defective as to title or physical condition or otherwise at
the time of sale; (g) Demand payment of, and collect any Receivables and
General Intangibles comprising Collateral and, in connection therewith,
Borrower irrevocably authorizes Coast to endorse or sign Borrower's name on
all collections, receipts, instruments and other documents, to take
possession of and open mail addressed to Borrower and remove therefrom
payments made with respect to any item of the Collateral or proceeds thereof,
and, in Coast's sole discretion, to grant extensions of time to pay,
compromise claims and settle Receivables and the like for less than face
value; (h) Offset against any sums in any of Borrower's general, special or
other Deposit Accounts with Coast; and (i) Demand and receive possession of
any of Borrower's federal and state income tax returns and the books and
records utilized in the preparation thereof or referring thereto. All
reasonable attorneys' fees, expenses, costs, liabilities and obligations
incurred by Coast with respect to the foregoing shall be due from the
Borrower to Coast on demand. Coast may charge the same to Borrower's loan
account, and the same shall thereafter bear interest at the same rate as is
applicable to the Receivable Loans. Without limiting any of Coast's rights
and remedies, from and after the occurrence of any Event of Default, the
interest rate applicable to the Obligations shall be increased by an
additional three percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and Coast
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by Coast, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m;
(v) Payment of the purchase price in cash or by cashier's check or wire transfer
is required; (vi) With respect to any sale of any of the Collateral, Coast may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same. Coast shall be free
to employ other methods of noticing and selling the Collateral, in its
discretion, if they are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence, and during the continuance, of any
Event of Default, without limiting Coast's other rights and remedies, Borrower
grants to Coast an irrevocable power of attorney coupled with an interest,
authorizing and permitting Coast (acting through any of its employees, attorneys
or agents) at any time, at its option, but without obligation, with or without
notice to Borrower, and at Borrower's expense, to do any or all of the
following, in Borrower's name or otherwise, but Coast agrees to exercise the
following powers in a commercially reasonable manner: (a) Execute on behalf of
Borrower any documents that Coast may, in its sole discretion, deem advisable in
order to perfect and maintain Coast's security interest in the Collateral, or in
order to exercise a right of Borrower or Coast, or in order to fully consummate
all the transactions contemplated under this Agreement, and all other present
and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Coast's Collateral or in which Coast has an interest; (c) Execute on
behalf of Borrower, any invoices relating to any Receivable, any draft against
any Account Debtor and any notice to any Account Debtor, any proof of claim in
bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other
lien, or assignment or satisfaction of mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral;
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endorse the name of Borrower upon any instruments, or documents, evidence of
payment or Collateral that may come into Coast's possession; (e) Endorse all
checks and other forms of remittances received by Coast; (f) Pay, contest or
settle any lien, charge, encumbrance, security interest and adverse claim in
or to any of the Collateral, or any judgment based thereon, or otherwise take
any action to terminate or discharge the same; (g) Grant extensions of time
to pay, compromise claims and settle Receivables and General Intangibles for
less than face value and execute all releases and other documents in
connection therewith; (h) Pay any sums required on account of Borrower's
taxes or to secure the release of any liens therefor, or both; (i) Settle and
adjust, and give releases of, any insurance claim that relates to any of the
Collateral and obtain payment therefor; (j) Instruct any third party having
custody or control of any books or records belonging to, or relating to,
Borrower to give Coast the same rights of access and other rights with
respect thereto as Coast has under this Agreement; and (k) Take any action or
pay any sum required of Borrower pursuant to this Agreement and any other
present or future agreements. Any and all reasonable sums paid and any and
all reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by Coast with respect to the foregoing shall be added to and become
part of the Obligations, and shall be payable on demand. Coast may charge
the foregoing to Borrower's loan account and the foregoing shall thereafter
bear interest at the same rate applicable to the Receivable Loans. In no
event shall Coast's rights under the foregoing power of attorney or any of
Coast's other rights under this Agreement be deemed to indicate that Coast is
in control of the business, management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
of the Collateral shall be applied by Coast first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by Coast in the
exercise of its rights under this Agreement, second to the interest due upon any
of the Obligations, and third to the principal of the Obligations, in such order
as Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, Coast shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Coast and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Coast of one or more of its rights or remedies shall not be deemed an election,
nor bar Coast from subsequent exercise or partial exercise of any other rights
or remedies. The failure or delay of Coast to exercise any rights or remedies
shall not operate as a waiver thereof, but all rights and remedies shall
continue in full force and effect until all of the Obligations have been fully
paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner, shareholder,
director, officer, or employee of such Person, or any parent or subsidiary of
such Person, or any Person controlling, controlled by or under common control
with such Person.
"BUSINESS DAY" means a day on which Coast is open for business.
"CODE" means the Uniform Commercial Code as adopted and in effect in the State
of California from time to time.
"COLLATERAL" has the meaning set forth in Section 2.1 above.
"DEFAULT" means any event which with notice or passage of time or both, would
constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
Coast, in its good faith business judgment, shall deem eligible for borrowing,
based on such considerations as Coast may from time to time deem appropriate.
Without limiting the foregoing, in no event will a Receivable be an Eligible
Receivable if it is more than 90 days old from invoice date.
"EQUIPMENT" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every
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kind and description used in Borrower's operations or owned by Borrower and
any interest in any of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions, additions or improvements to any of
the foregoing, wherever located.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of this
Agreement.
