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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to _______________.
Commission file number 0-20034
ELITE INFORMATION GROUP, INC.
(Formerly Broadway & Seymour, Inc.)
(Exact name of registrant as specified in its charter)
DELAWARE 41-1522214
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5100 WEST GOLDLEAF CIRCLE
LOS ANGELES, CALIFORNIA 90056
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(Address of principal executive offices) (Zip code)
(323) 642-5200
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value
(Title of class)
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 such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ] .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
The aggregate market value of voting stock held by non-affiliates of
the registrant as of February 29, 2000 computed by reference to the closing sale
price on such date, was $71,022,545. As of the same date, 9,376,373 shares of
Common Stock, $.01 par value, were outstanding. For purposes of this
calculation, Solution 6 Holdings Limited and its affiliates, which are
conducting a pending tender offer for all the issued and outstanding shares of
Common Stock of the registrant, were not considered affiliates of the Company.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1999 Annual Report (the "Annual Report"),
filed as an Exhibit hereto, are incorporated herein by reference into Parts II
and IV.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Elite Information Group, Inc. ("Elite" or the "Company") is the parent
company to Elite Information Systems, Inc. and Elite.com, Inc. Elite Information
Systems is an international software product and services company that provides
a comprehensive suite of financial and practice management software applications
for law firms and other professional service organizations of all sizes. Elite
Information Systems' software products are often sold with related services to
aid the customer in implementation, data conversion and user training efforts.
The Company's new Elite.com subsidiary provides Internet-based time tracking and
billing services to smaller professional services companies including legal,
management consulting, computer systems consulting and integration, accounting
and engineering. Elite.com utilizes hosted, Internet-based applications and
services delivered through its various partners and alliances.
GENERAL DEVELOPMENT OF THE BUSINESS
The Company was incorporated in 1985 in connection with the acquisition
of Broadway & Seymour, Inc., a North Carolina corporation that had been doing
business since 1981. The Company followed a strategy of growth through the
acquisition of products and businesses through mid-1995. Operations were
reorganized to integrate independent business units, and certain non-core
business units were disposed of in 1995, 1996 and 1997.
On May 19, 1999 the Company sold its Customer Relationship Management
business ("CRM"), based in Charlotte, NC, to Science Applications International
Corporation ("SAIC"). Following the CRM business sale, the Company changed its
name from Broadway & Seymour, Inc. to Elite Information Group, Inc., to reflect
the Company's new single-purpose business. The Company also changed its NASDAQ
trading symbol to ELTE and continues to be traded as a National Market Issue on
the NASDAQ.
During the third quarter of 1999 the Company began start up operations
of its new Elite.com subsidiary. Elite.com provides Internet-based time tracking
and billing services to smaller professional services firms. These services
became available to customers in January 2000, offered through the Elite.com Web
site.
On December 14, 1999 the Company entered into a merger agreement to be
acquired by Solution 6 Holdings Limited ("Solution 6") (ASX:SOH), which is based
in Sydney, Australia. As contemplated in the merger agreement, on December 21,
1999 Solution 6 initiated an all cash tender offer to purchase 100% of the
outstanding shares of Elite common stock. The tender offer is conditioned upon,
among other things, Solution 6 acquiring a majority of the fully diluted share
capital of Elite and obtaining necessary regulatory approvals. The merger
agreement may be terminated by either party without cause if the tender offer
has not been consummated by May 1, 2000. On January 6, 2000, the Company
announced that the Federal Trade Commission ("FTC") had requested additional
information and documentary material in connection with its review of the
proposed merger. The FTC request has resulted in an extension of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act and, accordingly,
the tender offer has been extended to permit the FTC to complete its review of
the proposed merger. The Company can give no assurance as to the timing or
outcome of the FTC's review or as to the timing or completion of the tender
offer and merger.
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BUSINESS STRATEGY
The Company's strategy is to develop and market industry-leading
practice management solutions for the professional service automation (PSA)
market. The company currently offers software and internet-based services to
assist in timekeeping, billing and related business management functions for
legal, accounting, consulting, public relations and other professional services
firms.
Through its Elite Information Systems subsidiary, the Company continues
to develop and market its client-server Windows and internet/intranet based
financial and practice management products (see "Product and Services Based
Solutions" below), while also focusing efforts on the planned release of its
32-bit system with enhanced query capabilities and object-oriented architecture.
The Company markets its financial and practice management tools principally to
law firms in the United States, Canada, the United Kingdom and Europe. However,
the Company continues to focus on expanding its market presence in other
segments of the services industry, including accounting, actuarial, consulting,
advertising, public relations and other services firms.
Elite Information Systems has an extensive field operations unit that
performs services including installation, implementation, data conversion,
training and consulting on its products. The Company's Professional Services
unit also provides follow-on consulting and technical services to its client
base on a fee for services basis. Principally all Elite customers contract with
the Company for maintenance and telephone support services on an annual basis.
Expanding on its efforts to develop and market web-based products, in
the third quarter of 1999 the Company began start up operations of its new
Elite.com subsidiary. Elite.com's strategy is to provide smaller professional
service firms with efficient, low cost, time and billing applications via the
Internet. Elite.com focuses its hosted Internet-based services on the solo
practitioner and small firms in the legal, accounting, management and computer
consulting, and engineering markets. These services became available to
customers in January 2000, offered through the Elite.com Web site.
PRODUCT AND SERVICES BASED SOLUTIONS
Software products mentioned in this document are for
identification purposes only and may be trademarks of Elite Information Group,
Inc., its subsidiaries or third parties.
SOFTWARE PRODUCTS
The Company's software solutions incorporate client-server and
open systems architecture using either a Windows or internet browser
interface and can be run on multiple operating systems and major
databases including Unix, Windows NT Server, Microsoft SQL Server and
Informix.
Elite Professional Billing System is a comprehensive accounting
and information management software product serving legal and
professional service firms. The Professional Billing System responds to
clients' billing requirements with on-line management information and
processes.
Elite Financial Management System is a general ledger and
accounts payable software product that supports multi-currency and
simultaneous cash and accrual-based accounting as well as budgeting
features.
Elite Case Management System is a case tracking software system
and conflicts/related-party database. This system also includes calendar
and docket functions, a case database, a
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related-party tracking system, on-line viewing of case information and
personal calendars and a user-defined reporting system.
Elite Marketing System is a comprehensive marketing and practice
development tool that tracks relationships, manages mailings and
monitors the effectiveness of client development efforts.
Elite Conflict of Interest Module is an integrated software tool
for checking conflicts of interest, based on a full-text search engine.
Elite Records Management Module is a software tool for managing
both internal and external records, with bar code support and
integration with the Elite Conflict of Interest System.
Elite WebView is a software tool that summarizes key information
from all Elite applications in a simple and concise manner within a
web-browser. By using built in HTML hyperlinks, a user can quickly move
from application to application.
Elite TimeTrax is an integrated software tool for time and
expense entry and tracking.
Elite Profitability System is a software tool developed to help
companies track the profitability of their firm by client, engagement,
office, department and timekeeper.
WorkFlow is a software application designed to automate
paper-intensive processes by using electronic forms, pre-defined routing
of these forms, and password-based approval of the transactions
represented by these forms.
Event Driven Reporting is an integrated software tool that
delivers critical information to managers, administrators, firm
committees, internal staff and clients, in an efficient and timely
manner, electronically.
SUPPORT SERVICES
The Company views its customer support services as a significant
part of its strategy to establish and maintain strong customer
relationships. The Company offers system maintenance and support at
fixed prices under renewable contracts as well as conversion and
installation services as needed by its customers. The degree of
maintenance service provided to customers differs depending on the
system being supported. Generally, support contracts entitle users to
telephone support and regular upgraded product releases. In addition,
the Company offers certain training classes and multi-media based
instruction to customers that aid in the implementation and effective
use of the Company's solutions.
ELITE.COM SERVICES
Through its Elite.com subsidiary the Company provides
Internet-based time tracking and invoicing solutions that are designed
to address the specific needs of smaller fee-based businesses including
legal, accounting, management and computer consulting, and engineering
firms. Using a standard Web browser and Internet connection, customers
can track time and expenses, produce invoices, generate information
reports, manage accounts receivable and streamline a variety of other
practice management functions.
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RESEARCH AND DEVELOPMENT
To meet the changing needs of the professional services
industry, the Company expends resources to continually develop and
enhance its proprietary software products. The Company believes that
ongoing commitment to research and development is important to the
long-term success of the business.
For the years ended December 31, 1999, 1998 and 1997, the
Company's total research and development expenditures from continuing
operations (including capitalized costs) were $4.4 million, $3.3 million
and $1.7 million, respectively.
There are inherent risks in the development and introduction of
a new product. For example, new products may have quality or other
defects in the early stages of introduction that were not anticipated in
the design of those products. The Company cannot determine the effects
on operating results of unanticipated complications in product
introductions or transitions.
SALES AND MARKETING
New customer contacts are generated by a variety of methods,
including customer referrals, personal sales calls, attendance at trade
shows and seminars, advertising in trade publications, direct mailings
to targeted customers and telemarketing.
The Company maintains a direct sales force where sales personnel
are given sales responsibility within their targeted regional and
customer markets. Additionally, senior management and technical subject
matter experts within the Company are directly involved in obtaining and
supporting relationships.
The Company's business strategy also emphasizes sales to
existing customers. Follow-on sales to existing customers include system
upgrades, expansion of license rights, migration to new products and
maintenance and support services.
CUSTOMERS
The Company serves a client base in the legal and other
professional services markets. Elite's customers include over one-third
of the top 1,000 law firms in the United States, several large firms in
the United Kingdom and the largest law firm in the world. Other
professional services markets include accounting, consulting, public
relations, financial services, actuarial, government, software,
security, insurance, market research and systems integration. In
addition, through Elite.com, the Company serves small and sole
practitioner firms in similar professional services markets.
The Company provides software solutions under a variety of
financial arrangements, including fixed fee contracts and billings on a
time and materials basis.
The majority of the Company's revenue is concentrated in the
legal services industry. However, no single customer accounts for 10% or
more of the Company's consolidated revenue.
GEOGRAPHIC INFORMATION
The Company's assets are principally located in North America.
The Company's revenue is principally generated in the United States,
however for the years ending December 31, 1999, 1998 and 1997 the
Company's revenue generated outside the United States represented 16%,
17% and 22% of the consolidated revenue, respectively. For those same
periods, revenue generated in Europe represented approximately 13%, 13%
and 20% of consolidated revenue, respectively. Since the Company's
contracts
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with non-U.S. customers generally denominate the amount of payments to
be received by the Company in local currencies, exchange rate
fluctuations between such local currencies and the U.S. dollar will
subject the Company to currency translation risks. Also, the Company may
be subject to currency transaction risks when the Company's contracts
are denominated in a currency other than the currency in which the
Company incurs expenses related to such contracts.
COMPETITION
The Company's markets are very competitive, due in part to the
rapidly changing technology underlying the Company's products and
services. The Company produces a number of different software modules
and applies those modules across the professional services markets. The
Company has a number of competitors for each module and in each market.
Some of these competitors compete with the Company with regard to a
number of modules or markets. Some of these competitors have greater
financial, technical and marketing resources than the Company. The
Company believes that no one single competitor is dominant across all
markets in which the Company participates.
The Company believes that competitive factors for engagements in
the professional services markets include knowledge of the industry,
capabilities of resources, technologies utilized, ease of use and
ability to customize solutions, breadth of functionality of solutions
and price.
BACKLOG
A significant portion of the Company's revenue is derived from
work to be performed under long-term contracts entered into in the
ordinary course of business. At December 31, 1999 and 1998, the Company
had unearned revenue from signed customer contracts (continuing
operations) of approximately $11.6 million and $26.4 million,
respectively. The reduction in backlog can be attributed to lower levels
of signed contracts in 1999.
EMPLOYEES AND RECRUITMENT
The Company believes that its future success will depend in part
on its continued ability to hire and retain qualified employees. The
Company believes its relations with employees are good. Competition for
personnel in the Company's industry is intense. Although it actively
recruits personnel and provides professional employees with career path
opportunities, there can be no assurance that the Company will be
successful in attracting and retaining sufficient numbers of qualified
personnel to conduct its business in the future. The Company actively
recruits at college campuses and also seeks employees with expertise and
experience in its chosen markets.
At February 29, 2000, the Company had 277 full-time employees.
None of the Company's employees are represented by a labor union.
COPYRIGHTS, TRADEMARKS, PATENTS AND LICENSES
The Company currently markets several proprietary software
products. Apart from a limited number of third party components, the
bulk of the Company's products consist of software, and related
documentation, developed by the Company for which the Company holds the
copyright. The Company distributes its software only subject to
licenses, which restrict the licensee's rights to use and disclose the
software so as to protect the Company's rights. The Company believes
that, due to the rapid pace of innovation within its industry, factors
such as the technological and creative skills of its personnel are more
important in establishing and maintaining a leadership position within
the industry than are the various
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legal protections of its technology. The Company believes that the
nature of its customers, the importance of the Company's products to
them and their need for continuing product support reduce the risk of
unauthorized reproduction. However, there can be no assurance that any
such steps taken by the Company in this regard will be adequate to deter
misappropriation of its proprietary rights or independent third-party
development of functionally equivalent products.
The Company believes that its services and products do not
infringe on the intellectual property rights of its customers or other
third parties. However, particularly given the rapid changes in patent
law, there can be no assurance that an infringement claim will not be
asserted against the Company in the future. Any such claim, if resolved
against the Company, could adversely affect the Company's reputation,
preclude it from offering certain products and services, and subject it
to substantial liability.
YEAR 2000 ISSUES
Overview
Many software products, custom-developed software, and products
embedded with microprocessor chips were designed to store, process or
perform calculations using only the last two digits of a four-digit year
date, for example, "98" rather than "1998". These software systems and
embedded products may assume the first two digits of the year date to be
"19" and as such they may not be able to process dates with years
following 1999. For example, "00" may be treated by certain software
systems as the year 1900 rather than the year 2000. Results of this
failure to process the date correctly could include miscalculations,
unpredictable or inconsistent results or complete system failures. As a
software vendor, the so-called "Year 2000 compliance" issue is an issue
that the Company must address with respect to its products as well as
software and systems provided by others that the Company uses
internally.
During the Year 2000 date transition, the Company did not
experience any failure of mission critical systems nor has it
experienced any significant problem with regard to third party
suppliers. Similarly, to management's knowledge, the Company's customers
have not experienced any significant Year 2000 problems with the
Company's software products and services. The Company does not
anticipate any material adverse effect to its business or its customers
in the future as a result of Year 2000 related problems with the
Company's products; however, it is possible that such problems might
still arise.
State of Readiness
The Company recognized the need to address the Year 2000
compliance issue and in 1997 established a Year 2000 compliance
committee to supervise and monitor the planning, performance and
assessment of the Company's Year 2000 compliance efforts. In the second
half of 1997, the Company began developing an inventory list of all its
proprietary software products, third party products it incorporates in
its products or resells, infrastructure and internal use products,
facilities and office service systems and hardware products upon which
it relies. The Company's Year 2000 committee appointed individual team
leaders from various functional areas to be responsible for the efforts
of assessing Year 2000 compliance for each of the inventory list items.
Proprietary Software Products and Custom Developed Software: In
May 1998, following a period of assessment and testing, the Company
issued its Year 2000 readiness statement which specifically identified
the current versions of each of the Company's proprietary products that
met the adopted standard. The Company believes that its current versions
of proprietary software products are Year 2000 compliant; however, no
assurance can be given that additional modifications for Year 2000
compliance will not be necessary. The Company's software products are
integrated with its customers' software and hardware systems and have,
in many cases, been uniquely customized to the customers'
specifications. The Company has generally not tested its products as
integrated in its customers' operating environments. The
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customers' systems with which the Company's products interoperate may
not be Year 2000 compliant which may affect the operation of the
Company's products.
Some of the Company's former customers and current customers
presently use earlier versions of the Company's software products and/or
associated custom code that are not Year 2000 compliant. The Company has
made efforts to communicate with these customers to advise them that
they will need to upgrade to a Year 2000 compliant version of the
Company's software product, revise custom code or implement other
alternatives to meet their business needs.
Third Party Products: Third party products integrated within the
Company's products are included in the test plans and compliance efforts
that the Company has for its own products. In addition, the Company has
obtained certification of Year 2000 compliance from most third party
vendors whose products are integrated in the Company's products or that
are resold by the Company.
Infrastructure and Third Party Products Used Internally: The
Company has obtained certification of Year 2000 compliance from each of
the vendors of its internal use information technology systems. The
Company has developed test plans for these internal use systems
following the same guidelines and standards that it has used for its own
products. The Company has developed test plans for all critical internal
use technology systems and the testing of these was completed in 1999.
Risks and Costs
Because of the nature of the Company's business, the Company may
be subject to Year 2000 claims or litigation by: its customers;
customers of divested businesses where the Company retained potential
product liabilities, including the CRM business; or other parties. Many
customers may have incurred significant costs in making their
information processing systems Year 2000 compliant and may seek to
transfer such costs through litigation to information processing
industry vendors such as the Company. Although the ultimate outcome of
any litigation is uncertain, the Company does not believe that the
ultimate amount of liability, if any, from such actions would have a
material adverse effect on the Company. To date, the Company has not
been subject to any such claims or litigation.
The Company did not specifically hire additional personnel or
make material purchases of products to address Year 2000 compliance
issues. The expenditures made to date have principally related to salary
costs of existing personnel assigned to participate at various levels in
the Company's compliance efforts and costs associated with upgrading
certain business systems. All costs related to achieving Year 2000
compliance are being expensed as incurred. The Company estimates that
the costs incurred to date related to Year 2000 compliance efforts range
between $.5 and $1.0 million.
As the Company did not, nor does it expect to, experience any
significant Year 2000 problems at or after the turn of the millennium,
the Company does not currently expect to incur any significant
additional costs related to its Year 2000 compliance efforts. All
incremental costs associated with the Year 2000 compliance issue will
continue to be expensed as incurred.
EURO CURRENCY
In January 1999, a new currency called the ECU or the "euro" was
introduced in certain Economic and Monetary Union (the "EMU") countries.
During 2002, all EMU countries are expected to be operating with the
euro as their single currency. As a result, in less than two years all
organizations headquartered or maintaining a subsidiary in an EMU
country are expected to need to be euro currency enabled and computer
software used by these organizations will need to be euro currency
enabled. The transition to the euro currency involves the handling of
parallel currencies and conversion of legacy data. Uncertainty exists as
to the effects the euro currency will have on the marketplace.