"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in
all litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Coast, rights to purchase or sell real
or personal property, rights as a licensor or licensee of any kind, royalties,
telephone numbers, proprietary information, purchase orders, and all insurance
policies and claims (including without limitation life insurance, key man
insurance, credit insurance, liability insurance, property insurance and other
insurance), tax refunds and claims, computer programs, discs, tapes and tape
files, claims under guaranties, security interests or other security held by or
granted to Borrower, all rights to indemnification and all other intangible
property of every kind and nature (other than Receivables).
"INVENTORY" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit, and
including without limitation all farm products), and all materials and supplies
of every kind, nature and description which are or might be used or consumed in
Borrower's business or used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise or other
personal property, and all warehouse receipts, documents of title and other
documents representing any of the foregoing.
"MAXIMUM DOLLAR AMOUNT" has the meaning set forth in Section 1 of the Schedule.
"OBLIGATIONS" means all present and future Loans, advances, debts, liabilities,
obligations, guaranties, covenants, duties and indebtedness at any time owing by
Borrower to Coast, whether evidenced by this Agreement or any note or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by Coast in Borrower's debts owing
to others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney's fees, expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and Coast.
"PERMITTED LIENS" means the following: (i) purchase money security interests in
specific items of Equipment; (ii) leases of specific items of Equipment; (iii)
liens for taxes not yet payable; (iv) additional security interests and liens
consented to in writing by Coast, which consent shall not be unreasonably
withheld; (v) security interests being terminated substantially concurrently
with this Agreement; (vi) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vii) liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Coast will have the
right to require, as a condition to its consent under subparagraph (iv) above,
that the holder of the additional security interest or lien sign an
intercreditor agreement on Coast's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Coast, and
agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
"PERSON" means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
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"RECEIVABLES" means all of Borrower's now owned and hereafter acquired accounts
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.OTHER TERMS. All accounting terms used in this
Agreement, unless otherwise indicated, shall have the meanings given to such
terms in accordance with generally accepted accounting principles, consistently
applied. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all checks,
wire transfers and other items of payment received by Coast (including proceeds
of Receivables and payment of the Obligations in full) shall be deemed applied
by Coast on account of the Obligations three Business Days after receipt by
Coast of immediately available funds, and, for purposes of the foregoing, any
such funds received after 10:30 AM on any day shall be deemed received on the
next Business Day. Coast shall not, however, be required to credit Borrower's
account for the amount of any item of payment which is unsatisfactory to Coast
in its sole discretion, and Coast may charge Borrower's loan account for the
amount of any item of payment which is returned to Coast unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may
be applied, and in Coast's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Coast shall determine in its sole
discretion.
9.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that Borrower
pay monetary Obligations in cash to Coast, or charge them to Borrower's Loan
account, in which event they will bear interest at the same rate applicable to
the Loans. Coast may also, in its discretion, charge any monetary Obligations
to Borrower's Deposit Accounts maintained with Coast.
9.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an account
of advances, charges, expenses and payments made pursuant to this Agreement.
Such account shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by Coast), unless Borrower notifies Coast in
writing to the contrary within thirty days after each account is rendered,
describing the nature of any alleged errors or admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to Coast or Borrower at the addresses shown in the heading to this
Agreement, or at any other address designated in writing by one party to the
other party. Notices to Coast shall be directed to the Commercial Finance
Division, to the attention of the Division Manager or the Division Credit
Manager. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.7 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and Coast and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE PARTIES
IN CONNECTION HEREWITH.
9.8 WAIVERS. The failure of Coast at any time or times to require Borrower to
strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any
11
<PAGE>
commercial paper, instrument, account, General Intangible, document or
guaranty at any time held by Coast on which Borrower is or may in any way be
liable, and notice of any action taken by Coast, unless expressly required by
this Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Coast, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast, but nothing herein shall relieve Coast from
liability for its own gross negligence or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be waived or
amended, except in a writing executed by Borrower and a duly authorized officer
of Coast.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by Borrower of
each and every obligation under this Agreement.
9.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Coast, pursuant to, or
in connection with, or relating to this Agreement (whether or not a lawsuit is
filed), including, but not limited to, any reasonable attorneys' fees and costs
Coast incurs in order to do the following: prepare and negotiate this Agreement
and the documents relating to this Agreement; obtain legal advice in connection
with this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Borrower's books and records;
protect, obtain possession of, lease, dispose of, or otherwise enforce Coast's
security interest in, the Collateral; and otherwise represent Coast in any
litigation relating to Borrower. If either Coast or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including (but not limited to) reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order, decree,
award or judgment. Borrower shall also pay Coast's standard charges for
returned checks and for wire transfers, in effect from time to time. All
attorneys' fees, costs and charges to which Coast may be entitled pursuant to
this Paragraph may be charged by Coast to Borrower's loan account and shall
thereafter bear interest at the same rate as the Receivable Loans.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Coast; provided, however, that
Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Coast, and any prohibited assignment shall
be void. No consent by Coast to any assignment shall release Borrower from its
liability for the Obligations.
9.14 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one Person,
their liability shall be joint and several, and the compromise of any claim
with, or the release of, any Borrower shall not constitute a compromise with, or
a release of, any other Borrower.
9.15 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower against
Coast, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Coast, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based, and the service of a
summons and complaint on an officer of Coast, or on any other person authorized
to accept service on behalf of Coast, within thirty (30) days thereafter.
Borrower agrees that such one-year period is a reasonable and sufficient time
for Borrower to investigate and act upon any such claim or cause of action. The
one-year period provided herein shall not be waived, tolled, or extended except
by the written consent of Coast in its sole discretion. This provision shall
survive any termination of this Loan Agreement or any other present or future
agreement.
9.16 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in this
Agreement for convenience. Borrower and Coast acknowledge that the headings may
not describe completely the subject matter of the applicable paragraph, and the
headings shall not be used in any
12
<PAGE>
manner to construe, limit, define or interpret any term or provision of this
Agreement. The term "including", whenever used in this Agreement, shall mean
"including (but not limited to)". This Agreement has been fully reviewed and
negotiated between the parties and no uncertainty or ambiguity in any term or
provision of this Agreement shall be construed strictly against Coast or
Borrower under any rule of construction or otherwise.
9.17 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Coast to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Coast's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Los Angeles County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
Borrower:
DELPHI INFORMATION SYSTEMS, INC.
By
-------------------------------------------
President or Vice President
COAST:
COAST BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan
Association
By
----------------------------------------
Title
----------------------------------------
13
<PAGE>
COAST
SCHEDULE TO LOAN AND SECURITY AGREEMENT
BORROWER: DELPHI INFORMATION SYSTEMS, INC.
ADDRESS: 3501 ALGONQUIN ROAD, SUITE 500
ROLLING MEADOWS, ILLINOIS 60008
DATE: JANUARY 8, 1997
This Schedule forms an integral part of the Loan and Security Agreement between
Coast Business Credit, a division of Southern Pacific Thrift & Loan Association,
and the above-borrower of even date.
1. CREDIT LIMIT
(Section 1.1): Loans in an amount not to exceed the lesser of a total
of $4,000,000 at any one time outstanding (the "Maximum
Dollar Amount"), or the sum of (a) and (b) below:
(a) Loans (the "Receivable Loans") in an amount
not to exceed 75% of the amount of Borrower's
Eligible Receivables (as defined in Section 8
above). If dilution at any time exceeds 10%,
Coast may, in its sole discretion, reduce the
advance rate against Eligible Receivables.
(b) CAPEX Subline. Coast shall provide Borrower
amounts not to exceed $500,000 in the aggregate
"CAPEX Subline" for the purchase of new or used
equipment. Advances shall not exceed 60% of
invoice cost on new equipment less tax and
installation costs or 60% of the appraised
liquidation value on used equipment, less tax and
installation costs. Appraised liquidation value
shall be determined by Coast in the sole
discretion by an appraiser acceptable to Coast.
The CAPEX Subline shall terminate on December 31,
1997 and the outstanding amounts thereunder shall
be amortized over 36 months beginning on the last
day of the sixth month following the initial draw
of funds, plus interest payable monthly, with the
unpaid balance due and payable on the Maturity
Date unless this Agreement is automatically
renewed pursuant to Section 6.1 hereof.
<PAGE>
The CAPEX Subline shall only be available if
(i) no Event of Default has occurred and is
continuing, (ii) Borrower's Net Worth is not less
than $2,500,000 at the time of the drawdown of
funds; and (iii) Borrower's ratio of EBITDA to
total debt service is not less than 1.25:1 at the
time of drawdown. For purposes of the above,
"EBITDA" shall mean the earnings of Borrower
before interest expense, tax payments,
depreciation and amortization. "Net Worth" shall
mean a sum equal to: (i) the net book value
(after deducting related depreciation,
obsolescence, amortization, valuation and other
proper reserves) at which the assets of Borrower
would be shown on a balance sheet at such date in
accordance with generally accepted accounting
principles, less (ii) the amount at which
Borrower's liabilities (other than capital stock,
surplus and subordinated debt) would be shown on
such balance sheet in accordance with generally
accepted accounting principles, and including as
liabilities all reserves for contingencies. The
EBITDA shall be determined on a six-month trailing
basis. In no event shall any advance on the CAPEX
Subline be less than $100,000. The CAPEX Subline
will be evidenced by that certain CAPEX Promissory
Note in the form requested by Coast.
2. INTEREST.
INTEREST RATE
(Section 1.2): A rate equal to the "Prime Rate" plus 2.5% for the
Receivable Loans and Prime Rate plus 3.5% for the CAPEX
Subline per annum, calculated on the basis of a 360-day
year for the actual number of days elapsed. The
interest rate applicable to all Loans shall be adjusted
monthly as of the first day of each month, and the
interest to be charged for each month shall be based on
the highest "Prime Rate" in effect during said month,
but in no event shall the rate of interest charged on
any Loans in any month be less than 9% per annum.
"Prime Rate" means the actual "Reference Rate" or the
substitute therefor of the Bank of America NT & SA
whether or not that rate is the lowest interest rate
charged by said bank. If the Prime Rate, as defined,
is unavailable, "Prime Rate" shall mean the highest of
the prime rates published in the Wall Street Journal on
the first business day of the month, as the base rate
on corporate
2
<PAGE>
loans at large U.S. money center commercial banks.
Notwithstanding the foregoing, the interest rate on the
Receivable Loans shall be reduced to Prime Rate plus 2%
upon Borrower achieving and maintaining a Net Worth of
not less than $6,500,000. The reduction shall be
effective upon receipt by Coast of Borrower's year end
audited financial statements reflecting the minimum Net
Worth required. If any subsequent financial statement
reflects a reduction in the Net Worth below the minimum
Net Worth of $6,500,000, the interest rate on the
Receivable Loans shall increase to Prime Rate plus 2.5%
beginning with the first day of the first month
following the Borrower's failure to maintain such
minimum Net Worth.
MINIMUM MONTHLY
INTEREST
(Section 1.2): $1,600,000 average daily loan balance.
3. FEES (Section 1.3):
Loan Fee: $60,000, payable concurrently herewith.
Facility Fee: $3,500, per calendar quarter, payable in advance (which
includes any prior deposits, less expenses).
Renewal Fee: .25% of the Maximum Dollar Amount on the date the
Agreement automatically renews pursuant to Section 6.1.