Additionally, all of the final rules and regulations have not yet been
defined and finalized by the European Commission with regard to the euro
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currency. The Company is monitoring the rules and regulations as they
become known in order to make any changes to the software that the
Company deems necessary to comply with such rules and regulations.
Although the Company currently offers certain software products that are
designed to be multi-currency enabled and the Company believes that it
will be able to accommodate any required euro currency changes in its
software products, there can be no assurance that once the final rules
and regulations are completed that the Company's software will contain
all of the necessary changes or meet all of the euro currency
requirements.
ITEM 2. PROPERTIES
The Company's business offices are located at 5100 West Goldleaf
Circle in Los Angeles, California. The Company's lease of those premises
(approximately 40,000 square feet) expires July 2008. The Company also
leases additional facilities, as needed, principally as sales offices in
other cities in North America and the United Kingdom. The Company
believes that its facilities are adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS
On December 22, 1999, a putative class action, Brooke Howie, et
al. vs. Elite Information Group, Inc., et al., Case No. BC222117, was
commenced in Los Angeles Superior Court against the Company, the
Company's directors, and Solution 6. The complaint, filed on behalf of
the plaintiff by the law firm of Milberg Weiss Bershad Hynes & Lerach
LLP, alleges that Elite's directors violated their fiduciary duties to
the Company's stockholders by entering into the merger agreement with
Solution 6, and seeks to enjoin the proposed merger. On February 3,
2000, the Los Angeles Superior Court denied the plaintiff's request for
a temporary order halting the proposed merger. The plaintiff
subsequently amended the complaint to add certain affiliates of Solution
6 as defendants, assert additional claims for breach of the duty of
candor and for alleged violations of various provisions of the Delaware
Corporations Code and to add a claim for unspecified damages. On March
15, 2000, the Company, joined by the other defendants, removed the
action to federal court in Los Angeles. The Company currently has
pending before the federal court a motion to dismiss the case. The
Company believes that the plaintiff's legal claims are without merit,
and intends to defend the action vigorously.
The Company is involved in litigation from time to time that is
routine in nature and incidental to the conduct of its business. The
Company believes that the outcome of any such litigation would not have
a material adverse effect on the financial condition or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's
stockholders during the fourth quarter of the fiscal year ended December
31, 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS'
MATTERS
MARKET FOR COMMON STOCK
There is hereby incorporated by reference the information
appearing under the caption "Market for Common Stock" in the Company's
Annual Report to Shareholders for the year ended December 31, 1999.
HOLDERS OF RECORD
As of February 29, 2000, there were approximately 101 holders of
record of the Company's Common Stock.
DIVIDENDS
The Company has never declared or paid any cash dividends on its
Common Stock. The Company currently intends to retain any earnings for
use in its business and therefore does not anticipate paying any cash
dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated by reference the information
appearing under the caption "Selected Financial Data" in the Company's
Annual Report to Shareholders for the year ended December 31, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
There is hereby incorporated by reference the information
appearing under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's Annual
Report to Shareholders for the year ended December 31, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
A portion of the Company's business is transacted in foreign
currencies and the Company may be exposed to financial market risk
resulting from fluctuations in foreign currency exchange rates. The
Company monitors the volatility of foreign currencies and may utilize
hedging programs or other derivative financial instruments commonly used
to reduce financial market risks if deemed appropriate.
The Company has limited exposure to market risk for changes in
interest rates related to the Company's cash and cash equivalents. The
Company maintains an investment policy designed to ensure the safety and
preservation of its cash and cash equivalents by limiting default risk,
market risk and reinvestment risk by investing in shorter-term high
quality financial instruments and depositing its excess cash and cash
equivalents in major financial institutions.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements:
There is hereby incorporated by reference the information
appearing in the consolidated financial statements, "Notes to
Consolidated Financial Statements" and "Results by Quarter and Capital
Stock Information" in the Company's Annual Report to Shareholders for
the year ended December 31, 1999.
Financial Statement Schedules:
Item 14 includes an index to the financial statement schedules.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth with respect to each director and
executive officer of the Company, his name and age, business experience,
including principal occupation, and all positions and offices with the
Company, term of service and, with respect to directors, directorships
in other publicly held companies, if any.
<TABLE>
<CAPTION>
DIRECTOR EXECUTIVE
NAME AND AGE PRINCIPAL OCCUPATION SINCE OFFICER SINCE
------------ -------------------- ----- -------------
<S> <C> <C> <C>
Arthur G. Epker III Vice President, PAR Capital Management, -- Inc.(1) 1999 n/a
Age 37
David A. Finley President, Investment Management Partners II, Inc.(2) 1990 n/a
Age 67 Director: Intelligroup, Inc. and Hungarian Telephone & Cable
Corp.
Roger Noall Consultant(3) 1996 n/a
Age 64 Director: Alleghany Corp. and The Victory Funds
Christopher K. Poole Chairman of the Board and Chief Executive Officer, 1999 1999
Age 42 Elite Information Group, Inc.(4)
Alan Rich Co-Founder and non-employee Chairman, Elite Information Systems, 1999 n/a
Age 44 Inc.(5)
William G. Seymour President, PRIMax Properties, LLC(6) 1981 n/a
Age 58 Director: First Trust Bank
Barry D. Emerson Vice President and Chief Financial Officer, Elite Information n/a 1999
Age 42 Group, Inc.(7)
</TABLE>
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(1) Mr. Epker has been a Vice President of PAR Capital, an investment
management firm, since July 1992.
(2) Mr. Finley served as Executive Vice President and Chief Financial
Officer of the Company from January 1996 to July 1997 and again served
as Executive Vice President on a temporary basis from mid-September 1997
to mid-November 1997. Prior to joining the Company, Mr. Finley worked as
a consultant and was a private investor and the President, since 1992,
of Investment Management Partners II, Inc., an investment management
firm. Since leaving the Company, Mr. Finley has resumed his work as a
consultant, private investor and President of Investment Management
Partners, Inc. From September 1986 until his retirement in August 1989,
Mr. Finley served as Treasurer of International Business Machines
Corporation.
(3) Mr. Noall was an Executive of KeyCorp since January 1, 1997 until
his retirement on February 29, 2000. Mr. Noall served as Senior
Executive Vice President and Chief Administrative Officer of KeyCorp
from March 1, 1994 to December 31, 1996 and served in the additional
positions of General Counsel and Secretary of KeyCorp from September 1,
1995 to June 14, 1996. Prior to March 1, 1994, Mr. Noall served as Vice
Chairman of the Board and Chief Administrative Officer of Society
Corporation (banking). Mr. Noall joined KeyCorp on that date upon the
merger of Society Corporation and KeyCorp.
(4) Mr. Poole has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since May 1999. Since May 1995, Mr.
Poole has served as Chief Operating Officer of Elite Information
Systems, Inc., the wholly owned operating subsidiary of the Company
("EIS"), and since January 1998 as the President of EIS. From November
1989 to May 1995, Mr. Poole was the Director of Technology and Executive
Director of Latham & Watkins, a law firm based in Los Angeles,
California.
(5) Mr. Rich is the co-founder of EIS and served as President of EIS
from January 1982 until his retirement in December 1997. Since that
time, Mr. Rich has continued to provide services as a consultant to EIS
and as a director and non-employee Chairman of EIS.
(6) Mr. Seymour has served as President of PRIMax Properties, LLC, a
real estate investment company, since his retirement from the Company in
January 1995. Mr. Seymour, a co-founder of the Company, has served as
Vice Chairman of the Board from June 1993 to May 1999 and from September
1985 to November 1989 and as Secretary of the Company from June 1993 to
May 1996. Mr. Seymour also served as Senior Vice President of the
Company from November 1989 to June 1993.
(7) Mr. Emerson has served as Vice President, Treasurer, Chief Financial
Officer of the Company since May 1999. Prior to joining the Company, Mr.
Emerson served as Vice President and Controller for Wyle Electronics, an
Irvine, California based electronics distributor, from 1983 to 1998.
The classes in which the directors serve are as follows:
<TABLE>
<CAPTION>
CLASS I CLASS II CLASS III
------------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
Christopher K. Poole David A. Finley Alan Rich
Roger Noall William G. Seymour Arthur G. Epker III
</TABLE>
The term of office of each of the Class I directors expires at
the 2000 annual meeting of stockholders; the term of office of each of
the Class II directors expires at the 2001 annual meeting of
stockholders; and the term of office of each of the Class III directors
expires at the 2002 annual meeting of
12
<PAGE> 13
stockholders or in each case until their respective successors shall be
duly elected and qualified to serve. There are no family relationships
among the executive officers or directors of the Company.
In December 1999, Solution 6 Holdings Limited ("Parent") and its
wholly owned subsidiary, EIG Acquisition Corp. ("Purchaser"), entered
into an Agreement and Plan of Merger with the Company (the "Merger
Agreement"), and commenced a tender offer (the "Offer") for all shares
of the Company's common stock, $.01 par value per share (the "Common
Stock"). The Merger Agreement contemplates that the Offer, if
consummated, will be followed by a second-step merger (the "Merger") of
Purchaser with and into the Company. The Merger Agreement provides that,
promptly upon the acceptance for payment of any shares of Common Stock
by the Purchaser pursuant to the Offer, the Purchaser shall be entitled
to designate such number of directors, rounded up to the next whole
director, on the Board of Directors of the Company as will give the
Purchaser representation on the Board of Directors equal to at least
that number of directors that equals the product of the total number of
directors on the Board multiplied by the percentage that the aggregate
number of shares of Common Stock accepted for payment pursuant to the
Offer bears to the number of shares of Common Stock then outstanding,
except that until the effective time of the Merger, the Board of
Directors shall include at least two directors (the "Independent
Directors") who served as directors of the Company on the date of the
Merger Agreement. The Merger Agreement provides that if one of the
Independent Directors ceases to serve as a director for any reason prior
to the effective time of the Merger, the Board of Directors shall
appoint as his replacement an individual designated by the remaining
Independent Director. The Company has agreed at such time to take any
and all action needed to cause the Purchaser's designees to be appointed
to the Board of Directors. Certain information concerning those persons
designated for appointment to the Company's Board of Directors upon
consummation of the Offer is set forth in Annex I to the Company's
Schedule 14D-9 filed with the Securities and Exchange Commission and
mailed to the Company's stockholders on or about December 21, 1999 (the
"Schedule 14D-9"). The information set forth in Annex I to the Schedule
14D-9 under "Board of Directors; Right to Designate Directors;
Purchaser's Designees; Board of Directors of the Company" is
incorporated herein by reference.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's directors and executive officers, and persons who own more
than ten percent of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Executive officers,
directors and greater than ten percent shareholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a)
forms they file. To the Company's knowledge, based solely on a review of
the copies of such reports furnished to the Company and written
representations that no other reports were required, during the year
ended December 31, 1999, all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than ten
percent beneficial owners were complied with, except that one initial
ownership report, and one report with respect to one transaction, were
filed late by Mr. Poole.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF OFFICERS
Messrs. Poole and Emerson are the only current executive
officers of the Company. The following table sets forth a summary, for
fiscal years ended December 31, 1999, December 31, 1998 and December 31,
1997, of the compensation of Messrs. Poole and Emerson, and former
executive officers Alan C. Stanford and Keith B. Hall, who ceased to be
employed by the Company in May 1999.
13
<PAGE> 14
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- ------------------------------------- ---- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Alan C. Stanford 1999 125,675 0 0 821,410(1)
Former Chairman and Chief 1998 300,000 100,000(2) 0 2,639(3)
Executive Officer 1997 300,000 100,000(2) 0 4,750(3)
Keith B. Hall(4) 1999 93,750 0 0 552,048(5)
Former Vice President and 1998 200,000 25,000 0 5,000(3)
Chief Financial Officer 1997 100,000 25,000 20,000 147,022(6)
Christopher K. Poole 1999 300,000 65,000 150,000 5,000(3)
Chairman and 1998 270,000 50,000 0 5,000(3)
Chief Executive Officer 1997 240,000 77,500 0 4,750(3)
Barry D. Emerson(7) 1999 93,333 0 25,000 2,100(3)
Vice President, Treasurer and
Chief Financial Officer
</TABLE>
----------------
(1) Represents matching contributions made by the Company under the
Company's 401(k) retirement plan ($1,795), payments by the Company
for unused vacation ($19,615) and a severance payment made upon
termination of employment ($800,000).
(2) A portion of Mr. Stanford's 1997 and 1998 bonus was in lieu of
reimbursement of certain travel expenses incurred by Mr. Stanford.
(3) Represents matching contributions made by the Company under the
Company's 401(k) retirement plan.
(4) Mr. Hall's employment with the Company commenced July 1, 1997.
(5) Represents matching contributions made by the Company under the
Company's 401(k) retirement plan ($3,875), payments by the Company
for unused vacation ($16,875), a severance payment made upon
termination of employment ($500,000) and post-employment consulting
fees and expense reimbursement ($31,298).
(6) Includes $80,000, adjusted for potential tax liability to $144,772,
paid to Mr. Hall for relocation expenses, and matching contributions
made by the Company under the Company's 401(k) retirement plan.
(7) Mr. Emerson's employment with the Company commenced in May 1999.
14
<PAGE> 15
The following table sets forth certain information concerning
grants of stock options during the year ended December 31, 1999 to the
executive officers named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED PRICE APPRECIATION FOR
OPTIONS TO EMPLOYEES EXERCISE OR OPTION TERM
GRANTED IN BASE PRICE EXPIRATION -------------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- -------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Alan C. Stanford -- -- -- --
Keith B. Hall -- -- -- --
Christopher K. Poole 50,000(1) 100% $ 2.34 1/19/09 $ 73,500 $186,500
100,000(2) 100% $ 5.50 5/26/09 $346,000 $877,000
Barry D. Emerson 25,000(2) 100% $ 5.50 5/26/09 $ 86,500 $219,250
</TABLE>
----------------
(1) The options were 100% vested as of January 19, 2000.
(2) These options are currently 100% unvested, and will vest over 3
years in annual installments of 33.33% beginning on May 26, 2000.
The following table sets forth certain information with regard
to stock options held at December 31, 1999 by each of the executive
officers named in the Summary Compensation Table. No options were
exercised by any of the executive officers named in the Summary
Compensation Table in the year ended December 31, 1999.
15
<PAGE> 16
FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF SECURITIES UNDERLYING
NUMBER OF SECURITIES UNDERLYING UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT FY-END(#) OPTIONS AT FY-END($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- ------------------------- ----------------------------
<S> <C> <C>
Alan C. Stanford 0/0(2) 0/0
Keith B. Hall 0/0 0/0
Christopher K. Poole 57,668/133,332 208,750/727,750
Barry D. Emerson 0/25,000 0/129,750
</TABLE>
-----------------
(1) The fair market value used for computations in this column was
$10.69, which was the closing market price of the Company's
Common Stock on December 31, 1999.
(2) On January 15, 1999, Mr. Stanford voluntarily forfeited all
400,000 of his stock options.
COMPENSATION OF DIRECTORS
Upon adoption of the 1996 Stock Option Plan on June 25, 1996,
each director who was not also an officer or employee of the Company on
that date (i.e., Mr. Seymour) was granted options to purchase 5,000
shares of Common Stock at the fair market value of the shares on that
date. In addition, under the 1996 Stock Option Plan, any individual who
is not an employee or officer of the Company and who is first elected to
the Board after June 25, 1996 (i.e., Messrs. Epker, Noall, Rich) shall
receive upon the date of such election an option to purchase 5,000
shares of Common Stock at an exercise price per share equal to the fair
market value of a share of Common Stock on such date. The 1996 Stock
Option Plan further provides for awards of options to purchase 5,000
shares of Common Stock on each January 5 after the adoption of the 1996
Stock Option Plan if the average daily value of a share of Common Stock
for the immediately preceding month of December is ten percent greater
than the average daily value of a share for the month of December of the
immediately prior year. In the event that the total exercise price of
such options for 5,000 shares exceeds $100,000, the number of shares
purchasable under such option are to be reduced so that the total
exercise price of the options granted equals $100,000, and in the event
that the number of shares authorized under the 1996 Stock Option Plan
are not sufficient to make an award to outside directors, options for
the remaining authorized shares shall be awarded pro rata to the outside
directors then entitled to receive such options. Notwithstanding the
fact that awards would have been payable based on the increase in the
average daily value of the Company's Common Stock for December 1999 over
December 1998, the Company has agreed in the Merger Agreement not to
grant any additional options without Parent's written consent, and to
date, no options have been awarded pursuant to such formula grant. Such
grants will be made for 1999 in the event that the Merger Agreement is
terminated. All such options awarded to non-employee directors under the
1996 Stock Option Plan become exercisable over a period of four years,
with 20% of the total award being exercisable on the date of grant and
an additional 20% becoming exercisable on each of the next four
anniversaries. Pursuant to the 1996 Stock Option Plan, all options
awarded under the plan, including the options granted to non-employee
directors, will vest upon a change of control of the Company as defined
in the plan.
16
<PAGE> 17
The Company pays its non-employee directors a fee of $2,500 for
each directors' meeting attended and pays an additional $500 fee to each
member of the Audit Committee and Compensation Committee for each
committee meeting attended. Additional committees are established from
time to time and in 1999 members of such committees were paid a total of
approximately $8,100 in fees and expenses. No fee is paid for telephonic
meetings. Directors are reimbursed for travel and lodging expenses in
connection with meetings of the Board of Directors.
EMPLOYMENT, SEVERANCE AND CONSULTING AGREEMENTS
Christopher K. Poole. On June 1, 1999, the Company entered into
an employment agreement with Christopher K. Poole with respect to his
service as the Chief Executive Officer of the Company. The employment
agreement has an initial term of one year and renews automatically for
successive one-year terms. The Company may terminate Mr. Poole's
employment under the agreement at any time. If the Company terminates
Mr. Poole's employment other than for "cause" (as defined in the
agreement) or as the result of his permanent disability, the Company is
obligated to pay to him (following receipt of a general release from Mr.