4. MATURITY DATE
(Section 6.1): January 31, 1999, subject to automatic renewal as
provided in Section 6.1 above, and early termination as
provided in Section 6.2 above.
EARLY TERMINATION FEE
(Section 6.2): A fee during the first anniversary of this Agreement of
2% of the Maximum Dollar Amount, and a fee of 1% of the
Maximum Dollar Amount thereafter, provided that no
early termination fee shall be due if the Agreement is
terminated by Lender.
5. REPORTING.
(Section 5.3):
Borrower shall provide Coast with the following:
3
<PAGE>
1. Monthly Receivable agings, aged by invoice date,
within ten days after the end of each month.
2. Monthly accounts payable agings, aged by invoice
date, and outstanding or held check registers
within ten days after the end of each month.
3. Monthly internally prepared financial statements,
as soon as available, and in any event within
thirty days after the end of each month.
4. Quarterly internally prepared financial
statements, as soon as available, and in any event
within forty-five days after the end of each
fiscal quarter of Borrower.
5. Quarterly customer lists, including customer name,
address, and phone number.
6. Annual financial statements, as soon as available,
and in any event within 90 days following the end
of Borrower's fiscal year, certified by
independent certified public accountants
acceptable to Coast.
6. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): McCracken Inc.
Delphi/McCracken, Inc.
Insurnet, Inc.
Delphi/Insurnet, Inc.
Mountain Staics Systems
Continental Systems, Inc.
Redshaw, Inc.
Delphi/Redshaw, Inc.
Compusult, Inc.
Specialty Program Services, Inc.
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): See above
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): CICS
4
<PAGE>
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): None
MATERIAL ADVERSE
LITIGATION
(Section 3.10): None
7. OTHER COVENANTS
(Section 5.1): Borrower shall at all times comply with all of the
following additional covenants:
Without limiting any other term or condition herein, in
no event shall Coast have any obligations under this
Agreement unless and until each of the following
conditions have been satisfied as of the closing date
(and thereafter in the case of #3 and #6) or waived in
writing by Coast:
(1) Borrower shall have a minimum excess lending
availability of at least $500,000 after accounting
for Coast's initial funding.
(2) Borrower shall have no accounts payable more than
90 days past due from invoice date unless an
account payable is subject to a bona fide dispute
and Coast has waived such payable in its sole
discretion.
(3) Borrower shall at all times have a minimum Net
Worth of $2,000,000.
(4) Coast shall have reviewed and accepted in its sole
discretion Borrower's financial forecast.
(5) Coast shall have received such subordinations as
may be required in form and substance acceptable
to Coast in its sole discretion.
(6) Coast shall have received and, reviewed and not
disapproved of Borrower's 10Q and 10K as of the
latest filing date. As a covenant, Borrower
agrees to provide to Coast copies of such 10Q's
and 10K's as may hereafter be filed by Borrower.
(7) Coast's re-audit shall be satisfactory to Coast in
its sole discretion.
5
<PAGE>
(8) Borrower shall have been reinstated in good
standing in the State of Illinois (without
limiting Borrower's obligation to be in good
standing in such other states as may be necessary
or appropriate).
Borrower: Coast:
Delphi Information Systems, Inc. COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan
By--------------------------------- Association
President or Vice President
By
-------------------------------------
Title
----------------------------------
6
<PAGE>
<PAGE>
CAPEX PROMISSORY NOTE
$500,000 Los Angeles, California
As of January 8, 1997
FOR VALUE RECEIVED, the undersigned, Delphi Information Systems, Inc.,
hereby promises to pay to Coast Business Credit, a division of Southern Pacific
Thrift & Loan Association, ("Lender"), or order, at 12121 Wilshire Blvd., Suite
1111, Los Angeles, California, or at such other address as the holder may
specify in writing, the principal sum of Five Hundred Thousand Dollars
($500,000.00) or so much as shall have been drawn by the undersigned pursuant to
the terms of the Agreement (as defined below), plus interest in the manner and
upon the terms and conditions set forth below. This CAPEX Promissory Note
("Note") is made pursuant to that certain Loan and Security Agreement of even
date between the undersigned and Lender (collectively the "Agreement"), the
provisions of which are incorporated herein by this reference. Capitalized
terms herein, unless otherwise noted, shall have the meaning set forth in the
Agreement.
1.0 RATE AND PAYMENT OF INTEREST
This Note shall bear interest on the unpaid principal balance hereof
from time to time outstanding at a rate equal to the "Prime Rate" (as
hereinafter defined) plus 3.5% per annum. Interest shall be calculated on the
basis of a 360-day year for the actual number of days elapsed. As used herein,
the term "Prime Rate" shall mean the actual "Reference Rate" or the substitute
therefor of Bank of America NT & SA whether or not that rate is the lowest
interest rate charged by said bank. The interest rate applicable to this Note
shall be adjusted monthly, as of the first day of each month, and the interest
rate charged during each month shall be based on the highest Prime Rate in
effect during said month. If the Prime Rate is unavailable, "Prime Rate" shall
mean the highest of the prime rates published in the Wall Street Journal on the
first business day of the month, as the base rate of corporate loans at large
U.S. money center banks. Accrued interest shall be payable monthly, commencing
on January 31, 1997, and continuing on the last day of each succeeding month.
<PAGE>
Principal of, and interest on, this Note shall be payable in lawful
money of the United States of America. If a payment hereunder becomes due and
payable on a Saturday, Sunday or legal holiday, the due date thereof shall be
extended to the next succeeding business day, and interest shall be payable
thereon during such extension.