Poole) a lump-sum amount equal to twice his then-current annual salary
(less applicable tax withholding). If such termination occurs as a
result of a change in control of the Company or within two years after a
change in control, the Company is also obligated to pay to Mr. Poole the
larger of the proportionate amount of any incentive bonus that would
otherwise be payable to Mr. Poole for the year in which his employment
is terminated (based on the number of days elapsed in the year) or the
amount of his incentive bonus paid for the prior year. Consummation of
the Offer pursuant to the Merger Agreement would constitute a change in
control under the employment agreement.
If the Company terminates Mr. Poole's employment as the result
of his permanent disability, the Company is obligated to pay to him
(following receipt of a general release from Mr. Poole) a lump-sum
amount equal to his then-current annual salary (less applicable tax
withholding) plus the proportionate amount of any incentive bonus that
would otherwise be payable to Mr. Poole for the year in which his
employment is terminated (based on the number of days elapsed in the
year). In addition, the Company would be obligated to pay for continued
health insurance coverage for Mr. Poole and his dependents for 18 months
following a termination of his employment for disability.
The agreement provides that if Mr. Poole resigns due to a
failure of the Company to comply with a material term of the agreement
that is not cured within 30 days after written notice of the failure is
given to the Company, the Company is obligated to pay to him (following
receipt of a general release from Mr. Poole) a lump-sum amount equal to
twice his then-current annual salary (less applicable tax withholding).
In addition, if Mr. Poole resigns following a change in control of the
Company accompanied by a termination of his authority equivalent to that
of the senior executive of the Company, the Company is obligated to pay
to him (following receipt of a general release from Mr. Poole) a
lump-sum amount equal to twice his then-current annual salary (less
applicable tax withholding) plus the larger of the proportionate amount
of any incentive bonus that would otherwise be payable to him for the
year in which his employment is terminated (based on the number of days
elapsed in the year) or the amount of his incentive bonus paid for the
prior year. Mr. Poole shall be considered to be the senior executive of
the Company if the Company is acquired and becomes part of another
entity if Mr. Poole remains the senior executive of the division,
subsidiary or entity carrying on the business conducted by the Company
prior to the acquisition. In addition, if Mr. Poole resigns for any
reason after the first anniversary of a change in control but before the
second anniversary of a change in control, the Company is obligated to
pay to him (following receipt of a general release from Mr. Poole) a
lump-sum amount equal to one and one-half times his then-current annual
salary (less applicable tax withholding).
The agreement provides that Mr. Poole's annual salary will be
$300,000, which may be increased with the approval of the Compensation
Committee of the Company's Board of Directors. In addition, Mr. Poole is
to be eligible to participate in incentive bonuses and other
compensation plans approved by the Board of Directors or the
Compensation Committee. Mr. Poole is also eligible to participate in
other
17
<PAGE> 18
benefit plans made available to employees and to receive perquisites as
agreed upon from time to time. Mr. Poole is also entitled to four weeks
paid vacation. If he elects to purchase long-term care or personal
disability insurance coverage, the Company shall pay one half of the
premiums, up to $2,500 per year, and the Company will continue to pay
such amount following termination of Mr. Poole's employment due to
permanent disability so long as he continues COBRA insurance coverage.
The agreement contains a covenant restricting Mr. Poole from
engaging in certain activities in competition with the Company for a
period of one year following the termination of his employment for any
reason. The covenant applies to competitive activities in the United
States, Canada and the United Kingdom. In addition, Mr. Poole agreed not
to disclose confidential and proprietary information of the Company
without the Company's consent and to return copies of any such
information in his possession upon the termination of his employment.
Barry D. Emerson. On May 10, 1999, the Company entered into a
severance agreement with Barry D. Emerson in connection with Mr. Emerson
accepting employment as the Company's Chief Financial Officer. Pursuant
to the agreement, Mr. Emerson is employed "at will" by the Company and
may be terminated at any time for any reason. If the Company terminates
Mr. Emerson's employment other than for "cause" (as defined in the
agreement), the Company is obligated to pay to him (following receipt of
a general release from Mr. Emerson) a lump-sum amount equal to his
then-current annual salary (currently $140,000), (less applicable tax
withholding). In addition, the Company would be obligated to pay for
continued health insurance coverage for Mr. Emerson for 12 months
following a termination of his employment.
Alan C. Stanford. Mr. Stanford's employment as Chief Executive
Officer of the Company was terminated in May 1999. Prior to that time,
Mr. Stanford was employed pursuant to an amended and restated employment
agreement dated January 15, 1999. Under the terms of the employment
agreement, upon Mr. Stanford's resignation for "good reason" (as
defined), which resignation occurred in connection with the sale of the
Company's CRM business in May 1999, Mr. Stanford became entitled to a
severance payment equal to two times his most recent annual base salary
and bonus. Pursuant to this provision, Mr. Stanford received a lump sum
severance payment of $800,000, plus reimbursement of $19,615 for unused
vacation time. The employment agreement requires Mr. Stanford to refrain
from certain activities in competition with the Company for a period of
two years following the termination of his employment.
Keith B. Hall. Mr. Hall's employment as Chief Financial Officer
of the Company was terminated in May 1999. Prior to that time, Mr. Hall
was employed pursuant to an employment agreement dated May 29, 1997, as
supplemented by a letter agreement dated February 18, 1999. Under the
terms of the letter agreement, upon the sale of the CRM business in May
1999, Mr. Hall exercised an option to resign his employment in exchange
for a severance payment equal to two times his most recent annual base
salary and bonus. Pursuant to this provision, Mr. Hall received a lump
sum severance payment of $500,000, plus reimbursement of $16,875 for
unused vacation time. Mr. Hall's employment agreement requires him to
refrain from certain activities in competition with the Company for a
period of two years following the termination of his employment.
Following the termination of his employment in May 1999, Mr. Hall
performed certain consulting services for the Company for which he was
paid a total of $31,298 in fees and expense reimbursement.
Alan Rich. Since his retirement as President of EIS on December
31, 1997, Mr. Rich has provided EIS with consulting services as an
independent contractor pursuant to a Retirement and Post-Employment
Agreement dated May 20, 1997 between Mr. Rich and EIS. Pursuant to this
agreement, Mr. Rich is obligated to provide such consulting services as
requested by EIS from time to time through December 31, 2000, unless Mr.
Rich terminates the agreement upon 30 days written notice. EIS pays Mr.
Rich an annual fee of $100,000 in consideration of such services. In
addition, the agreement contains covenants restricting Mr. Rich from
engaging in certain activities in competition with EIS from the date of
the agreement until December 31, 2000. In exchange for these covenants
not to compete, EIS is obligated to pay Mr. Rich a total of $300,000,
payable in 6 equal installments bi-annually. Under the agreement, Mr.
Rich also has
18
<PAGE> 19
agreed not to disclose confidential and proprietary information of EIS.
Pursuant to the agreement, EIS paid Mr. Rich a total of $200,000 in
1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
HOLDERS OF MORE THAN FIVE PERCENT BENEFICIAL OWNERSHIP
The following table sets forth the names and addresses of, and
the number and percentage of shares beneficially owned by, the persons
known to the Company to beneficially own five percent or more of the
Company's outstanding Common Stock as of March 15, 2000:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(1)
------------------- -------------------- -----------
<S> <C> <C>
Solution 6 Holdings Limited 7,349,248(2) 78.1%
EIG Acquisition Corp.
Town Hall House, Level 21
456 Kent Street
Sydney, New South Wales
Australia 2000
PAR Investment Partners, L.P. 1,220,300(3) 13.0%
One Financial Center
Suite 1600
Boston, Massachusetts 02111
Dimensional Fund Advisors Inc. 729,100(4) 7.8%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Tudor Investment Corporation, et al. 578,150(5) 6.1%
600 Steamboat Road
Greenwich, Connecticut 06830
</TABLE>
---------------------
(1) Based on the shares of Common Stock outstanding as of March 15,
2000.
(2) Based upon a Schedule 14D-1/A of Purchaser and Parent dated
March 24, 2000. This amount includes (i) approximately 5,200,460
shares that, as of March 23, 2000, had been tendered and not
withdrawn pursuant to the Offer, (ii) 2,001,588 shares
(including 317,666 option shares) that Purchaser can cause to be
tendered pursuant to certain Stockholder Agreements entered in
connection with the Merger Agreement and (iii) 147,200 shares
beneficially owned by Parent. The 7,349,248 shares reported as
being beneficially owned by Solution 6 Holdings Limited may
include certain shares listed in the table above as beneficially
owned by other parties to the extent that such shares have been
tendered, or could be required to be tendered, in the Offer and
not withdrawn.
19
<PAGE> 20
(3) Based upon a Schedule 13D of PAR Capital Management, Inc. ("PAR
Capital"), PAR Group, L.P. ("PAR Group") and PAR Investment Partners,
L.P. ("PIP"), dated July 6, 1998. Arthur G. Epker III, a director of the
Company, is a Vice President of PAR Capital and may be deemed to be a
controlling stockholder of PAR Capital. PAR Capital is a Delaware S
Corporation and the sole general partner of PAR Group. The principal
business of PAR Capital is to act as the general partner of PAR Group.
PAR Group is a Delaware limited partnership and the sole general partner
of PIP. The principal business of PAR Group is that of a private
investment partnership engaging in the purchase and sale of securities
for its own account. PIP is a Delaware limited partnership and its
principal business is that of a private investment partnership engaging
in the purchase and sale of securities for its own account. Mr. Epker
disclaims beneficial ownership of such shares. In addition, Mr. Epker's
wife owns 10,000 shares of the Company's Common Stock through an
Individual Retirement Account. Mr. Epker also disclaims beneficial
ownership of such shares.
(4) Based upon a Schedule 13G or amendment thereto of Dimensional Fund
Advisors Inc. dated February 4, 2000 filed by Dimensional Fund Advisors
Inc. on behalf of certain clients for which it is the investment
manager.
(5) Based upon Amendment No. 2 to Schedule 13G of Tudor Investment
Corporation, Paul Tudor Jones II, Tudor BVI Futures, Ltd., Tudor
Proprietary Trading, L.L.C., The Altar Rock Fund L.P., The Raptor Global
Portfolio Ltd., The Raptor Global Fund L.P., The Raptor Global Fund Ltd.
and The Upper Mill Capital Appreciation Fund Ltd. dated February 11,
2000. These parties report shared voting and dispositive power over
various numbers of shares up to 578,150. Tudor Investment Corporation
disclaims beneficial ownership of certain shares it may be deemed to own
by virtue of its position as general partner of, or investment advisor
to, certain entities listed above. Mr. Jones disclaims beneficial
ownership of certain shares he may be deemed to beneficially own by
virtue of his position as controlling shareholder or equity holder of
certain entities listed above.
BENEFICIAL OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth as of March 15, 2000 the
beneficial ownership of Common Stock by each director and executive
officer named in the Summary Compensation Table below, and by all
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (2)
-----------------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT
- --------------------------- -------- ----------
<S> <C> <C>
Arthur G. Epker III 1,221,300(3) 13.0%
David A. Finley 80,334 *
Roger Noall 24,000 *
Christopher K. Poole 90,171 *
Alan Rich 40,168 *
William G. Seymour 436,622 4.7%
Barry D. Emerson 0 *
All directors and executive officers as a group
(7 in number) 1,892,595 21.7%
</TABLE>
----------------
* Less than one percent.
(1) In connection with the Merger Agreement, each person named in the
table below has entered into a Stockholders Agreement with Parent
whereby they have granted Purchaser certain purchase rights, options
20
<PAGE> 21
and voting proxies with respect to all such shares beneficially owned by
such persons. See footnote (1) to the table above under "Security
Ownership of Certain Beneficial Owners and Management; Holders of More
than Five Percent Beneficial Ownership."
(2) Included in the calculation of the number of shares of Common Stock
owned beneficially are the following shares subject to options
exercisable on March 15, 2000 or within 60 days thereafter by the
directors and executive officers indicated and by all the directors and
executive officers as a group: Mr. Epker - 1,000 shares; Mr. Finley -
80,000 shares; Mr. Rich - 22,667 shares; Mr. Noall - 4,000 shares; Mr.
Poole - 82,668; Mr. Seymour - 4,000 shares; and members of the group
(including the foregoing) - 194,335 shares.
(3) Mr. Epker is a Vice President of PAR Capital Management, Inc. ("PAR
Capital") and may be deemed to be a controlling stockholder of PAR
Capital. Accordingly, Mr. Epker may be deemed to beneficially own shares
of Common Stock owned by Par Capital, PAR Group, L.P. ("PAR Group") and
PAR Investment Partners, L.P. ("PIP"). See footnote (3) to the table
under "Security Ownership of Certain Beneficial Owners and Management;
Holders of More than Five Percent Beneficial Ownership." PAR Capital is
a Delaware S Corporation and the sole general partner of PAR Group. The
principal business of PAR Capital is to act as the general partner of
PAR Group. PAR Group is a Delaware limited partnership and the sole
general partner of PIP. The principal business of PAR Group is that of a
private investment partnership engaging in the purchase and sale of
securities for its own account. PIP is a Delaware limited partnership
and its principal business is that of a private investment partnership
engaging in the purchase and sale of securities for its own account. Mr.
Epker disclaims beneficial ownership of such shares. In addition, Mr.
Epker's wife owns 10,000 shares of the Company's Common Stock through an
Individual Retirement Account. Mr. Epker also disclaims beneficial
ownership of such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under Part III, Item 11 under the caption
"Executive Compensation--Employment, Severance and Consulting
Agreements" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a)(1) Financial Statements.
The following consolidated financial statements and financial
information are included in the Company's Annual Report to Shareholders
for the year ended December 3l, 1999 and are hereby incorporated by
reference:
Consolidated Statement of Operations
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Stockholders' Equity
Notes to Consolidated Financial Statements
Report of Independent Accountants
(a)(2) Financial Statement Schedules.
The following schedules are filed as a part of this report:
21
<PAGE> 22
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule II - Valuation and Qualifying Accounts and Reserves 27
Report of Independent Accountants on the Financial Statement Schedule 28
</TABLE>
All other schedules for which provision is made in the
applicable regulation of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable, or the
required information is included elsewhere in the financial statements.
22
<PAGE> 23
(a)(3) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation of Elite Information Group, Inc.
(formerly Broadway & Seymour, Inc.), dated June 16, 1992 (Incorporated
by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form
10-Q for the Quarter Ended June 30, 1999)
3.2 Restated By-laws of Elite Information Group, Inc. (formerly Broadway &
Seymour, Inc.), (Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, SEC File No. 33-46672)
3.3 Certificate of Designations (Incorporated by reference to Exhibit 3.2 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter Ended
March 31, 1999)
3.4 Certificate of Amendment of Certificate of Incorporation of Elite
Information Group, Inc. (formerly Broadway & Seymour, Inc.), dated May
27, 1999 (Incorporated by reference to Exhibit 99.3 to the Registrant's
Current Report on Form 8-K, filed June 3, 1999)
4.1 Restated Specimen share certificate (Incorporated by reference to
Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 1999)
4.2 Articles 4 and 5 of Elite Information Group, Inc. (formerly Broadway &
Seymour, Inc.), Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 4.2 to the Registrant's Registration Statement on
Form S-1, SEC File No. 33-46672)
4.3 Article II, Section 2.2 of Elite Information Group, Inc. (formerly
Broadway & Seymour, Inc.), Restated By-laws (Incorporated by reference
to Exhibit 4.3 to the Registrant's Registration Statement on Form S-1,
SEC File No. 33-46672)
4.4 Rights Agreement, dated April 14, 1999, between Elite Information Group,
Inc. (formerly Broadway & Seymour, Inc.), and EquiServe Trust Company,
N.A. as Rights Agent, including the form of Certificate of Designations
with respect to the Series A Junior Participating Preferred Stock,
included as Exhibit A to the Rights Agreement, the forms of Rights
Certificate and of Election to Exercise, included as Exhibit B to the
Rights Agreement, and the form of Summary of Rights to Purchase Share of
Series A Junior Participating Preferred Stock included as Exhibit C to
the Rights Agreement. (Incorporated by reference to Exhibit 4 to the
Company's Registration Statement on Form 8-A dated April 15, 1999)
4.5 First Amendment to Rights Agreement, dated April 14, 1999 between Elite
Information Group, Inc. (formerly Broadway & Seymour, Inc.), and
EquiServe Trust Company, N.A. as Rights Agent (Incorporated by reference
to Exhibit 8 to the Registrant's Solicitation/Recommendation Statement
on Schedule 14D-9 filed December 21, 1999)
10.01+ Restated 1985 Incentive Stock Option Plan dated June 12, 1985
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Registration Statement on Form S-1, SEC File No. 33-46672)
10.02+ Amendment No. 1 to Restated 1985 Incentive Stock Option Plan of Elite
Information Group, Inc. (formerly Broadway & Seymour, Inc.), dated
February 25, 1993 (Incorporated by reference to Exhibit 10.2 to the
Registrant's Annual Report on Form 10-K for the Fiscal Year Ended
January 31, 1993)
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C>
10.03+ Amendment No. 2 to Restated 1985 Incentive Stock Option Plan of
Elite Information Group, Inc. (formerly Broadway & Seymour, Inc.),
dated February 17, 1994 (Incorporated by reference to Exhibit
10.16 to the Registrant's Transition Report on Form 10-K for the
Eleven Months Ended December 31, 1993)
10.04+ Amendment No. 3 to Restated 1985 Incentive Stock Option Plan of
Elite Information Group, Inc. (formerly Broadway & Seymour, Inc.),
dated May 15, 1995 (Incorporated by reference to Exhibit 10.4 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1995)
10.05+ Elite Information Group, Inc. (formerly Broadway & Seymour, Inc.)
1996 Stock Option Plan dated September 16, 1996 (Incorporated by
reference to Appendix B to the Registrant's Definitive Proxy
Statement on Form DEFS14A dated August 14, 1996)
10.06 Asset Purchase Agreement between Unisys Corporation and Elite
Information Group, Inc. (formerly Broadway & Seymour, Inc.) dated
as of July 24, 1997. (Incorporated by reference to Exhibit 10.35
to the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1997)
10.07 Amendment to Asset Purchase Agreement between Unisys Corporation
and Elite Information Group, Inc. (formerly Broadway & Seymour,
Inc.) dated September 17, 1997. (Incorporated by reference to
Exhibit 10.36 to the Registrant's Quarterly Report on Form 10-Q
for the Quarter Ended September 30, 1997)
10.08+ Employment Agreement, dated as of May 29, 1997 (executed June 1,
1997), by and between Elite Information Group, Inc. (formerly
Broadway & Seymour, Inc.) and Keith B. Hall (Incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997)
10.09+ Amendment No. 1 to Employment Agreement for Keith B. Hall dated
February 19, 1998 (Incorporated by reference to Exhibit 10.35 to
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998)
10.10+ Letter Agreement dated February 18, 1999 between Elite Information
Group, Inc. (formerly Broadway & Seymour, Inc.) and Keith B. Hall
(Incorporated by reference to Exhibit 10.27 to the Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended March 31,
1999)
10.11+ Employment Agreement dated as of September 1, 1995 by and between
Elite Information Group, Inc. (formerly Broadway & Seymour, Inc.)
and Alan C. Stanford (Incorporated by reference to Exhibit 10.28
to the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended September 30, 1995)
10.12+ Amendment No. 1 to Employment Agreement for Alan C. Stanford dated
February 19, 1998 (Incorporated by reference to Exhibit 10.37 to
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998)
10.13+ Amended and Restated Employment Agreement dated as of January 15,
1999 by and between Elite Information Group, Inc. (formerly
Broadway & Seymour, Inc.) and Alan C. Stanford (Incorporated by
reference to Exhibit 10.28 to the Registrant's Quarterly Report on
Form 10-Q for the Quarter Ended March 31, 1999)
10.14 Stock Purchase Agreement among TMC Holding Corporation and Elite
Information Group, Inc. (formerly Broadway & Seymour, Inc.) dated
March 5, 1999. (Incorporated by reference to Exhibit 10.31 to the
Registrant's Annual Report on form 10-K for the year ended
December 31, 1998)
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C>
10.15 Asset Purchase Agreement by and between Elite Information Group,
Inc. (formerly Broadway & Seymour, Inc.) and Science Applications
International Corporation dated April 14, 1999. (Incorporated by
reference to Exhibit 2.1 to the Registrant's Current Report on
Form 8-K, filed June 3, 1999)
10.16+ Severance Agreement by and between Elite Information Group, Inc.
(formerly Broadway & Seymour, Inc.) and Barry D. Emerson, dated
May 10, 1999 (Incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the Quarter Ended
June 30, 1999)
10.17+ Employment Agreement by and between Elite Information Group, Inc.
(formerly Broadway & Seymour, Inc.) and Christopher K. Poole,
dated June 1, 1999 (Incorporated by reference to Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 1999)
10.18 Agreement and Plan of Merger dated December 14, 1999 among
Solution 6 Holdings Limited, EIG Acquisition Corp. and Elite
Information Group, Inc. (Incorporated by reference to Exhibit 1 to
the Registrant's Solicitation/Recommendation Statement on Schedule
14D-9 filed December 21, 1999)
10.19 Stockholders Agreement dated as of December 14, 1999 among
Solution 6 Holdings Limited, EIG Acquisition Corp., Elite
Information Group Inc., Christopher K. Poole, Barry D. Emerson,
Roger Noall, William G. Seymour, Arthur G. Epker III, Alan Rich
and David A. Finley (Incorporated by reference to Exhibit 2 to the
Registrant's Solicitation/Recommendation Statement on Schedule
14D-9 filed December 21, 1999)
10.20*+ Retirement and Post-Employment Agreement dated as of May 20, 1997
between Alan Rich and Elite Information Systems, Inc.
10.21*+ Elite.com, Inc. 1999 Stock Option Plan dated August 27, 1999
11* Computation of earnings per share
13* Portions of the Elite Information Group, Inc. 1999 Annual Report
21* Subsidiaries of Registrant
23* Consent of Independent Accountants dated March 27, 2000.
27* Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not
filed.
</TABLE>
* Filed herewith.
+ Management contract or compensatory plan or arrangements required to be
filed as an exhibit.
(b) Reports on Form 8-K:
None.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ELITE INFORMATION GROUP, INC.
Date: March 22, 2000 By: /s/ Barry D. Emerson
--------------------------------------
Barry D. Emerson
Vice President, Treasurer,
Chief Financial Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, this report has been signed by the following
persons on behalf of the Registrant and in the capacities set forth
below and on the 22nd day of March 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Christopher K. Poole
- ----------------------------
Christopher K. Poole Chairman, Chief Executive Officer
and Director
/s/ Arthur G. Epker III
- ----------------------------
Arthur G. Epker III Director
/s/ David A. Finley
- ----------------------------
David A. Finley Director
/s/ Roger Noall
- ----------------------------
Roger Noall Director
/s/ Alan Rich
- ----------------------------
Alan Rich Director
/s/ William G. Seymour
- ----------------------------
William G. Seymour Director
</TABLE>
26
<PAGE> 27
ITEM 14a(2) SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES:
Elite Information Group, Inc.
Schedule II - Valuation and Qualifying
Accounts and Reserves For the Years
ended December 31, 1999, 1998 and 1997
($ in thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance at
beginning charged to end
of period expense Deductions Other of period
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
December 31, 1999 $ 1,638 $ 1,751 $(1,026) $ (336)(1) $ 2,027
December 31, 1998 922 1,400 (684) 1,638
December 31, 1997 892 1,046 (1,016) 922
</TABLE>
(1) Relates to reserve balance of the CRM business, sold on May 19,
1999.
27
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Elite Information Group, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 14, 2000, appearing in the 1999 Annual Report to Shareholders of
Elite Information Group, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Los Angeles, California
February 14, 2000
28
<PAGE> 1
Exhibit 10.20
RETIREMENT AND POST-EMPLOYMENT AGREEMENT
THIS RETIREMENT AND POST-EMPLOYMENT AGREEMENT (the "Agreement") is made as
of the close of business on the 20th day of May, 1997 (the "Effective Date"),
by and between ALAN RICH, a citizen and resident of California ("Rich"), ELITE
INFORMATION SYSTEMS, INC., a California corporation having its principal of
business in Los Angeles, California ("Elite"), a wholly owned subsidiary of
Broadway & Seymour, Inc., a Delaware corporation ("BSI") with its principal
place of business in Charlotte, North Carolina. The parties hereto acknowledge
as follows:
WITNESSETH:
WHEREAS, Rich has been employed by Elite as its President; and
WHEREAS, Rich intends to retire from employment as of December 31, 1997
(the "Retirement Date"); and
WHEREAS, Elite wishes to retain Rich's services as a consultant commencing
on the Retirement Date; and
WHEREAS, the parties have voluntarily entered into this Agreement for the
purpose of memorializing the parties' agreement concerning Rich's continued
employment in 1997, effecting the termination of Rich's employment, providing
certain specified benefits for Rich, memorializing the parties' agreement
concerning Rich's post-employment consulting relationship with Elite and
finally, fully and completely resolving amicably any and all matters actually
or potentially in controversy between them.
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter made by Rich and Elite, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby expressly
acknowledged by the parties hereto, the parties agree as follows:
ARTICLE I
EMPLOYMENT OBLIGATIONS
Section 1.1 Employment through December 31, 1997. Elite shall continue to
employ Rich as its President through the Retirement Date, and
Rich hereby accepts such employment, upon the terms and
conditions hereinafter set forth. Until the Retirement Date, Rich
shall render services as Elite's President and shall perform such
specific duties in that capacity as Elite's Board of Directors
shall direct. Until the Retirement Date, Rich shall serve Elite
on a full-time basis, devoting his entire time, attention and
energies to the business of Elite during normal business hours.
Section 1.2 Payment through December 31, 1997. Elite shall pay Rich an annual
salary of $275,000, payable in semi-monthly installments, less
required state and federal tax withholding deductions,
retroactively to January 1, 1997 through the Retirement Date.
<PAGE> 2
Section 1.3 1997 Bonuses. With respect to Rich's employment hereunder
through the Retirement Date, Rich shall be entitled to receive a
bonus of up to $50,000, payable quarterly by Elite, which shall
be determined based on quarterly financial objectives mutually
agreed upon in advance by Rich and Elite's Board of Directors.
Rich shall also be entitled to receive a bonus of up to $50,000,
payable quarterly by Elite, which shall be determined based on
quarterly general management objectives mutually agreed upon in
advance by Rich and Elite's Board of Directors. Rich shall be
entitled to an additional 1997 year-end bonus of 10% of Elite's
1997 net earnings in excess of the 1997 net earnings target of
$2,102,000, up to a maximum of $100,000, payable on or prior to
March 31, 1998 by Elite. For purposes of this Section 1.3,
Elite's 1997 net earnings shall mean earnings of Elite
(including its subsidiary, Elite International, Inc., and The
Minicomputer Company of Maryland, Inc.) before income taxes and
after software capitalization and amortization of acquisition
purchase price, for the year ending December 31, 1997,
calculated in accordance with Elite's current accounting
practices and on the same basis as Elite's 1997 net earnings
target. In addition, Rich shall be entitled to a 1997 "stay"
bonus of $250,000 for the full 1997 year payable on or prior to
January 31, 1998 contingent upon Rich remaining as an employee
of Elite and otherwise complying with this Agreement through and
including the Retirement Date.
Section 1.4 Standard Benefits. Until the Retirement Date, Elite shall
provide Rich with the standard benefits provided to Elite
employees generally as a group.
ARTICLE II
CONSULTING OBLIGATIONS
Section 2.1 Consulting Services. For a period of three years commencing on
the Retirement Date unless earlier terminated as provided below
(the "Consulting Period"), Rich shall provide such consulting
services to Elite as Elite shall request from time to time in an
amount not to exceed 12 weeks per year at such place and time as
mutually agreed. At any time after December 31, 1998, upon 30
days prior written notice, Rich may terminate his consultancy
hereunder. In such event, Elite shall have no further obligation
to pay the consulting fees set forth in Section 2.2 below and
Rich shall return to Elite any fees paid in advance for service
not yet rendered. During the Consulting Period, Rich shall serve
as an officer of Elite in the capacity of Chairman of the Board
and shall perform such duties in such capacity as the Board of
Directors of Elite shall from time to time determine. During the
Consulting Period, Rich shall also serve as a director of Elite.
During the Consulting Period, Rich may engage in any other
employment that is not otherwise prohibited by Section 4.4 below.
Section 2.2 Consulting Fee. During the Consulting Period, Elite will pay
Rich an annual fee of $100,000, payable bi-annually in advance.
Such payments are in addition to the non-compete payments to be
made pursuant to Section 5.5 below. Elite shall reimburse Rich
for reasonable travel and lodging expenses relating to providing
consulting services outside of Elite's premises which are
approved in advance by Elite. Rich's right of reimbursement is
contingent upon the submission of detailed expense reports with
appropriate receipts for travel expenses and compliance with
Elite's guidelines regarding appropriate expenditure levels.
2
<PAGE> 3
Section 2.3 Relationship of Parties. While Rich shall serve as an officer
and director of Elite during the Consulting Period and Elite has
the right to specify the objectives of Rich's services during
the Consulting Period, Rich shall be performing such services as
an independent contractor and not as an agent or employee of
Elite. Rich shall not be entitled to any benefits during the
Consulting Period and shall not be covered by Elite's worker's
compensation insurance. This Agreement involves a personal
relationship between Elite and Rich, and Rich may not assign or
delegate all or any part of the obligations hereunder without
written approval of Elite.
Section 2.4 Resignations. Upon the earlier of (i) termination of the
Consulting Period and (ii) the consummation of a Sale
Transaction (as such term is defined in the letter agreement
dated as of the date hereof between Rich and BSI), Rich shall
resign as an officer and director of Elite and any of its
subsidiaries or affiliated companies.
Section 2.5 Indemnification. During such time as Rich shall serve as an
officer and/or director of Elite or any of its subsidiaries or
affiliated companies, Elite shall (or shall cause such
subsidiary or affiliated company to) indemnify Rich in such
capacity in accordance with the applicable by-laws and shall
maintain (or cause BSI to maintain) directors and officers
insurance coverage substantially on the same terms as currently
maintained.
ARTICLE III
TERMINATION OF EMPLOYMENT
Section 3.1 Retirement. Rich shall resign as an employee of Elite and any
of its subsidiaries as of the Retirement Date.
Section 3.2 Unemployment Compensation. Elite shall not contest any
application for unemployment compensation that Rich may elect to
file after the Retirement Date.
Section 3.3 401(k) Profit Sharing. Rich shall receive all sums which he is
entitled to receive under the Broadway & Seymour, Inc. 401(k)
Profit Sharing Plan, if any, in accordance with Sections 5.1(a),
5.1(c), 5.4(a) and 5.4(c) of that Plan consistent with Rich's
employment hereunder until the Retirement Date.
Section 3.4 Employee Stock Purchase Plan. Rich shall receive all sums which
he is entitled to receive under the Broadway & Seymour, Inc.
Employee Stock Purchase Plan, if any, in accordance with Section
7.1(a) of that Plan consistent with Rich's employment hereunder
until the Retirement Date.
Section 3.5 Stock Option Plans. For the purpose of the Broadway & Seymour,
Inc. Restated 1985 Incentive Stock Option Plan and the Broadway
& Seymour, Inc. 1996 Stock Option Plan, pursuant to the terms
hereof Rich shall continue as an employee until the Retirement
Date, and Rich shall continue to vest in options and be
permitted to exercise any vested stock options until the
Retirement Date and thereafter in accordance with, and in the
manner set forth in, such plans. If
3
<PAGE> 4
such stock options are not exercised within the period set forth
in such plan, they shall be terminated. Unvested stock options
shall, in any event, lapse as of the Retirement Date to the
extent set forth in such plans.
Section 3.6 Business Expense Reimbursement. Elite shall be responsible for
any business expenses incurred by Rich prior to the Retirement
Date for which properly documented reimbursement requests have
been made prior to the Retirement Date or promptly thereafter.
Elite shall not be responsible for any business expenses
incurred by Rich on or after the Retirement Date except as
specified in this Agreement or as otherwise approved in advance
by Elite.
Section 3.7 No Other Benefits. Other than what may be provided herein, Rich
acknowledges that, as of his Retirement Date, he shall not have
the right to participate in or receive any benefit under any
employee benefit plan, any fringe benefit plan, or any other
plan, policy or arrangement of Elite or any of its affiliated
entities providing benefits or prerequisites to employees of
Elite generally or individually.
Section 3.8 Mutual Release. Except as otherwise specifically provided to the
contrary in this Agreement, Rich, on the one hand, and Elite, on
the other hand, for themselves and for their respective
officers, directors, agents, employees, successors, assigns,
affiliated entities, parents, subsidiaries, legal
representatives, heirs and executors for and in consideration of
the agreements contained in this Agreement, hereby forever
release, acquit, remise, quitclaim, and discharge each other,
and their affiliated entities, parents, subsidiaries,
successors, assigns, legal representatives, heirs, executors and
benefit plans (except with respect to any vested benefit), and
the officers, directors, employees and agents thereof, of and
from any and all actions, causes of action, claims, demands,
damages, costs, expenses, attorney's fees and all other
obligations of any type and nature whatsoever, from, on account
of, or in any way arising out of any claims, matters, contracts,
relationships or employment whether existing now or at any time
in the past, other than (a) claims arising from or relating to
the enforcement of this Agreement, (b) rights of ownership of
any capital stock of BSI now or hereafter held by Rich, (c)
rights under any option agreement between BSI and Rich, (d)
rights with respect to Elite's obligation to defend and
indemnify Rich in accordance with the provisions of Elite's
Articles of Incorporation and by-laws, or any other
indemnification agreement or laws, and (e) rights, if any, as an
insured party under any policy of insurance covering directors
or officers of BSI's subsidiaries.
Except as otherwise specifically provided to the contrary in
this Agreement, it is agreed and covenanted that this Release
covers all claims which the parties may have had, may now have
or could have relating to any matter, cause or thing whatsoever
occurring prior to the Effective Date, specifically including,
but not limited to all claims or demands arising out of or
relating to Rich's relationship with Elite as an employee,
officer and director, including, but not limited to, all claims
which Rich has had or now has and which could have been asserted
under local, state or federal statute or law with respect to all
matters concerning or arising out of Rich's relationships with
Elite as an employee, officer or director, including
specifically, but not limited to, any and all claims under or
for breach of fiduciary duty, breach of contract, fraud,
negligent misrepresentation,
4
<PAGE> 5
negligence, breach of criminal law, violation of federal or
state unfair trade practices law, violation of local, state or
federal human rights, equal employment, wage hour, workers
compensation, pension or labor laws, rules or regulations,
including the Fair Labor Standards Act, the Age Discrimination
in Employment Act of 1967, as amended, 29 U.S.C. Section 621 et
seq., Title VII of the Civil Rights Act of 1964, as amended, the
Family and Medical Leave Act, ERISA, and the Americans with
Disabilities Act, and violation of any and all other federal,
state and local laws and regulations.
Each of the parties acknowledges that there is a risk that,
subsequent to the execution of this Agreement, it may incur,
suffer or sustain injury, loss, damage, costs, attorney fees,
expenses, or any of these, which are in some way caused by or
connected with Rich's employment or the termination thereof, the
liability for which is released hereby, or with respect to such
matters, are unknown or unanticipated by the parties at the time
this Agreement is signed, or which are not presently capable of
being ascertained. Nevertheless, the parties acknowledge that
this Agreement has been negotiated and agreed upon and in light
of that acknowledgment, and each of the parties expressly waives
all rights it may have in such unsuspected claims. In doing so,
each party had the opportunity for the benefit of counsel, has
been advised of, understands and knowingly and specifically
waives its rights under California Civil Code Section 1542,
which provides as follows:
A general release does not extend to the claims which
the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if
known by him must have materially affected his
settlement with the debtor.
Section 3.9 Covenant Not To Sue. Rich hereby waives his right to file, and
hereby agrees not to accept any relief or recovery from, any
lawsuit, charge, claim, complaint, or other proceeding, whether
an individual, joint or class action (collectively "Legal
Action") before any federal, state or local administrative
agency, court or other forum against Elite, or any of its
parent, subsidiary or affiliated entities with respect to acts,
events or omissions prior to the Effective Date; provided,
however, that this Agreement shall not apply to preclude Rich's
participation in any legal action relating to any rights or
duties arising under this Agreement or under documents to be
executed or actions to be taken pursuant to this Agreement.