2.0 SCHEDULE OF PRINCIPAL PAYMENTS
Subject to the provisions of Section 4.0 below, principal under this
Note shall be due and payable in accordance with the following schedule:
a. Subject to Section 2.0(b) below, thirty-five equal successive
monthly installments of principal beginning on July 31, 1997 and continuing on
the last day of each month thereafter; and
b. A final installment of all unpaid principal plus accrued and
unpaid interest and charges on June 30, 2000.
3.0 PREPAYMENT
Prepayment may be made under this Note in whole or in part subject to
the prepayment charge, as set forth in the Agreement. All prepayments shall be
applied in the inverse order of maturity of payments.
4.0 HOLDER'S RIGHT OF ACCELERATION
If the Agreement is terminated for any reason whatsoever, the entire
remaining principal balance and all accrued and unpaid interest and other fees
and charges with respect to this Note shall, at Coast's option, become due and
payable on the effective date of termination.
5.0 HOLDER'S RIGHTS UPON DEFAULT
In the event any payment of principal or interest on this Note is
not paid in full when due, or if any other default or event of default occurs
under the Loan Agreement or any other present or future instrument, document, or
agreement between Borrower and Coast, Coast may, at its option, at any time
2
<PAGE>
thereafter, declare the entire unpaid principal balance of this Note plus all
accrued interest to be immediately due and payable, without notice or demand.
Without limiting the foregoing, and without limiting Coast's other rights and
remedies, in the event any installment of principal or interest is not paid in
full on or before the date due, Borrower agrees that it would be impracticable
or extremely difficult to fix the actual damages resulting therefrom to Coast,
and therefore the Borrower agrees immediately to pay to Coast an amount equal to
5% of the installment (or portion thereof) not paid, as liquidated damages, to
compensate Coast for the internal administrative expenses in administering the
default. Without limiting the foregoing, and without limiting Coast's other
rights and remedies, in the event any installment of interest is not paid on or
before the date due, it shall thereafter bear like interest as the principal of
this Note. The acceptance of any installment of principal or interest by Coast
after the time when it becomes due, as herein specified, shall not be held to
establish a custom, or to waive any rights of Coast to enforce payment when due
of any further installments or any other rights, nor shall any failure or delay
to exercise any rights be held to waive the same.
All payments hereunder are to be applied first to costs and fees
referred to hereunder, second to the payment of accrued interest and the
remaining balance to the payment of principal. Any principal prepayment
hereunder, to the extent permitted under the Agreement, shall be applied against
principal payments in the inverse order of maturity. Coast shall have the
continuing and exclusive right to apply or reverse and reapply any and all
payments hereunder in its sole discretion.
6.0 ADDITIONAL RIGHTS OF HOLDER
If any installment of principal or interest hereunder is not paid when
due, the holder shall have, in addition to the rights set forth herein, in the
Agreement and under law, the right to compound interest by adding the unpaid
interest to principal, with such amount thereafter bearing interest at the rate
provided in this Note.
7.0 GENERAL PROVISIONS
7.1 If this Note is not paid when due or upon the occurrence of
an Event of Default, the undersigned further
3
<PAGE>
promises to pay all costs of collection, foreclosure fees, and reasonable
attorneys' fees incurred by the holder, whether or not suit is filed
hereon, and the fees, costs and expenses as provided in the Agreement.
7.2 The undersigned hereby consents to any and all renewals,
replacements and/or extensions of time for payment of this Note before, at
or after maturity.
7.3 The undersigned hereby consents to the acceptance, release
or substitution of security for this Note.
7.4 Presentment for payment, notice of dishonor, protest and
notice of protest are hereby expressly waived.
7.5 In no event whatsoever shall the interest rate and other
charges charged hereunder exceed the highest rate permissible under any law
which a court of competent jurisdiction shall, in a final determination,
deem applicable hereto. In the event that a court determines that the
payee hereunder has received interest in excess of the highest rate
applicable hereto, the payee shall promptly refund such excess amount to
the undersigned and the provisions hereof shall be deemed amended to
provide for such permissible rate.
7.6 No delay or omission on the part of the holder of this Note
in exercising any right shall operate as a waiver thereof or of any other
right.
7.7 A waiver by the holder of this Note upon any one occasion
shall not be construed as a bar or waiver of any right or remedy on any
future occasion.
7.8 Should any one or more of the provisions of this Note be
determined illegal or unenforceable, all other provisions shall
nevertheless remain effective.
7.9 This Note cannot be changed, modified, amended or terminated
orally.
7.10 This Note shall be governed by, construed and enforced in
accordance with the laws of the State of
4
<PAGE>
California, without reference to the principles of conflicts of laws
thereof.
8.0 SECURITY FOR THE NOTE
This Note is secured by the Collateral described in the Agreement and
is subject to all of the terms and conditions thereof, including, but not
limited to, the remedies specified therein.
IN WITNESS WHEREOF, this Note has been executed and delivered as of
the date first set forth above.
DELPHI INFORMATION SYSTEMS, INC.
By: ___________________________________
Its: ___________________________________
5
<PAGE>
Exhibit 22.1
SUBSIDIARIES
Canadian Insurance Computer Systems Inc. Canada
Complete Broking Systems Ltd. New Zealand
<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 Statements on Form S-8 (No. 33-62901, 333-23261, 33-45156) and
Form S-3 (No. 333-12781).