Except as provided above and as prohibited by statute, in the
event that Rich institutes, is a party to, or joins voluntarily
as a member of a class any such Legal Action against Elite or
any of its affiliated entities, he shall join in the dismissal
of the Legal Action or termination of his class membership
immediately upon presentation of this Agreement and Rich shall
reimburse Elite for all legal fees and expenses incurred in
defending Rich's involvement in the Legal Action and obtaining
the dismissal of Rich therefrom except those fees and expenses
incurred by Elite where Rich is not a voluntary party to the
Legal Action.
Section 3.10 Agreement Not to Assist in Litigation. Rich hereby agrees not
to in any way voluntarily assist any individual or entity in
commencing or prosecuting any action or proceeding, including
but not limited to, any administrative agency claims, charges or
complaints and/or any lawsuits against Elite, its officers,
5
<PAGE> 6
directors, subsidiaries or affiliated entities, or their officers
or directors, or in any way voluntarily participate or cooperate
in such actions or proceedings, except (a) as this waiver is
prohibited by statue, (b) in accordance with lawful process
issued by a court of competent jurisdiction or other lawful
authority, and (c) upon request of a governmental entity or
agency.
Section 3.11 Agreement to Provide Litigation Assistance. Rich agrees to
cooperate with and provide assistance to Elite and its legal
counsel in connection with any litigation (including arbitration
or administrative hearings) or investigation affecting Elite, in
which--in the reasonable judgment of Elite's counsel--Rich's
assistance or cooperation is needed. Rich shall, when requested
by Elite, provide testimony or other assistance and shall travel
at Elite's request in order to fulfill this obligation;
provided, however, that, in connection with such litigation or
investigation after the Retirement Date, Elite shall attempt to
accommodate Rich's schedule, shall provide him with reasonable
notice in advance of the times in which his cooperation or
assistance is needed, and shall reimburse Rich for any
reasonable expenses incurred in connection with such matters, as
well as for any actual lost wages suffered as a result from
absence from employment, or in the event that Rich is not then
employed, shall compensate Rich for his time at a rate of $200
per hour.
Section 3.12 COBRA Continuation Coverage. Rich acknowledges and agrees that
continuation coverage under 26 U.S.C Section 4980B ("COBRA")
shall begin on the Retirement Date and that thereafter Rich
shall be eligible, upon his timely election and at his own
expense, to obtain health insurance coverage in accordance with
COBRA, provided, however, that Elite shall pay for Rich's health
insurance coverage under COBRA during the period commencing
on the Retirement Date through and ending 18 months later.
Section 3.13 Acknowledgment Concerning Vacation Pay. Rich agrees that he
shall waive all vacation time to which he is entitled under
Elite's policies through the Retirement Date such that Rich
agrees that, upon the Retirement Date, he shall not have accrued
any unused vacation time for which payment is due from Elite.
Section 3.14 Acknowledgment Concerning All Compensation. Rich agrees and
acknowledges that, except as provided in this Agreement and that
certain letter dated as of the date hereof from BSI to Rich,
Rich is not entitled to any compensation or employment benefits
whatsoever, including, but not limited to, any bonus, severance
pay, accrued vacation pay or other compensation under any
incentive plan, employee benefit plan or agreement of Elite or
its affiliated entities.
Section 3.15 Binding Nature. Rich's signature on this Agreement reflects his
willingness to enter into and abide by the terms of this
Agreement. Rich acknowledges that he has been afforded an
opportunity to consider this Agreement and Rich further
acknowledges that he has been advised by Elite of his right to
consult with counsel concerning the effect of this Agreement,
and that he has carefully read the provisions of the Agreement.
Rich further represents that he knows and understands the
contents of this Agreement, that he intends to be legally bound
by this Agreement, and the release contained herein, and that he
is signing this Agreement, including the release, of his own
free will and without coercion.
6
<PAGE> 7
Section 3.16 Further Acknowledgements. Rich acknowledges that:
(a) he has received separate consideration under this Agreement
which is in addition to any other compensation or other
thing of value which Rich is otherwise entitled to receive
from Elite or any affiliated entities under any agreement,
policy or practice, or under applicable law;
(b) he was given a period of twenty-one (21) days within which
to consider the terms of this Agreement;
(c) if he has executed this Agreement prior to the expiration
of such 21-day period, then he has done so voluntarily and
that he has waived the remainder of such review period;
(d) he will have a period of seven (7) days following the
execution of this Agreement in which to revoke this
Agreement by giving written notice to Elite's Chief
Financial Officer of such revocation; provided, however,
that if Rich revokes this Agreement within this revocation
period, Rich agrees and acknowledges that he will not have
the right to receive the payments or benefits set forth in
this Agreement;
(e) except as set forth in the immediately preceding clause,
this Agreement shall not become effective or enforceable
until the seven (7) day revocation period described above
has expired; and
(f) he acknowledges and agrees that he does not believe that
Elite has discriminated against him in any manner because
of his race, sex, creed, color, religion, national origin,
age, marital status, sexual preference, physical or mental
disabilities or status as a disabled or Vietnam-era veteran.
Section 3.17 Release as of Retirement Date and end of Consulting Period. Each
of Elite and Rich further agrees that, in consideration for
those payments to be made to Rich hereunder following the
Retirement Date, and such other obligations of Elite and Rich
hereunder which extend beyond the Retirement Date, Elite and
Rich will reexecute this Agreement on both the Retirement Date
and the last day of the Consulting Period thereby renewing and
reaffirming its respective releases, covenants and
acknowledgements contained in this Agreement as of such dates.
7
<PAGE> 8
ARTICLE IV
CONFIDENTIALITY AND NONCOMPETITION PROVISIONS
Section 4.1 Non-Disclosure of Confidential Information. Rich agrees that he
will maintain in confidence and will not, directly or
indirectly, use, publish or otherwise disclose to any competitor
or other third party, except as required by law, any trade
secrets, confidential, proprietary, and other non-public
information of a similar nature belonging to Elite or any of its
related or affiliated entities or to which Elite or any of its
related or affiliated entities has any rights, except to the
extent, if any, that such information is or becomes generally
known or readily ascertainable by proper means ("Confidential
Information"), whether or not such Confidential Information is
in written or permanent form. Such Confidential Information
includes, but is not limited to, proprietary technical and
business information relating to any non-public financial
information, business plans or costs, customers or customer
lists, pricing data or other terms of sales, customer
requirements or buying history, customer contacts or prospective
customers, formulas, patterns, compilations, programs, devices,
methods, techniques and processes of Elite, or any of its
related or affiliated entities subject to the same exception
stated in the preceding sentence. Confidential Information shall
extend to information belonging to any client, vendor or
customer of Elite, or any of its related or affiliated entities,
and their agents and employees. Since Elite's business is
national in scope, there is no geographic limitation on Rich's
obligations under this section. All duties and obligations set
forth herein shall be in addition to those which exist by common
law or statute. Rich acknowledges that a remedy at law for any
breach or threatened breach of the provisions of this Section 4.1
would be inadequate and therefore agrees that Elite and its
affiliates shall be entitled to injunctive relief in addition to
any other available rights and remedies in case of any such
breach or threatened breach; provided, however, that nothing
contained herein shall be construed as prohibiting Elite from
pursuing any other remedies available for any such breach or
threatened breach. Without limiting the generality of the
foregoing, Elite acknowledges and agrees that Rich may provide
consulting and other services to law firms and other
professional services firms so long as Rich does not violate the
provisions of this Section 4.1 or Section 4.4 below.
Section 4.2 Return of Property. Rich agrees, upon the Retirement Date, to
the extent Rich has not done so previously, to immediately
return all documents, files, whether or not he was solely
responsible for same, keys, credit cards, keycards, programs,
software and discs, including but not by way of limitation,
those programs, software and discs generated during his
employment with Elite, computers and all other items and
equipment which are the property of Elite, except as otherwise
mutually agreed to for use by Rich during the Consulting Period,
in which case Rich shall return such documents to Elite upon
termination of the consulting Period.
Section 4.3 Inventions. Rich hereby covenants, agrees and acknowledges as
follows:
(a) Any and all inventions, products, discoveries,
improvements, processes, manufacturing methods or
techniques, formulas, designs, styles, specifications, data
bases, computer programs (whether in source code
8
<PAGE> 9
or object code), know-how, strategies and data (including, without
limitation, as to data base development, confidential personnel matters,
matters involving existing and prospective clients, pricing matters and
marketing strategies), whether or not patentable or registrable under
copyright or similar statues, made, conceived, developed or created by
Rich (whether at the request or suggestion of Elite, any of its
affiliates or otherwise, whether alone or in conjunction with others, and
whether during regular hours of work or otherwise) during the period of
his employment or consultancy with Elite which pertain to the business,
products, or processes of Elite or any of its affiliates, and relate to
the application of computer systems and services to the legal and
accounting industry (collectively, hereinafter referred to as
"Inventions"), will be promptly and fully disclosed by Rich to an
appropriate executive officer of Elite and shall be Elite's exclusive
property, and Rich will promptly execute and/or deliver to an appropriate
executive officer of Elite, without any additional compensation
therefore, all papers, drawings, models, data, documents and other
material pertaining to or in any way relating to any Inventions made,
developed or created by him as aforesaid. This Agreement does not apply
to any invention for which no equipment, supplies, facility, or trade
secret information of Elite was used and which was developed entirely on
Rich's own time unless (a) the invention relates (i) directly to the
business of Elite or (ii) to Elite's actual or demonstrably anticipated
research or development; or (b) the invention results, either directly or
indirectly, from any work performed by Rich for Elite.
(b) Elite and its assigns shall be the sole owner of all patents,
copyrights, trademarks and other rights issued in connection with any
Invention. Rich shall assist Elite in every proper way as to all such
Inventions (but at Elite's expense) to obtain and from time to time
enforce patents, copyrights, trademarks and other rights and protections
relating to said Inventions in any and all countries, and to that end,
Rich will execute all documents for use in applying for and obtaining
protections on and enforcing such Inventions, as Elite may desire,
together with any assignments thereof to Elite or persons designated by
it. Rich's obligation to assist Elite in obtaining and enforcing
patents, copyrights, trademarks and other rights and protections
relating to such Inventions in any all countries shall continue beyond
the termination of Rich's consultancy hereunder, but Elite shall
compensate Rich at a reasonable rate after Rich's termination for time
actually spent by Rich at Elite's request on such assistance.
(c) Rich acknowledges that a remedy at law for any breach or threatened
breach of the provisions of this Section 4.3 would be inadequate and
therefore agrees that Elite and its affiliates shall be entitled to
injunctive relief in addition to any other available rights and remedies
in case of any such breach or threatened breach; provided, however, that
nothing contained herein shall be construed as prohibiting Elite from
pursuing any other remedies available for any such breach of threatened
breach.
9
<PAGE> 10
Section 4.4 Noncompetition Clause. During the three year period following the
Retirement Date, Rich agrees not to, directly or indirectly:
(a) provide or offer to provide the types of products or
services that Elite provides to any client or prospective
client of Elite or otherwise induce such clients or
prospective clients to reduce, terminate, restrict or
otherwise alter their business relationship with Elite in
any fashion;
(b) become associated either as an owner, principal, agent,
manager, employee, partner, shareholder (except for
ownership of less than five percent of the shares of a
publicly traded company), director, officer, consultant, or
representative with any business operation or any enterprise
if such operation competes with Elite, or
(c) induce or attempt to induce any employee of Elite to leave
Elite for the purpose of engaging in a business competitive
with Elite.
Notwithstanding the foregoing, Elite acknowledges and agrees that
Rich may provide consulting services involving general business
operations and procedures to law firms and accounting firms so
long as Rich does not violate the provisions of this Section 4.4
or Section 4.1 above. Rich acknowledges that Elite may have no
adequate means of protecting its rights under this Section 4.4
other than by securing an injunction (a court order prohibiting
Rich from violating this Agreement). Accordingly, Rich agrees
that Elite is entitled to enforce this Agreement by obtaining a
preliminary and permanent inunction and any other appropriate
equitable relief in any court of competent jurisdiction. Rich
acknowledges that Elite's recovery of damages will not be an
adequate means to redress a breach of this Agreement, but nothing
in this Section shall prohibit Elite from pursing any remedies in
addition to injunctive relief, including recovery of damages.
Section 4.5 Noncompetition Payments. In exchange for the noncompetition
covenants given by Rich in Section 4.4 above, Elite shall pay
Rich a total of $300,000 payable in six equal installments
bi-annually, commencing on the Retirement Date. Such payments are
in addition to any payments to be made pursuant to Section 2.2
above. Rich acknowledges and agrees (i) that Elite would not
agree to pay such amounts in the absence of the covenants made by
Rich in Section 4.4 above, and (ii) that such payments by Elite
constitute adequate and sufficient consideration for the
covenants made by Rich therein.
Section 4.6 Confidentiality. As an integral part of this Agreement, Rich
agrees that the terms of this Agreement and the circumstances
surrounding the execution of this Agreement shall be held
absolutely confidential and that he shall not disclose the
substance or terms of this Agreement to anyone other than his
immediate family, his tax adviser, his counsel and employees of
Elite, on a need-to-know basis who agree to maintain the
confidentiality thereof. Notwithstanding the above, Rich may
answer truthfully any inquiry about this Agreement which he is
legally required to answer whether by subpoena, court order or
other lawful process or as mutually agreed upon by the parties.
Rich will directly and fully inform Elite, however, concerning
any disclosures requested under this Agreement, along with the
entity making such request for disclosure, at the time of the
disclosure,
10
<PAGE> 11
and Rich shall specifically inform Elite of any subpoena or
other process which may require him to disclose any matters in
contravention of this provision. In addition, notwithstanding
the foregoing, Rich may, in the exercise of reasonably business
judgment, disclose the general terms of this Agreement to
certain customers and vendors on a need-to-know basis who agree
to maintain the confidentiality thereof.
Section 4.7 Non-Disparagement. Elite, on the one hand, and Rich, on the
other hand, agree that any time after the execution of this
Agreement and continuing after the Retirement Date, they shall
not in any way criticize or disparage the performance,
competency or ability of the other or any of its subsidiary,
parent or affiliated entities, or the officers, directors,
employees or agents of any of them to any other person. In
particular, Rich will not criticize or disparage Elite's
financial accounting or reporting policies or practices nor
allege or claim that he was discriminated against or otherwise
mistreated by Elite or any of its subsidiary, parent or
affiliated entities at any time, except to the extent, if at
all, as may be required by legal process.
Section 4.8 No Admission of Liability. Rich understands and agrees that the
entry into this Agreement by Elite is solely for the purpose of
eliminating and resolving all matters arising out of Rich's
employment with Elite, effecting the termination of Rich's
employment, providing certain specified benefits for Rich,
memorializing the parties' agreement concerning Rich's
post-employment consulting relationship with Elite, and finally,
fully and completely resolving amicably any and all matters
actually or potentially in controversy between them and shall
not be construed as an admission by Elite of non-compliance with
any law or any other wrongdoing whatsoever.
ARTICLE V
MISCELLANEOUS
Section 5.1 Binding Effect. This Agreement shall be binding upon, and inure
to the benefit of, the parties and their respective personal
representatives, agents, attorneys, executors, administrators,
heirs, successors and assigns.
Section 5.2 Modification. This Agreement may not be modified or amended
except by an instrument in writing signed by the parties hereto.
Section 5.3 Governing Law. This Agreement has been made and will be at
least partly performed in the State of North Carolina, and its
validity, interpretation, performance and enforcement shall be
governed by the laws and judicial decisions of the State of
North Carolina.
Section 5.4 Entire Agreement. This Agreement contains the entire agreement
between the parties hereto. No representation, agreement,
guaranty, warranty, waiver or change in this Agreement not
included herein shall be binding upon either party unless in
writing and separately signed by both parties.
Section 5.5 Severability. If any provision contained in this Agreement
shall for any reason be held invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability
shall not effect any other provision of this Agreement, but
11
<PAGE> 12
this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
Section 5.6 Counterparts. This Agreement may be executed in counterparts,
each of which may be signed separately and may be enforceable as
an original, but all of which together shall constitute but one
agreement.
Section 5.7 Authorization. Each person executing this Agreement in a
representative capacity hereby represents and warrants that he
is fully authorized to do so.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date and year first indicated above.
/s/ ALAN RICH (SEAL)
----------------------
ALAN RICH
Sworn to and subscribed
before me, this 22nd day
of May, 1997. [NOTARY PUBLIC SEAL]
/s/ FRAN LEITNER FRAN LEITNER
- ----------------------- Commission # 1059924
Notary Public Notary Public - California
LOS ANGELES COUNTY
My commission expires: My Comm. Expires Jun 9, 1999
6/9/99
- ----------------------
(Official Seal)
ELITE INFORMATION SYSTEMS, INC.
By: /s/ ALAN C. STANFORD
-----------------------------
Title: Executive Vice President
--------------------------
Acknowledged as of the 21 day of
May, 1997 by:
BROADWAY & SEYMOUR, INC.
By: /s/ ALAN C. STANFORD
------------------------------
Alan C. Stanford
Chairman and Chief Executive Officer
13
<PAGE> 14
IN WITNESS WHEREOF, this the 31st day of December 1997, each of Alan Rich
and Elite Information systems, Inc. hereby executes this Agreement under Seal
and renews and reaffirms its respective releases, covenants, representations
and acknowledgments as of such date.
/s/ ALAN RICH (SEAL)
-------------------------
ALAN RICH
ELITE INFORMATION SYSTEMS, INC.
By:
--------------------------------------------
Title: Executive Vice President and Treasurer
----------------------------------------
14
<PAGE> 1
Exhibit 10.21
ELITE.COM INC.
1999 STOCK OPTION PLAN
1. PURPOSE
The purpose of the Elite.com Inc. 1999 Stock Option Plan (the "Plan") is
to promote the growth and profitability of Elite.com Inc. (the "Company") and
its subsidiaries ("Subsidiaries") from time to time by increasing the personal
participation of officers and key employees in the financial performance of the
Company, by enabling the Company to attract and retain officers and key
employees of outstanding competence and by providing such officers and key
employees with an equity opportunity in the Company. This purpose will be
achieved through the grant of stock options ("Options") to purchase shares of
common stock of the Company, $.01 par value per share (the "Common Stock")
subject to such restrictions as the administrators of the Plan may determine.
2. ADMINISTRATION
The Plan will be administered by the Company's Board of Directors (the
"Board"); provided, however, that if the Board includes members who are not
"non-employee directors" (as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended, or any applicable successor rule or
regulation ("Rule 16b-3")) or "outside directors" (as defined in Section 162(m)
of the Internal Revenue Code of 1986, as amended, and the regulations thereunder
("Section 162(m)")), then all authority of the Board under the Plan shall be
exercised by a committee of the Board (the "Committee") composed solely of
members thereof who are both "non-employee directors" and "outside directors"
(as so defined).
The Board or Committee shall have complete authority to: (i) interpret
all terms and provisions of the Plan consistent with law; (ii) select from the
group of officers and key employees eligible to participate in the Plan the
officers and key employees to whom Options shall be granted; (iii) within the
limits established herein, determine the number of shares to be subject to, the
exercise price of, and the term of each Option, granted to each of such officers
and key employees; (iv) prescribe the form of instrument(s) evidencing Options
granted under this Plan; (v) determine the time or times at which Options shall
be granted to officers or key employees; (vi) make special grants of Options to
officers or key employees when determined to be appropriate; (vii) provide, if
appropriate, for the exercisability of Options granted to officers or key
employees in installments or subject to specified conditions; (viii) determine
the method of exercise of Options granted to officers or key employees under the
Plan; (ix) adopt, amend and rescind general and special rules and regulations
for the Plan's administration; and (x) make all other determinations necessary
or advisable for the administration of this Plan.
Any action which the Board or Committee is authorized to take may be
taken without a meeting if all the members of the Board or Committee sign a
written document authorizing such
<PAGE> 2
action to be taken, unless different provision is made by the By-Laws of the
Company or by resolution of the Board or Committee.
The Board or Committee may designate selected Board or Committee members
or certain employees of the Company to assist the Board or Committee in the
administration of the Plan and may grant authority to such persons to execute
documents, including Options, on behalf of the Board or Committee, subject in
each such case to the requirements of Rule 16b-3.
No member of the Board or Committee or employee of the Company assisting
the Board or Committee pursuant to the preceding paragraph shall be liable for
any action taken or determination made in good faith.
3. STOCK SUBJECT TO PLAN
The stock to be offered under this Plan shall be authorized but unissued
shares of Common Stock, shares of Common Stock previously issued and thereafter
acquired by the Company, or any combination thereof. An aggregate of 1,500,000
shares of Common Stock are reserved for Option grants under this Plan. Any or
all of the Options granted under this Plan may, at the Board's or Committee's
discretion, be intended to qualify as incentive stock options ("Incentive Stock
Options") under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). The number of shares reserved under this Plan may be adjusted to
reflect any change in the capitalization of the Company as contemplated by
Section 9 hereof and occurring after the adoption of this Plan. The Board or
Committee will maintain records showing the cumulative total of all shares
subject to Options outstanding under this Plan.
4. OPTIONS FOR OFFICERS AND KEY EMPLOYEES
a. Eligibility and Factors to be Considered in Granting Options
The grant of Options under this Plan shall be limited to those officers
and key employees of the Company or any of its Subsidiaries who have the
greatest impact on the Company's long-term performance and are selected by the
Board or Committee. Members of the Company's Board of Directors who are also
officers or employees of the Company are eligible to receive Options under this
Plan. In making any determination as to the officer(s) and key employee(s) to
whom Options shall be granted under this Plan and as to the number of shares to
be subject thereto, the Board or Committee shall take into account, in each
case, the level and responsibility of the person's position, the level of the
person's performance, the person's level of compensation, the assessed potential
of the person and such additional factors as the Board or Committee shall deem
relevant to the accomplishment of the purposes of the Plan.
Options may be granted under this Plan only for a reason connected with
an officer's or key employee's employment by the Company or any Subsidiary.
2
<PAGE> 3
b. Allotment of Shares
The Board or Committee may, in its sole discretion and subject to the
provisions of this Plan, grant to participants eligible under this Plan, on or
after the date hereof, Options to purchase shares of Common Stock. Options
granted under this Plan may, at the discretion of the Board or Committee, be:
(i) Options that are intended to qualify as Incentive Stock Options; or (ii)
Options that are not intended to be Incentive Stock Options or (iii) both of the
foregoing, if granted separately, and not in tandem. Each Option granted under
this Plan must be clearly identified as to its status as an Incentive Stock
Option or not.
Options granted under this Plan may be allotted to participants in such amounts,
subject to the limitations specified in this Plan, as the Board or Committee, in
its sole discretion, may from time to time determine, provided that in any
fiscal year no participant may be granted Options with respect to more than
800,000 shares of Common Stock.
In the case of Options intended to be Incentive Stock Options, the
aggregate fair market value (determined at the time of such Incentive Stock
Options' respective grants) of the shares with respect to which Incentive Stock
Options are exercisable for the first time by a participant hereunder during any
calendar year (under all plans taken into account pursuant to Section 422(d) of
the Code) shall not exceed $100,000. Options under this Section 4 not intended
to qualify as Incentive Stock Options may be granted to any Plan participant
without regard to the Section 422(d) limitations.
c. Time of Granting Options
The date of grant of an Option under this Plan shall, for all purposes,
be the date on which the Board or Committee makes the determination of granting
such Option (each such date, a "Grant Date"). Notice of the determination shall
be given to each officer or key employee to whom an Option is so granted under
this Plan within a reasonable time after the Grant Date for such Option.
d. Exercise Price for Options
The price per share at which each Option granted under this Plan may be
exercised shall be such price as shall be determined by the Board or Committee
at the time of grant based on such criteria as may be adopted by the Board or
Committee at the time of grant in good faith, taking into account, in each case,
the market price of the Common Stock, the level and responsibility of the
person's position, the level of the person's performance, the person's level of
compensation, the assessed potential of the person, and such additional factors
as the Board or Committee shall deem relevant to the accomplishment of the
purposes of the Plan; provided, however, that in no event shall the exercise
price per share of an Option be less than 100% of the fair market value of the
Company's shares of Common Stock on the Grant Date for such Option. In the case
of an Option intended to qualify as an Incentive Stock Option, the price per
share shall not be less than 100% (or 110% for owners of more than 10% of the
total combined voting power of all classes of stock of the Company or any
Subsidiary) of the fair market value of the Common Stock on the Grant Date for
such Option.
3
<PAGE> 4
If the Company's shares of Common Stock are:
(1) actively traded on any national securities exchange or NASDAQ system
that reports their sales prices, fair market value shall be the average of the
high and low sales prices per share on any Grant Date;
(2) otherwise traded over the counter, fair market value shall be the
average of the final bid and asked prices for the shares of Common Stock as
reported for any Grant Date;
(3) not traded, the Board or Committee shall consider any factor or
factors that it believes affects fair market value, and shall determine fair
market value without regard to any restriction other than a restriction that by
its terms will never lapse.
e. Term of Options
The term of each Option granted under this Plan shall be established by
the Board or Committee, but shall not exceed 10 years (or 5 years for owners of
more than 10% of the total combined voting power of all classes of stock of the
Company or of a Subsidiary) from the Grant Date for such Option.
5. NON-TRANSFERABILITY
An Option granted to a participant under this Plan shall not be
transferable by him or her except: (i) by will; (ii) by the laws of descent and
distribution; or (iii) pursuant to a qualified domestic relations order as
defined by the Code or in Title I of the Employee Retirement Income Security
Act, or the rules thereunder. In the case of an Option intended to be an
Incentive Stock Option, such Option shall not be transferable by a participant
other than by will or the laws of descent and distribution and during the
optionee's lifetime shall be exercisable only by him or her.
Notwithstanding anything to the contrary contained herein, for a period
of six months commencing on the Grant Date for any Option granted hereunder to a
participant subject to reporting requirements under Section 16 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), such participant may not sell
any share(s) of Common Stock acquired upon exercise of such Option.
6. EXERCISABILITY OF OPTIONS
Subject to the provisions of this Plan, Options granted under this Plan
shall be exercisable at such time or times after the Grant Date for such Options
according to such schedule and upon such conditions as may be determined by the
Board or Committee at the time of grant.
4
<PAGE> 5
Unless otherwise determined by the Board or the Committee at the time of
grant or thereafter, any Option granted under this Plan, shall terminate in full
(whether or not previously exercisable) prior to the expiration of its term on
the date the optionee ceases to be an employee of the Company or any Subsidiary
of the Company, unless the optionee shall (a) die while an employee of the
Company or such Subsidiary, in which case the participant's legatee(s) under his
or her last will or the participant's personal representative or representatives
may exercise all or part of the previously unexercised portion of such Option at
any time within one year, but not beyond the expiration of its term, after the
participant's death to the extent the optionee could have exercised the Option
immediately prior to his or her death or in the amount purchasable under the
Option immediately after the death of the optionee, whichever is greater, (b)
become permanently or totally disabled within the meaning of section 22(e)(3) of
the Code (or any successor provision) while an employee of the Company or such
Subsidiary, in which case the participant or his or her personal representative
may exercise the previously unexercised portion of such Option at any time
within one year, but not beyond the expiration of its term, after termination of
his or her employment to the extent the optionee could have exercised the Option
immediately prior to such termination, or (c) resign or retire with the consent
of the Company or have his or her employment with the Company or any Subsidiary
terminated by the Company or any Subsidiary other than for cause (as defined
below), in which case the participant may exercise the previously unexercised
portion of such Option at any time within six months, but not beyond the
expiration of its term, after the participant's resignation, retirement or
employment termination to the extent the optionee could have exercised the
Option immediately prior to such resignation, retirement or employment
termination.
For purposes of this Section 6, employment termination for "cause" means
termination of employment by reason of gross misconduct as determined by the
Board or Committee, which will include but not be limited to the following: (i)
the commission of dishonest acts involving the Company, (ii) disclosure of
confidential information of the Company, (iii) obvious intoxication (whether due
to alcohol, drugs or other substance abuse) on the job or possession of any
alcoholic substance or illegal drugs on the premises of the Company or any
Subsidiary, (iv) misuse of Company or Subsidiary assets (which shall include but
be limited to cash, equipment, and/or other assets), (v) repeated disregard for
the lawful policies of the Company as may be established from time to time and
communicated to the employee, or (vi) any misconduct specified in any employment
agreement to which the participant is a party that would justify the termination
of such participant's employment with the Company or any Subsidiary "for cause."
In no event may an Option be exercised after the expiration of its fixed
term.
7. METHOD OF EXERCISE
Each Option granted under the Plan shall be deemed exercised when the
holder (a) shall indicate the decision to do so in writing delivered to the
Company, (b) shall at the same time tender to the Company payment in full of the
exercise price for the shares for which the Option is exercised, which payment
may be made in (i) cash, (ii), shares of the Common Stock, the total market
value of which equals the total option price of the shares with respect to which
the option is being exercised, or (iii) any combination of cash and shares of
the Common Stock, the total
5
<PAGE> 6
market value of which equals the total option price of the shares with respect
to which the option is being exercised, and (c) shall comply with such other
reasonable requirements as the Board or Committee may establish; provided that
in order to enable an optionee (including but not limited to officers) to
exercise options granted under this Plan, the Board or the Committee may
determine, in the exercise of its discretion, to (i) grant such optionee
permission to pay the exercise price in installments or (ii) grant such optionee
permission to pay the exercise price by delivering for cancellation Options
having an aggregate value (calculated by subtracting the exercise price per
share from the fair market value of a share of Common Stock) equal to the total
amount of the exercise price. The exercise of any option granted under this Plan
may be made subject to the condition that, if at any time the Board or the
Committee shall determine, in its discretion, that the satisfaction of
withholding tax or other withholding liabilities under any state or federal law
is necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or purchase of shares pursuant thereto, then in such
event, the exercise of the option shall not be effective unless such withholding
tax or other withholding liabilities shall have been satisfied in a manner
acceptable to the Company, which may include the withholding by the Company of
shares of Common Stock to be issued upon exercise of an Option having a fair
market value equal to the required withholding amount. With respect to the
foregoing sentences, the value of the shares of Common Stock shall be the fair
market value determined in accordance with Section 4(d) of this Plan as of the
day of such payment or withholding.
No person, estate or other entity shall have any of the rights of a
shareholder with reference to shares subject to an Option until a certificate
for the shares has been delivered.
An Option granted under this Plan may be exercised for any lesser number
of shares than the full amount for which it could be exercised. Such a partial
exercise of an Option shall not affect the right to exercise the Option from
time to time in accordance with this Plan for the remaining shares subject to
the Option.
8. TERMINATION OF OPTIONS
An Option granted under this Plan shall be considered terminated in
whole or in part, to the extent that, in accordance with the provisions of this
Plan and such Option, it can no longer be exercised for any shares originally
subject to the Option. The shares subject to any terminated Option or portion
thereof shall no longer be charged against the applicable limitation or
limitations provided in Section 3 of this Plan and may again become shares
available for the purposes, and subject to the same applicable limitations, of
this Plan.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
(a) In the event of any change in the outstanding Common Stock of the
Company by reason of a stock dividend, stock split, stock consolidation,
recapitalization, reorganization, merger, split up or the like, the shares
available for purposes of this Plan and the number and kind of shares under
option in outstanding option agreements pursuant to this Plan (and the option
price under such agreements) shall be appropriately adjusted so as to preserve,
but not increase, the benefits of this Plan to the Company and the benefits to
the holders of such Options;
6
<PAGE> 7
provided, however, that for any Incentive Stock Options, in the case of a
corporate merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the excess of the aggregate fair market value of
the shares subject to any Options immediately after such event over the
aggregate option price of such shares is not more than the excess of the
aggregate fair market value of all shares subject to such Options immediately
before such event over the aggregate option price of such shares.
Adjustments under this Section shall be made by the Board or Committee,
whose determination as to what adjustments shall be made and the extent thereof,
shall be final, binding and conclusive.
(b) In the event of the issuance of any capital stock of the Company to
Elite Information Group, Inc. or any affiliate thereof ("New Elite Stock"), the
number of shares available for purposes of this Plan and the number of shares
under option in outstanding option agreements pursuant to this Plan (and the per
share option price under such agreements) shall be appropriately adjusted so
that such number of shares as adjusted bears the same proportionate relationship
to the aggregate number of shares of common stock outstanding (on an as
converted basis) following both the issuance of the New Elite Stock and such
adjustment as such number of shares prior to such adjustment bore to the
aggregate number of shares of common stock outstanding (on an as converted
basis) immediately prior to the issuance of the New Elite Stock.
10. FUNDAMENTAL CORPORATE CHANGES
Subject to SECTION 9 of this Plan, in the event of a consolidation or
merger of the Company with another entity, or the sale or exchange of all or
substantially all of the assets of the Company, or a reorganization of the
Company, a holder of an outstanding Option shall be entitled to receive, upon
the exercise of such Option and payment in accordance with the terms of this
Plan, the same consideration such holder would have been entitled to receive
upon the occurrence of such event if such holder had been, immediately prior to
such event, the holder of the number of shares purchasable under such Option;
provided, that if another entity shall be the surviving entity of such merger or
consolidation, any outstanding Option shall immediately terminate, unless
earlier exercised, upon the payment by such surviving entity to the holder of
such Option the cash or other consideration paid to the shareholders in the
merger or consolidation, in an amount equal to the difference between (a) the
total amount such holder would have been entitled to receive in such merger or
consolidation if such holder had acquired the shares purchasable under such
Option immediately prior to the effective time of such merger or consolidation,
and (b) the total exercise price of such Option.
11. COMPLIANCE WITH SECURITIES LAWS AND OTHER REQUIREMENTS
No certificate(s) for shares shall be executed and delivered upon
exercise of an Option until the Company shall have taken such action, if any, as
is then required to comply with the provisions of the Securities Act of 1933, as
amended, the 1934 Act, and any other applicable state securities law(s) and the
requirements of any exchange on which the Common Stock may, at the time, be
listed.
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<PAGE> 8
In the case of the exercise of an Option by a person or estate acquiring
the right to exercise the Option by bequest or inheritance, the Board or
Committee may require reasonable evidence as to the ownership of the Option and
may require such consents and releases of taxing authorities as it may deem
advisable.
12. NO RIGHT TO EMPLOYMENT
Neither the adoption of the Plan nor its operation, nor any document
describing or referring to the Plan, or any part thereof, shall confer upon any
employee participant under the Plan any right to continue in the employ of the
Company, or upon any director participant under the Plan any right to continue
as a director of the Company, or shall in any way affect the right and power of
the Company to terminate the employment or position with the Company of any
participant under this Plan at any time with or without assigning a reason
therefor, to the same extent as the Company might have done if this Plan had not
been adopted.
13. AMENDMENT AND TERMINATION
The Board or Committee may at any time suspend, amend, or terminate this
Plan. Except as provided in Section 4(f) of this Plan, the Board or Committee
may make such modifications of the terms and conditions of a holder's Option as
it shall deem advisable. No Option may be granted during any suspension of the
Plan or after such termination. Notwithstanding the foregoing provisions of this
Section, no amendment, suspension or termination shall, without the consent of
the holder of an Option, alter or impair any rights or obligations under any
Option theretofore granted under the Plan.
In addition to Board or Committee approval of an amendment, if the
amendment would: (i) materially increase the benefits accruing to participants;
(ii) increase the number of securities issuable under this Plan (other than an
increase pursuant to Section 9 hereof); (iii) change the class or classes of
individuals eligible to receive Options; or (iv) otherwise materially modify the
requirements for eligibility, then such amendment must be approved by the
holders of a majority of the Company's outstanding capital stock present or
represented by proxy and entitled to vote at a meeting duly held of the
shareholders of the Company.
14. USE OF PROCEEDS
The proceeds received by the Company from the sale of shares pursuant to
the exercise of Options granted under the Plan shall be used for general
corporate purposes as determined by the Board.
15. INDEMNIFICATION OF BOARD OR COMMITTEE
In addition to such other rights of indemnification as they may have as
members of the Board, the members of the Board or Committee shall to the fullest
extent permitted by law be indemnified by the Company against the reasonable
expenses, including attorney's fees, actually
8
<PAGE> 9
and necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in settlement thereof (provided the settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Board member or Committee member is liable for gross
negligence or misconduct in the performance of his duties; provided, however,
that within 60 days after institution of any such action, suit or proceeding the
Board member or Committee member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
16. EFFECTIVE DATE OF THE PLAN
This Plan was adopted by the Board and by the sole shareholder of the
Company on August 27, 1999, and shall be effective until August 27, 2009.