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 30, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 6,596
<SECURITIES> 0
<RECEIVABLES> 6,854
<ALLOWANCES> (1,613)
<INVENTORY> 16
<CURRENT-ASSETS> 11,964
<PP&E> 8,438
<DEPRECIATION> (6,196)
<TOTAL-ASSETS> 22,577
<CURRENT-LIABILITIES> 14,092
<BONDS> 0
0
49
<COMMON> 3,635
<OTHER-SE> 4,764
<TOTAL-LIABILITY-AND-EQUITY> 22,577
<SALES> 27,714
<TOTAL-REVENUES> 27,714
<CGS> 18,787
<TOTAL-COSTS> 18,787
<OTHER-EXPENSES> 13,145
<LOSS-PROVISION> 1,662
<INTEREST-EXPENSE> (23)
<INCOME-PRETAX> (5,857)
<INCOME-TAX> 27
<INCOME-CONTINUING> (5,884)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,884)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</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, 1996
and December 31, 1995
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
1996 or 1995.
ITEM 2. CHANGES IN INVESTMENT POLICY
There were no material changes made during 1996 or 1995 with respect
to investment policy.
ITEM 3. CONTRIBUTIONS UNDER THE PLAN
The Company made no contributions to the Plan in 1996 or 1995.
ITEM 4. PARTICIPATING EMPLOYEES
As of December 31, 1996, there were approximately 367 employees who
were participants in the Plan compared to 528 employees as of December
31, 1995.
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,
1996 are as follows:
POSITION WITH THE
MEMBER'S NAMES COMPANY OR AFFILIATES
-------------- ---------------------
James Harsch Vice President, Administration and CFO
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 1996 and 1995, no Committee members or Trustees received
any compensation from the Plan for services rendered in connection
with the administration of the Plan.
<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 1996, the fees were
$19,921 compared to $21,339 in 1995. 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, 1996 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 $1,710 were paid to Smith Barney in 1996 compared to
$1,151 in 1995. No brokerage fees were paid to any person described
in SEC requirements for disclosure in Item 8(a)(2) of this form.
<PAGE>
ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS
(Employer Identification Number 77-0021975, Plan Number 001)
(a) Index of Financial Statements and Schedules
<TABLE>
<CAPTION>
<S><C>
PAGE
Report of Independent Public Accountants F-1
Statement of Net Assets Available for Plan Benefits, with fund
information as of December 31, 1996 F-2
Statement of Net Assets Available for Plan Benefits, with fund
information as of December 31, 1995 F-3
Statement of Changes in Net Assets Available for Plan Benefits
with fund information for the Year Ended December 31, 1996 F-4
Statement of Changes in Net Assets Available for Plan Benefits
with fund information for the Year Ended December 31, 1995 F-5
Notes to Financial Statements F-6 to F-12
Schedule I - Item 27a--Schedule of Assets Held for
Investment Purposes as of December 31, 1996 F-13
Schedule II - Item 27d--Schedule of Reportable
Transactions for the year ended December 31, 1996 F-14
(b) Exhibits
None
</TABLE>
<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 30, 1997 Signature /s/ James A. Harsch
------------------------ -------------------------
James A. Harsch
Vice President-Administration and CFO
<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, 1996 and 1995 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.
The schedule of assets held for investment purposes as of December 31, 1996, and
the schedule of reportable transactions for the year ended December 31, 1996, do
not disclose the historical cost of the Plan's investments. Disclosure of this
information is required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974.
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, 1996 and
1995 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.
ARTHUR ANDERSEN LLP
Chicago, Illinois
May 15, 1997
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, 1996
(EMPLOYER IDENTIFICATION NUMBER 77-0021975, PLAN NUMBER 001)
FUND INFORMATION
ASSETS:
Investments, at fair value:
Delphi
Common Stock $ 23,300
Guaranteed
Long Term
Account 1,209,123
Guaranteed
Government
Securities
Account 83,268
Income and
Growth
Account 928,399
Growth
Opportunities
Account 2,534,058
Participant Loans 158,888
-------------
Total investments 4,937,036
Participants'
contributions
receivable 15,905
-------------
Net assets available for
Plan benefits $ 4,952,941
-------------
-------------
The accompanying Notes are an integral part of this statement.
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, 1995
(EMPLOYER IDENTIFICATION NUMBER 77-0021975, PLAN NUMBER 001)
FUND INFORMATION
ASSETS:
Investments, at fair value:
Delphi
Common Stock $ 32,037
Guaranteed
Long Term
Account 1,548,571
Guaranteed
Government
Securities
Account 107,800
Income and
Growth
Account 1,116,156
Growth
Opportunities
Account 3,004,221
Participant Loans 168,583
------------
Total investments 5,977,367
Participants'
contributions
receivable 77,511
------------
Net assets available for
Plan benefits $ 6,054,878
------------
------------
The accompanying Notes are an integral part of this statement.