17. DURATION OF THE PLAN
Unless previously terminated by the Board or Committee, this Plan shall
terminate at the close of business on August 27, 2009, and no Option shall be
granted under it thereafter, but such termination shall not affect any Option
previously granted under this Plan.
18. COMPLIANCE WITH RULE 16b-3
With respect to any Plan participant who is subject to Section 16 of the
1934 Act, transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent
that any provision of the Plan or action by the Board or Committee fails to so
comply, such provision or action shall be deemed null and void to the extent
permitted by law and deemed advisable by the Board or Committee.
19. CHANGE OF CONTROL
In the event of a change of control of the Company, all vesting
requirements in respect of Options granted under this Plan shall be terminated
and all outstanding Options shall become immediately exercisable at their stated
exercise prices. From and after the date of such change of control, all such
Options shall be deemed fully vested. For the purposes of this Plan, a change of
control shall include the following:
a. Consummation by the Company of a firm commitment underwritten
offering of equity securities of the Company which results in less than
50% of the outstanding voting securities of the Company being owned in
the aggregate by the former stockholders of the Company.
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<PAGE> 10
b. The adoption by the Company's stockholders of a plan of merger
or consolidation providing for the merger or consolidation of the
Company with another corporation and, as a result of such merger or
consolidation, less than 50% of the outstanding voting securities of the
surviving or resulting corporation would then be owned in the aggregate
by the former stockholders of the Company, other than affiliates within
the meaning of the 1934 Act or any party to such merger or
consolidation.
c. The Company transfers substantially all of its assets to
another corporation or entity that is not a wholly owned subsidiary of
the Company.
20. PURCHASE OPTION
If an optionee's employment with the Company is terminated, voluntarily
or involuntarily, with or without cause, or in the event of such optionee's
death or Disability or in the event of a Change of Control:
(a) any Options granted to such optionee that have not vested and have
not been exercised as of the date of termination, death, Disability or Change of
Control shall be canceled and such optionee (or such optionee's personal
representative or any other distributee in the case of such optionee's death or
Disability) shall have no right to purchase the shares represented thereby.
(b) the Company shall have the right (but not the obligation) to
purchase any Options that have vested but have not been exercised by the
optionee prior to the date of termination, death, Disability or Change of
Control, from the optionee (or such optionee's personal representative or any
other distributee in the case of such optionee's death or Disability) at a price
equal to the fair market value of such Options minus the total exercise price of
such Options. The fair market value of such Options shall be determined by the
selling party and the Company, or if the parties cannot agree, as determined by
an appraiser jointly selected by such parties no later than ten (10) days after
the Company elects to purchase the Options, or if the parties cannot agree on
the selection of an appraiser, by three appraisers, the first of whom is
selected by the two appraisers so selected. If the three appraisers cannot agree
on the fair market value, such value shall equal the appraised value that is
neither the lowest not the highest of the three appraised values. If the Company
does not elect to purchase such optionee's vested but unexercised Options within
sixty (60) days of such termination, death, Disability or Change of Control,
such optionee (or such optionee's personal representative or other distributee
with respect to the optionee's death or Disability) shall have thirty (30) days
from the expiration of such 60-day period to exercise such Options in accordance
with this Plan; provided, that after such 30-day period, such Options shall be
canceled and then neither such optionee, the optionee's personal representative
or distributee, nor any other Person shall have the right to purchase the shares
represented thereby.
The Company shall have sixty (60) days from the date of the optionee's
termination of employment, death, Disability or Change of Control to elect to
purchase such optionee's Options pursuant to this SECTION 20. The closing of the
purchase shall occur within one hundred twenty
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<PAGE> 11
(120) days of the termination, death, Disability or Change of Control. At such
closing, the optionee or other rightful holder of the Options being purchased
shall convey such Options free and clear of all liens, claims and encumbrances
and pursuant to such instruments of conveyance and warranties as the Company
shall reasonably request. Unless the parties agree otherwise, the Company may
elect to pay cash for such Options or issue a promissory note for the applicable
purchase price, such note not to exceed a term of five (5) years. The Company
shall pay all fees and expenses in connection with such transaction, except the
attorneys' fees of the selling party. The failure of any party to satisfy the
obligation to close the purchase and sale of any such Options in accordance with
this SECTION 20 shall entitle the other party to specific performance of such
obligation, in addition to all other equitable and legal remedies available.
For purposes of this Plan, "Disability" means any impairment of mind or
body that renders an employee unable to pursue his duties as an employee, taking
into account the role and duties of such employee at such time as the
determination of disability is made, which persists for six (6) months and is
likely to continue thereafter for the rest of such employee's life. The
determination of whether an employee has a Disability shall be made by the Board
and such determination shall be final, binding and conclusive.
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<PAGE> 12
Dear
In accordance with the 1999 Stock Option Plan (the "Plan") of Elite.com Inc.
(the "Company"), you, as an officer or key employee of the Company or its
subsidiaries, and in order to give you an added proprietary interest in the
Company and an additional incentive to advance the interest of the Company, were
granted on _____________, ____, an option to purchase _____ shares of the common
stock of the Company upon the following terms and conditions:
(1) The exercise price shall be $___________ (____% of the fair
market value of a share on the date of grant - ___________,
____);
(2) This Option will become exercisable according to the following
schedule:
(3) Once exercisable, this Option may be exercised until
____________, ____, subject to the terms and conditions of the
Plan, a copy of which is attached hereto and incorporated herein
by reference. This Option is granted subject to the Plan and
shall be construed in accordance with the Plan.
(4) This Option is (is not) intended to be treated as an "incentive
stock option" for purposes of Section 422 of the Internal
Revenue Code.
(5) To exercise this Option, the holder must deliver written notice
of the decision to do so and at the same time tender to the
Company payment in full of the exercise price for the shares for
which the Option is exercised, which payment may be made in (i)
cash, (ii) shares of the Common Stock, the total market value of
which equals the total option price of the shares with respect
to which the option is being exercised, or (iii) any combination
of cash and shares of the Common Stock, the total market value
of which equals the total option price of the shares with
respect to which the option is being exercised. With respect to
the foregoing sentence, the value of the shares of Common Stock
shall be the fair market value determined in accordance with
Section 4(d) of this Plan as of the day of such payment.
(6) The exercise of this Option shall be subject to the condition
that, if at any time the Board or the Committee (as defined in
the Plan) shall determine, in its discretion, that the
satisfaction of withholding tax or other withholding liabilities
under any state or federal law is necessary or desirable as a
condition of, or in connection with, such exercise or the
delivery or purchase of shares pursuant thereto, then in such
event, the exercise of the option shall not be effective unless
such withholding tax or other withholding liabilities shall have
been satisfied in a manner acceptable to the Company, which may
include the withholding by the Company of shares of Common Stock
to be issued upon exercise of an Option having a fair market
value equal to the required withholding amount.
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<PAGE> 13
This Option is not transferable except pursuant to the terms and conditions of
the Plan.
Very truly yours,
ELITE.COM INC.
By:
---------------------------------
Title:
------------------------------
I hereby accept the within Option and
acknowledge receipt of a copy of the Plan.
- ------------------------------------------
Optionee
Date:
-------------------------------------
<PAGE> 1
EXHIBIT 11
Elite Information Group, Inc.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) from continuing operations $ 3,794 $ (1,299) $ (2,120)
Net income (loss) from discontinued operations (382) (6,298) 5,059
Gain on sale of discontinued operations 4,919 -- --
--------- --------- ---------
Net income (loss) $ 8,331 ($ 7,597) $ 2,939
========= ========= =========
BASIC EARNINGS PER SHARE:
Weighted average common shares outstanding 8,305 8,815 9,085
========= ========= =========
Net income (loss) from continuing operations $ 0.46 $ (0.15) $ (0.23)
Net income (loss) from discontinued operations (0.05) (0.71) 0.55
Gain on sale of discontinued operations 0.59 -- --
--------- --------- ---------
Net income (loss) per common share $ 1.00 $ (0.86) $ 0.32
========= ========= =========
DILUTED EARNINGS PER SHARE:
Weighted average common shares outstanding 8,305 8,815 9,085
Addition from assumed exercise of stock options 279 -- 52
Weighted average common and common equivalent
--------- --------- ---------
shares outstanding 8,584 8,815 9,137
========= ========= =========
Net income (loss) from continuing operations $ 0.44 $ (0.15) $ (0.23)
Net income (loss) from discontinued operations (0.04) (0.71) 0.55
Gain on sale of discontinued operations 0.57 -- --
--------- --------- ---------
Net income (loss) per common and common equivalent share $ 0.97 $ (0.86) $ 0.32
========= ========= =========
</TABLE>
<PAGE> 1
EXHIBIT 13
FINANCIAL TABLE OF CONTENTS
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Consolidated Statement of Operations
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Stockholders' Equity
Notes to the Consolidated Financial Statements
Report of Independent Accountants
Quarterly Financial Data
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<PAGE> 2
SELECTED FINANCIAL DATA
CONSOLIDATED OPERATIONS(a)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenue $ 59,266 $ 45,062 $ 33,933 $ 26,090 $ 15,782
Operating expenses 53,639 47,316 37,251 31,527 29,399
-------- -------- -------- -------- --------
Operating income (loss) 5,627 (2,254) (3,318) (5,437) (13,617)
-------- -------- -------- -------- --------
Loss on disposition of non-strategic business unit (295) - - - -
Net interest income (expense) 1,154 857 832 (187) (493)
-------- -------- -------- -------- --------
Income (loss) from continuing operations before income taxes 6,486 (1,397) (2,486) (5,624) (14,110)
Income tax (provision) benefit for continuing operations (2,692) 98 366 1,865 4,261
-------- -------- -------- -------- --------
Income (loss) from continuing operations 3,794 (1,299) (2,120) (3,759) (9,849)
-------- -------- -------- -------- --------
Net income (loss) $ 8,331 $ (7,597) $ 2,939 $ (2,248) $(11,380)
======== ======== ======== ======== ========
Net income (loss) per share - Continuing operations:
Basic $ 0.46 $ (0.15) $ (0.23) $ (0.42) $ (1.09)
Diluted $ 0.44 $ (0.15) $ (0.23) $ (0.42) $ (1.09)
Net income (loss) per share:
Basic $ 1.00 $ (0.86) $ 0.32 $ (0.25) $ (1.26)
Diluted $ 0.97 $ (0.86) $ 0.32 $ (0.25) $ (1.26)
Weighted average shares outstanding:
- Basic 8,305 8,815 9,085 8,914 9,043
- Diluted 8,584 8,815 9,137 8,914 9,043
SELECTED BALANCE SHEET DATA 12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- --------
Cash and cash equivalents $ 31,152 $ 15,273 $ 17,965 $ 15,010 $ 2,053
Working capital $ 28,667 $ 14,070 $ 24,572 $ 15,907 $ 490
Total assets $ 66,116 $ 65,096 $ 67,343 $ 66,474 $ 83,245
Long-term debt, including current portion - - $ 138 $ 611 $ 2,373
Stockholders' equity $ 34,863 $ 25,019 $ 37,373 $ 32,190 $ 32,437
</TABLE>
(a) The comparability of the results of operations for the periods
presented are impacted by dispositions of certain businesses as discussed in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and by the acquisition of certain businesses in 1995. On May 19, 1999
the Company sold its Customer Relationship Management business ("CRM").
Therefore, operating results for CRM are presented on the Consolidated Statement
of Operations as discontinued operations and prior periods have been restated to
reflect the Company's continuing operations. Historical operating results for
continuing operations reflect higher levels of Corporate Headquarters related
costs which were incurred in support of both continued and discontinued
operations.
2
<PAGE> 3
ELITE INFORMATION GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Elite Information Group, Inc. ("Elite" or the "Company") is the parent
company to Elite Information Systems, Inc. and Elite.com, Inc. Elite Information
Systems is an international software product and services company that provides
a comprehensive suite of financial and practice management software applications
for law firms and other professional service organizations of all sizes. Elite
Information Systems' software products are often sold with related services to
aid the customer in implementation, data conversion and user training efforts.
Elite.com provides Internet-based time tracking and billing services to smaller
professional services companies including legal, management consulting, computer
systems consulting and integration, accounting and engineering. Elite.com
utilizes hosted, Internet-based applications and services delivered through its
various partners and alliances. Starting in January 2000 Elite.com began
offering its services to the public through the Elite.com web site.
On May 27, 1999, following the sale of CRM as described below, the
Company's stockholders approved an amendment of the Company's Certificate of
Incorporation to change its name to Elite Information Group, Inc., from Broadway
& Seymour, Inc. The Company also changed its NASDAQ trading symbol to ELTE and
continues to be traded as a National Market Issue on the NASDAQ.
On December 14, 1999 the Company entered into a merger agreement to be
acquired by Solution 6 Holdings Limited ("Solution 6") (ASX:SOH), which is based
in Sydney, Australia. As contemplated in the merger agreement, on December 21,
1999 Solution 6 initiated an all cash tender offer to purchase 100% of the
outstanding shares of Elite common stock. The tender offer is conditioned upon,
among other things, Solution 6 acquiring a majority of the fully diluted share
capital of Elite and obtaining necessary regulatory approvals. The merger
agreement may be terminated by either party without cause if the tender offer
has not been consummated by May 1, 2000. On January 6, 2000, the Company
announced that the Federal Trade Commission ("FTC") had requested additional
information and documentary material in connection with its review of the
proposed merger. The FTC request has resulted in an extension of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act and, accordingly,
the tender offer has been extended to permit the FTC to complete its review of
the proposed merger. The Company can give no assurance as to the timing or
outcome of the FTC's review or as to the timing or completion of the tender
offer and merger.
This Annual Report may contain certain "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended, that
represent the Company's expectations or beliefs concerning future events or
projected financial results. Such forward-looking statements are about matters
that are inherently subject to risks and uncertainties. Factors that could
influence the matters discussed in certain forward-looking statements include
the timing and amount of revenue that may be recognized by the Company,
continuation of current expense trends, absence of unforeseen changes in the
Company's markets, continued acceptance of the Company's existing services and
products in the Company's existing markets and the acceptance of these services
and products in new markets, the ability to timely complete the development of
new products and services, customer acceptance of new products and services and
general changes in the economy, as well as matters discussed in "Risks and
Uncertainties" of Management's Discussion and Analysis of Financial Condition
and Results of Operations. There can be no assurances that projected results
will be achieved and actual results could differ materially.
SIGNIFICANT TRANSACTIONS
The following is a brief summary of the significant transactions that
have had a material effect on the Company's historical operating results and
financial condition. See Notes to Consolidated Financial Statements, included
herein, for additional discussion related to such transactions.
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<PAGE> 4
Dispositions:
On May 19, 1999 the Company sold its Customer Relationship Management
business ("CRM"), based in Charlotte, NC, to Science Applications International
Corporation ("SAIC") (see Note 14 of Notes to Consolidated Financial Statements
herein). During the second quarter ended June 30, 1999, the Company recorded a
gain on sale of discontinued operations of $4.9 million, after an income tax
provision of $2.9 million, related to this disposition. The gain on sale
included certain transaction costs and other direct costs associated with the
sale. Operating results for CRM are presented on the Consolidated Statement of
Operations as discontinued operations and prior periods have been restated to
reflect the Company's continuing operations.
In March 1999 the Company sold all of the outstanding shares of The
Minicomputer Company of Maryland, Inc. ("TMC") to a holding company owned by TMC
management. During the first quarter ended March 31, 1999 the Company recorded a
loss on disposition of this non-strategic business unit of $.3 million.
In September 1997, the Company sold substantially all of the assets,
including proprietary rights, object code and source code, related to its
VisualImpact software product line, resulting in a $.2 million gain. Subsequent
to the sale and under the terms of the sale agreement, the Company received
royalties from the buyer of the VisualImpact product line of approximately $.6
million in both 1999 and 1998 and $.2 million in 1997. The operating results of
VisualImpact and the gain on sale are included in discontinued operations for
the 1997 reporting year.
Restructuring of Operations:
In 1998 the Company incurred restructuring charges of $.6 million for
termination benefits for 17 people related to the Company's efforts to re-size
its CRM staff, reflecting changing business conditions. In 1998 the Company
utilized cash of approximately $.4 million to satisfy obligations related to
such termination benefits and the remaining $.2 million was paid out in January
1999. Due to the May 1999 sale of CRM, the restructuring charges have been
classified as part of discontinued operations in the Company's Consolidated
Statement of Operations.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
Revenue for the year ended December 31, 1999 increased $14.2 million or
32%, to $59.3 million from $45.1 million for the previous year ended December
31, 1998. The Company's revenue growth in 1999 was greatly influenced by the
higher levels of orders received during 1998 and the first part of 1999. Signed
contracts in 1998 were 67% above the amount of orders signed during 1997.
Management believes that the increase in contract signings in 1998 was due in
part to Elite's introduction of products utilizing a wider variety of database
platforms and enhancements to existing product functionality. The Year 2000
issue may have also focused an increasing number of professional service firms
on replacing their existing systems by the end of 1999.
The Company's signed contract backlog totaled $11.6 million as of
December 31, 1999, compared to a record $26.4 million as of December 31, 1998.
Backlog represents the amount of unearned software license and implementation
revenue on signed customer contracts. This reduction in backlog can be
attributed to the lower levels of signed contracts in 1999 compared to 1998. The
reduced backlog levels led to lower contract license and implementation revenue
in the later part of 1999 which was offset by increased maintenance, training
and services revenue.
Gross profit, which represents net revenue less cost of revenue,
increased to $25.3 million (or 43% of revenue) in 1999 from $16.4 million (or
36% of revenue) in 1998. The Company's cost of revenue consists primarily of
expenses for deployable resources such as implementation personnel and contract
labor, salaries and related expenses for the Company's customer support
department, and amounts paid to third party software vendors. Elite's higher
1999 gross margin percent primarily reflects improvements in the Company's
revenue mix, including proportionately higher software license and maintenance
services revenues.
Research and development expenses increased by $1.3 million in 1999 to
$4.4 million (or 7% of revenue) from $3.1 million (or 7% of revenue) in 1998.
Research and development expenses consist primarily of salaries and expenses of
4
<PAGE> 5
the Company's development personnel and outside consultants. The increase was
partially related to the ongoing efforts to develop the next version of the
Elite suite of products, based on an advanced object-oriented architecture with
enhanced usability features. In addition, the Company has increased its
development spending on Internet related initiatives including the its new
Elite.com service. Elite is committed to maintaining its research and
development efforts so it can continue to provide marketable software solutions
as the needs of its customer base and target markets change.