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, 1996
(EMPLOYER IDENTIFICATION NUMBER 77-0021975, PLAN NUMBER 001)
<TABLE>
<CAPTION>
------------------------------------------------------
PARTICIPANT DIRECTED
------------------------------------------------------
CIGNA Fidelity
CIGNA Guaranteed Income
Delphi Guaranteed Government and
Common Long Term Securities Growth
Stock Account Account Account
--------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
ADDITIONS:
Contributions:
Participants $12,469 $120,263 $23,527 $163,778
Investment Income:
Net appreciation/(depreciation) in fair value of
investments (2,845) - 4,146 70,841
Interest 5 91,586 187 2,220
-------- -------- -------- --------
Total investment income/(loss) (2,840) 91,586 4,333 73,061
-------- -------- -------- --------
Total additions 9,629 211,849 27,860 236,839
-------- -------- -------- --------
DEDUCTIONS:
Benefits paid to participants (4,399) (554,962) (42,311) (377,975)
Other expenses (1,875) - - -
-------- -------- -------- --------
Total deductions (6,274) (554,962) (42,311) (377,975)
-------- -------- -------- --------
LOANS ISSUED TO PARTICIPANTS - (47,370) (828) (19,697)
LOAN PRINCIPAL REPAYMENTS 157 41,308 739 22,124
INTERFUND TRANSFERS (13,059) (1,819) (11,536) (67,640)
-------- -------- -------- --------
NET DECREASE (9,547) (350,994) (26,076) (206,349)
NET ASSETS AVAILABLE FOR PLAN BENEFITS
Beginning of year 33,148 1,564,554 110,147 1,138,477
-------- ---------- -------- ---------
End of year $23,601 $1,213,560 $84,071 $932,128
-------- ---------- -------- ---------
-------- ---------- -------- ---------
F-4
<PAGE>
<CAPTION>
-----------------------------------------------------
PARTICIPANT DIRECTED
------------------------------------------------------
Fidelity
Growth
Opportunities Loan
Account Account Total
-------------- -------- ---------
<S> <C> <C> <C>
ADDITIONS:
Contributions:
Participants $307,706 - $627,743
Investment Income:
Net appreciation/(depreciation) in fair value of
investments
465,534 - 537,676
Interest 4,871 (33) 98,836
--------- --------- ---------
Total investment income/(loss) 470,405 (33) 636,512
--------- --------- ---------
Total additions 778,111 (33) 1,264,255
--------- --------- ---------
DEDUCTIONS:
Benefits paid to participants (1,363,596) (21,095) (2,364,338)
Other expenses - 21 (1,854)
---------- ------- ----------
Total deductions (1,363,596) (21,074) (2,366,192)
---------- ------- ----------
LOANS ISSUED TO PARTICIPANTS (32,640) 100,535 -
LOAN PRINCIPAL REPAYMENTS 24,794 (89,122) -
INTERFUND TRANSFERS 94,055 - -
---------- ------- ----------
NET DECREASE (499,276) (9,694) (1,101,937)
NET ASSETS AVAILABLE FOR PLAN BENEFITS
Beginning of year 3,039,969 168,583 6,054,878
---------- ------- ----------
End of year $2,540,693 $158,889 $4,952,941
---------- ------- ----------
---------- ------- ----------
</TABLE>
The accompanying Notes are an integral part of this statement.
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, 1995
(EMPLOYER IDENTIFICATION NUMBER 77-0021975, PLAN NUMBER 001)
<TABLE>
<CAPTION>
--------------------------------------------------------
PARTICIPANT DIRECTED
--------------------------------------------------------
CIGNA Fidelity
CIGNA Guaranteed Income
Delphi Guaranteed Government and
Common Long Term Securities Growth
Stock Account Account Account
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
ADDITIONS:
Contributions:
Participants $12,092 $192,906 $26,646 $251,381
Investment Income:
Net appreciation in fair
value of investments 9,283 - 5,640 149,467
Interest 18 110,534 277 3,796
--------- --------- --------- ---------
Total investment income/(loss) 9,300 110,534 5,918 153,262
--------- --------- --------- ---------
Total additions 21,392 303,439 32,564 404,643
--------- --------- --------- ---------
DEDUCTIONS:
Benefits paid to participants (4,786) (611,351) (45,988) (259,488)
Other expenses (1,257) - - -
--------- --------- --------- ---------
Total deductions (6,043) (611,351) (45,988) (259,488)
--------- --------- --------- ---------
LOANS ISSUED TO PARTICIPANTS (384) (12,623) - (53,523)
LOAN PRINCIPAL REPAYMENTS 253 49,829 6,798 50,981
INTERFUND TRANSFERS (362) 25,409 (10,599) (127,461)
--------- --------- --------- ---------
NET INCREASE (DECREASE) 14,857 (245,296) (17,225) 15,152
NET ASSETS AVAILABLE FOR PLAN BENEFITS
Beginning of year 18,291 1,809,850 127,372 1,123,325
--------- --------- --------- ---------
End of year $33,148 $1,564,554 $110,147 $1,138,477
--------- --------- --------- ---------
--------- --------- --------- ---------
<CAPTION>
------------------------------------------
PARTICIPANT DIRECTED
------------------------------------------
Fidelity
Growth
Opportunities Loan
Account Account Total
------------- ------- -------
<S> <C> <C> <C>
ADDITIONS:
Contributions:
Participants $426,354 - $909,379
Investment Income:
Net appreciation in fair
value of investments 707,439 - 871,828
Interest 5,213 - 119,838
---------- ------- ----------
Total investment income/(loss) 712,652 - 991,666
---------- ------- ----------
Total additions 1,139,006 - 1,901,045
---------- ------- ----------
DEDUCTIONS:
Benefits paid to participants (323,927) - (1,245,540)
Other expenses - - (1,257)
---------- ------- ----------
Total deductions (323,927) - (1,246,797)
---------- ------- ----------
LOANS ISSUED TO PARTICIPANTS (41,060) 107,591 -
LOAN PRINCIPAL REPAYMENTS 42,803 (150,664) -
INTERFUND TRANSFERS 113,012 - -
---------- ------- ----------
NET INCREASE (DECREASE) 929,833 (43,073) 654,248
NET ASSETS AVAILABLE FOR PLAN BENEFITS
Beginning of year 2,110,136 211,656 5,400,630
---------- ------- ----------
End of year $3,039,969 $168,583 $6,054,878
---------- ------- ----------
---------- ------- ----------
</TABLE>
The accompanying Notes are an integral part of this statement.
F-5
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(Employer Identification Number 77-0021975, Plan Number 001)
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, as
amended ("ERISA") and Section 401 (a) and Section 401 (k) of the Internal
Revenue Code of 1986, as amended "IRC". At December 31, 1996, there were
250 active participants in the Plan of whom 155, 52, 141, 177 and 43 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, 1995 there
were 528 active participants 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.
CONTRIBUTIONS
Participants may elect to contribute an amount equaling from 1% to 20% of
their basic compensation up to a maximum of $9,500 for 1996 and $9,240 for
1995 (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 1996 and 1995.
The salary reduction contributions made on behalf of each participant are
paid to the Custodian, as defined within the Plan agreement, within two
days after each pay period, 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, 1996 AND 1995
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, 1996 AND 1995
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 Common Stock - 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, 1996 AND 1995
PAYMENT OF BENEFITS
For any event which may result in a distribution of benefits, 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 1996 and
1995 the Company elected to pay these expenses which consisted of the
following: (1) accounting and legal fees of approximately $6,000 in both
1996 and 1995; and (2) record keeping fees paid to the Custdian of
$19,921 and $21,339 in 1996 and 1995, 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, 1996 and 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements are prepared on the accrual basis of
accounting. The preparation of the financial statements in conformity with
generally accepted accounting principles, requires the Plan's management to
use estimates and assumptions that affect the accompanying financial
statements and disclosures. Actual results could differ from these
estimates.
Net appreciation in market value of investments includes (a) the difference
between the aggregate market value of investments as of the end of the year
and their carrying values (market values at the beginning of the year for
investments still owned or purchase cost for acquisitions during the year)
and (b) net gains or losses on dispositions of investments (the difference
between the proceeds and the market value as of the beginning of the year
or cost for acquisitions during the year of sale).
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. 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, 1996 (5.65 percent at
December 31, 1995). The CIGNA Guaranteed Government Securities Account
held 6,875.97 units with a unit value of $12.11 at December 31, 1996.
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 41,243.85 units with a unit value of $22.51 at December 31, 1996. The
Fidelity Growth Opportunities Account held 52,519.34 units with a unit
value of $48.25 at December 31, 1996. 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.
F-10
<PAGE>
The value of a unit in the Delphi Common Stock Account is based on the
market value of the assets in the account at year-end. The Delphi Common
Stock Account held 18,640.00 shares with a unit value of $1.25 per share at
December 31, 1996. Investments in this account, traded on the NASDAQ Small
Cap Market, are valued at the closing price on 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 $158,889 and
$168,583 at December 31, 1996 and 1995, respectively. Loans during the plan
year were distributed at interest rates ranging from 7.25 to 9.25 percent.
CONTRIBUTIONS
Participant contributions are recorded in the period that a participant's
payroll deductions are made. Participant rollovers are funds transferred
into the Plan during the respective year from new participants' previous
employer plans.
F-11
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
Cash Option Profit Sharing Plan
NOTES TO FINANCIAL STATEMENTS, Continued
DECEMBER 31, 1996 and 1995
3. HISTORICAL COST INFORMATION
Disclosure of historical cost information with regard to certain plan
investments is required to be presented in the schedules of assets held for
investment purposes and reportable transactions (Schedules I and II) in
accordance with the Department of Labor Rules and Regulations for
Reporting and Disclosure under Employee Retirement Income Security Act of
1974. Due to the record-keeping system maintained by the custodian,
certain of this information cannot be provided.
4. 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. The Plan administrators believe the Plan is currently designed
and being operated in compliance with the applicable requirements of the
Internal Revenue Code and that, therefore, the Plan's earnings were tax
exempt as of December 31, 1996.
5. SUBSEQUENT EVENT
Effective July 1, 1997, Scudder Investor Services, Inc. will replace CIGNA
Retirement & Investment Services as the investment custodian.
F-12
<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, 1996
<TABLE>
<CAPTION>
Current
NAME OF ISSUER AND TITLE OF ISSUE Cost (a) Value
--------------------------------------- ---------- ----------
<S> <C> <C>
* Delphi common stock, 18,640 shares,
$0.10 par value, $1.25 per share $ 23,300
* CIGNA Guaranteed Long Term Account,
5.65 percent 1,209,123
* CIGNA Guaranteed Government Securities
Account, 6,875.97 units, $12.11 per unit 83,268
* Fidelity Income and Growth Account,
41,243.85 units, $22.51 per unit 928,399
* Fidelity Growth Opportunities Account,
52,519.34 units, $48.25 per unit 2,534,058
* Participant Loans
7.25 to 9.25 percent interest 158,888
------------
$ 4,937,036
------------
------------
</TABLE>
(a) Historical cost information could not be obtained from the Plan's
custodian.
* Represents a party in interest as of December 31, 1996.
F-13
<PAGE>
DELPHI INFORMATION SYSTEMS, INC.
CASH OPTION PROFIT SHARING PLAN
SCHEDULE II - 27d -- SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Purchases Dispositions
------------------------------------------------------
Purchase Price
and Current Value
Involved Fund Description Number of of Assets on Selling
Party Name of Assets Transactions Transaction Date Price Cost Gain
-------- ------ ----------- ------------- ---------------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
* CIGNA Guaranteed Fixed Income (a) $222,091 $611,989 $611,989 $ --
Long Term
Account
* Fidelity Income and Equity and Fixed (a) $219,239 $476,299 $439,177 $37,122
Growth Income Securities
Account Fund
* Fidelity Growth Common Stock (a) $505,876 $1,431,598 $1,060,105 $371,492
Opportunities Fund
Account
</TABLE>
(a) Information could not be obtained from the Plan's asset
custodian.
* Represents a party in interest as of December 31, 1996
F-14