Sales and marketing expenses decreased $.6 million in 1999 to $8.3
million (or 14% of revenue) from $8.9 million (or 20% of revenue) in 1998. Sales
and marketing expenses consist primarily of salaries, commissions, travel,
advertising and promotional expenses. The decrease in 1999 was due primarily to
lower sales commissions related to the reduced new contract sales noted above,
partially offset by increased marketing and promotional related expenses.
General and administrative expenses increased by $.3 million in 1999 to
$7.0 million (or 12% of revenue) from $6.7 million (or 15% of revenue) in 1998.
General and administrative expenses consist primarily of salaries of corporate
executive, legal, financial and human resources personnel as well as
professional fees and insurance costs. Higher general and administrative
expenses in 1999 can be attributed primarily to costs related to transferring
corporate functions from the Company's former corporate headquarters in
Charlotte, NC, to its Los Angeles office, as well as costs related with changing
the Company's name (see Note 15 of Notes to Consolidated Financial Statements
herein). Additionally, the Company incurred higher outside legal and consulting
costs associated with the pending merger with Solution 6. These expense
increases were partially offset by lower salaries and other costs following the
sale of the Company's CRM business (see Note 14 of Notes to Consolidated
Financial Statements herein).
1998 COMPARED TO 1997
Revenue for the year ended December 31, 1998 increased $11.2 million or
33%, to $45.1 million from $33.9 million for the previous year ended December
31, 1997. This increase was due in part to increased emphasis on expanding sales
to existing customers but was principally due to work performed under new
contracts to provide professional service firms with the Elite suite of
products. Management also believes that the increases in revenue were due to
Elite's introduction of products utilizing a wider variety of database
platforms. Also, the functionality of existing products was enhanced with
multi-language and multi-currency capabilities. The expansion of the Company's
customer base has also increased customer support and training revenue. In
addition, management believes the Year 2000 issue may have focused an increasing
number of professional service firms on replacing their existing systems by the
end of 1999.
Gross profit, which represents net revenue less cost of revenue,
increased to $16.4 million (or 36% of revenue) in 1998 from $10.1 million (or
30% of revenue) in 1997. This improvement reflects the increases in revenue
noted above without corresponding equivalent increases in costs of revenue. The
Company's cost of revenue consists primarily of expenses for deployable
resources such as implementation personnel and contract labor, salaries and
related expenses for the Company's customer support department, and amounts paid
to third party software vendors. The improved gross profit reflects a more
efficient utilization of these resources and a lower proportion of contract
labor in 1998. In addition, a more favorable sales mix with lower third party
hardware content also improved the gross margin.
Research and development expenses increased by $1.6 million in 1998 to
$3.1 million (or 7% of revenue) from $1.5 million (or 4% of revenue) in 1997.
Research and development expenses consist primarily of salaries and expenses of
the Company's development personnel and outside consultants. The increase was
principally related to efforts during the year to develop the next version of
the Elite suite of products, a 32-bit system with enhanced query capabilities
and object-oriented architecture. In addition, the Company's 1998 research and
development efforts included enhancement of its software products to work on
additional platforms as well as adding functionality. The Company is committed
to maintaining its research and development efforts so it can continue to
provide marketable software solutions as the needs of its customer base and
target markets change.
Sales and marketing expenses increased $2.9 million in 1998 to $8.9
million (or 20% of revenue) from $6.0 million (or 18% of revenue) in 1997. Sales
and marketing expenses consist primarily of salaries, commission, travel,
advertising and promotional expense. The increase in sales and marketing
expenses was due primarily to higher commissions related to the increased
revenue. In 1998, Elite also started a new sales incentive plan that increased
awards for contract signings and added a number of additional sales people.
5
<PAGE> 6
General and administrative expenses increased by $.7 million in 1998 to
$6.7 million (or 15% of revenue) from $6.0 million (or 18% of revenue) in 1997.
General and administrative expenses consist primarily of salaries of corporate
executive, legal, financial and human resources personnel as well as
professional fees and insurance costs. The increase was due primarily to higher
occupancy costs related to a move to a new office facility and additional
support expenses related to business growth.
INCOME TAXES
The provision for income taxes from continuing operations of $2.7
million (42% of pre-tax income) in 1999 exceeds the income tax expense at the
statutory rates for the year primarily due to the permanent difference of
non-deductible goodwill amortization, stock compensation expense, and state
income taxes. The income tax benefit from continuing operations of $.1 million
in 1998 and $.4 million in 1997 are a direct result of the pre-tax losses,
offset in part, by the permanent difference of non-deductible goodwill
amortization, stock compensation expense, and state income taxes. The Company
believes that the effective tax rate in 2000 will remain higher than the
statutory rate due to the ongoing non-deductible goodwill amortization
associated with the Company's acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had cash and cash equivalents of
approximately $31.2 million and working capital of approximately $28.7 million.
Cash and cash equivalents at December 31, 1998 totaled $15.3 million and working
capital was $14.1 million. The $15.9 million increase in cash over 1998 can
primarily be attributed to positive cash flow from operations and approximately
$8.1 million of net cash proceeds from the sale of the CRM business, after
income tax and other transaction related payments. During 1998, the Company
utilized approximately $5 million to acquire 1,000,000 shares of its own common
stock. The Company had positive cash flow from operations of approximately $9.9
million, $6.3 million and $2.5 million for 1999, 1998 and 1997, respectively.
In the third quarter of 1999 the Company made the decision to change
banking relationships and chose not to renew its two-year, $15 million revolving
credit facility, which the Company allowed to expire in October 1999. The
Company did not borrow under the credit facility during 1999. The Company is in
the process of negotiating a new revolving credit facility with another
financial institution.
Management believes that the Company's cash and cash equivalent
balances, anticipated cash flow from operations and other external sources of
available credit will be sufficient to meet the Company's future cash
requirements.
RISKS AND UNCERTAINTIES
Concentration of Revenue Sources:
The business and organizational characteristics of the Company's
customer base may vary significantly from period to period and may cause
fluctuations in the size and timing of revenue.
The majority of the Company's revenue is concentrated in the legal
services industry. However, no single customer accounts for 10% or more of the
consolidated revenue.
Fluctuations in Operating Results:
The Company's personnel and other operating expenses are based in part
on its expectations for work efforts needed to generate future revenue and are
relatively fixed in the short-term. If the Company is unable to generate
significant new engagements, or if there is any delay or cancellation of
engagements in a particular period, there could be a material adverse affect on
the Company's financial condition and results of operations.
Management believes that the Company could experience significant
fluctuations in future operating results caused by several factors, including
the size and timing of customer engagements; the length of the sales cycle;
market acceptance of
6
<PAGE> 7
its software systems and services; technological changes in computer systems and
environments; changes in the Company's or its competitors' pricing policies; the
Company's success in expanding to new markets; the mix of software systems and
services and changes in general economic conditions.
As a result of all of these factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
YEAR 2000 COMPLIANCE
Overview
Many software products, custom-developed software, and products embedded
with microprocessor chips were designed to store, process or perform
calculations using only the last two digits of a four-digit year date, for
example, "98" rather than "1998". These software systems and embedded products
may assume the first two digits of the year date to be "19" and as such they may
not be able to process dates with years following 1999. For example, "00" may be
treated by certain software systems as the year 1900 rather than the year 2000.
Results of this failure to process the date correctly could include
miscalculations, unpredictable or inconsistent results or complete system
failures. As a software vendor, the so-called "Year 2000 compliance" issue is an
issue that the Company must address with respect to its products as well as
software and systems provided by others that the Company uses internally.
During the Year 2000 date transition, the Company did not experience any
failure of mission critical systems nor has it experienced any significant
problem with regard to third party suppliers. Similarly, to management's
knowledge, the Company's customers have not experienced any significant Year
2000 problems with the Company's software products and services. The Company
does not anticipate any material adverse effect to its business or its customers
in the future as a result of Year 2000 related problems; however, it is possible
that such problems might still arise.
State of Readiness
The Company recognized the need to address the Year 2000 compliance
issue and in 1997 established a Year 2000 compliance committee to supervise and
monitor the planning, performance and assessment of the Company's Year 2000
compliance efforts. In the second half of 1997, the Company began developing an
inventory list of all its proprietary software products, third party products it
incorporates in its products or resells, infrastructure and internal use
products, facilities and office service systems and hardware products upon which
it relies. The Company's Year 2000 committee appointed individual team leaders
from various functional areas to be responsible for the efforts of assessing
Year 2000 compliance for each of the inventory list items.
Proprietary Software Products and Custom Developed Software: In May
1998, following a period of assessment and testing, the Company issued its Year
2000 readiness statement which specifically identified the current versions of
each of the Company's proprietary products that met the adopted standard. The
Company believes that its current versions of proprietary software products are
Year 2000 compliant; however, no assurance can be given that additional
modifications for Year 2000 compliance will not be necessary. The Company's
software products are integrated with its customers' software and hardware
systems and have, in many cases, been uniquely customized to the customers'
specifications. The Company has generally not tested its products as integrated
in its customers' operating environments. The customers' systems with which the
Company's products interoperate may not be Year 2000 compliant which may affect
the operation of the Company's products.
Some of the Company's former customers and current customers presently
use earlier versions of the Company's software products and/or associated custom
code that are not Year 2000 compliant. The Company has made efforts to
communicate with these customers to advise them that they will need to upgrade
to a Year 2000 compliant version of the Company's software product, revise
custom code or implement other alternatives to meet their business needs.
Third Party Products: Third party products integrated within the
Company's products are included in the test plans and compliance efforts that
the Company has for its own products. In addition, the Company has obtained
certification of Year 2000 compliance from most third party vendors whose
products are integrated in the Company's products or that are resold by the
Company.
7
<PAGE> 8
Infrastructure and Third Party Products Used Internally: The Company has
obtained certification of Year 2000 compliance from each of the vendors of its
internal use information technology systems. The Company has developed test
plans for these internal use systems following the same guidelines and standards
that it has used for its own products. The Company has developed test plans for
all critical internal use technology systems and the testing of these was
completed in 1999.
Risks and Costs
Because of the nature of the Company's business, the Company may be
subject to Year 2000 claims or litigation by: its customers; customers of
divested businesses where the Company retained potential product liabilities,
including the CRM business; or other parties. Many customers may have incurred
significant costs in making their information processing systems Year 2000
compliant and may seek to transfer such costs through litigation to information
processing industry vendors such as the Company. Although the ultimate outcome
of any litigation is uncertain, the Company does not believe that the ultimate
amount of liability, if any, from such actions would have a material adverse
effect on the Company. To date, the Company has not been subject to any such
claims or litigation.
The Company did not specifically hire additional personnel or make
material purchases of products to address Year 2000 compliance issues. The
expenditures made to date have principally related to salary costs of existing
personnel assigned to participate at various levels in the Company's compliance
efforts and costs associated with upgrading certain business systems. All costs
related to achieving Year 2000 compliance are being expensed as incurred. The
Company estimates that the costs incurred to date related to Year 2000
compliance efforts range between $.5 and $1.0 million.
As the Company did not, nor does it expect to, experience any
significant Year 2000 problems at or after the turn of the millennium, the
Company does not currently expect to incur any significant additional costs
related to its Year 2000 compliance efforts. All incremental costs associated
with the Year 2000 compliance issue will continue to be expensed as incurred.
EXCHANGE RATE FLUCTUATIONS
The Company's revenue is principally generated in the United States,
however for the years ending December 31, 1999, 1998, and 1997 the Company's
revenue generated outside the United States represented 16%, 17% and 22% of the
consolidated revenue from continuing operations, respectively. For those same
periods, revenue generated in Europe represented approximately 13%, 13% and 20%
of consolidated revenue from continuing operations, respectively. Since the
Company's contracts with non-U.S. customers generally denominate the amount of
payments to be received by the Company in local currencies, exchange rate
fluctuations between such local currencies and the U.S. dollar will subject the
Company to currency translation risks. Also, the Company may be subject to
currency transaction risks when the Company's contracts are denominated in a
currency other than the currency in which the Company incurs expenses related to
such contracts.
EURO CURRENCY
In January 1999, a new currency called the ECU or the "euro" was
introduced in certain Economic and Monetary Union (the "EMU") countries. During
2002, all EMU countries are expected to be operating with the euro as their
single currency. As a result, in less than two years all organizations
headquartered or maintaining a subsidiary in an EMU country are expected to need
to be euro currency enabled and computer software used by these organizations
will need to be euro currency enabled. The transition to the euro currency
involves the handling of parallel currencies and conversion of legacy data.
Uncertainty exists as to the effects the euro currency will have on the
marketplace. Additionally, all of the final rules and regulations have not yet
been defined and finalized by the European Commission with regard to the euro
currency. The Company is monitoring the rules and regulations as they become
known in order to make any changes to the software that the Company deems
necessary to comply with such rules and regulations. Although the Company
currently offers certain software products that are designed to be
multi-currency enabled and the Company believes that it will be able to
accommodate any required euro currency changes in its software products, there
can be no assurance that once the final rules and regulations are completed that
the Company's software will contain all of the necessary changes or meet all of
the euro currency requirements.
8
<PAGE> 9
NEW ACCOUNTING PRONOUNCEMENTS
In 1999, the Company adopted Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This SOP provides guidance on accounting for certain costs in
connection with obtaining or developing computer software for internal use and
requires that entities capitalize such costs once certain criteria are met.
Also in 1999, the Company adopted Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities." This SOP provides guidance on the
financial reporting of start-up costs and organization costs and requires costs
of start-up activities and organization costs to be expensed as incurred.
The adoption of SOP 98-1 and SOP 98-5 did not have a material impact on
the Company's consolidated results of operations, financial position or cash
flows.
In December 1999, the Securities and Exchange Commission staff (the
"staff") released Staff Accounting Bulletin No. 101 ("SAB 101") that provides
the staff's views in applying generally accepted accounting principles to
selected revenue recognition issues. The Company is required to adopt SAB 101
during 2000. Management is in the process of analyzing the provisions of SAB 101
and does not believe that adoption of SAB 101 will have a material Impact on the
Company's financial condition, results of operations or cash flows.
9
<PAGE> 10
ELITE INFORMATION GROUP, INC.
Consolidated Statement of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net revenue $ 59,266 $ 45,062 $ 33,933
-------- -------- --------
Operating expenses:
Cost of revenue 33,943 28,681 23,784
Research and development 4,377 3,059 1,472
Sales and marketing 8,347 8,901 5,954
General and administrative 6,972 6,675 6,041
======== ======== ========
Total operating expenses 53,639 47,316 37,251
-------- -------- --------
Operating income (loss) 5,627 (2,254) (3,318)
Loss on disposition of non-strategic business unit (295) -- --
Interest income, net 1,154 857 832
-------- -------- --------
Income (loss) from continuing operations before income taxes 6,486 (1,397) (2,486)
Income tax (provision) benefit for continuing operations (2,692) 98 366
-------- -------- --------
Income (loss) from continuing operations 3,794 (1,299) (2,120)
-------- -------- --------
Discontinued Operations:
Income (loss) from discontinued operations, net of income tax (382) (6,298) 5,059
Gain on sale of discontinued operations, net of income tax 4,919 -- --
======== ======== ========
Net income (loss) $ 8,331 $ (7,597) $ 2,939
======== ======== ========
Net income (loss) per share - continuing operations
- Basic $ 0.46 ($ 0.15) ($ 0.23)
- Diluted $ 0.44 ($ 0.15) ($ 0.23)
Net income (loss) per share - discontinued operations
- Basic ($ 0.05) ($ 0.71) $ 0.55
- Diluted ($ 0.04) ($ 0.71) $ 0.55
Net income per share - gain on sale of discontinued operations
- Basic $ 0.59 $- $-
- Diluted $ 0.57 $- $-
Net income (loss) per share
- Basic $ 1.00 ($ 0.86) $ 0.32
- Diluted $ 0.97 ($ 0.86) $ 0.32
Weighted average shares outstanding
- Basic 8,305 8,815 9,085
- Diluted 8,584 8,815 9,137
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
10
<PAGE> 11
ELITE INFORMATION GROUP, INC.
Consolidated Balance Sheet
(In thousands, except share data)
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 31,152 $ 15,273
Receivables 23,669 28,417
Deferred income taxes 3,321 6,131
Other current assets 972 1,930
-------- --------
Total current assets 59,114 51,751
Property and equipment, net 2,503 5,167
Software costs, net 718 3,309
Intangible assets, net 3,557 4,782
Other assets 224 87
-------- --------
$ 66,116 $ 65,096
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,260 $ 5,070
Accrued compensation 2,860 3,974
Other current liabilities 5,042 4,758
Deferred revenue and customer deposits 16,871 22,710
Income taxes payable 414 1,169
-------- --------
Total current liabilities 30,447 37,681
-------- --------
Deferred income taxes 804 1,392
-------- --------
Other liabilities 2 1,004
-------- --------
Commitment and contingencies
Stockholders' equity:
Common stock, $.01 par value; Authorized 20,000,000 shares;
Issued 9,355,373 and 9,228,623 shares, respectively 94 92
Paid-in capital 39,384 38,696
Treasury stock, at cost, 950,743 and 1,038,552 shares, respectively (4,604) (5,427)
Accumulated deficit (11) (8,342)
-------- --------
Total stockholders' equity 34,863 25,019
-------- --------
$ 66,116 $ 65,096
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
11
<PAGE> 12
ELITE INFORMATION GROUP, INC.
Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 8,331 $ (7,597) $ 2,939
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 3,404 5,277 5,687
Restructuring and impairment costs - 639 (706)
(Gain) loss on sale of non-strategic business units 295 (1,917) (1,155)
(Gain) on sale of discontinued operations (4,919) - -
Deferred income taxes 2,222 (3,229) 350
Loss on disposal of property and equipment 103 24 47
Changes in assets and liabilities excluding effects of
businesses divested:
Receivables (660) 2,910 (4,166)
Other assets 42 194 652
Accounts payable 1,658 (1,255) 489
Accrued compensation 609 1,333 457
Other liabilities 493 139 (2,475)
Deferred revenue and customer deposits (966) 10,978 464
Income taxes (755) (1,210) (102)
-------- -------- --------
Net cash provided by operating activities 9,857 6,286 2,481
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment (1,622) (2,885) (2,492)
Investment in software costs - (1,020) (239)
Net cash proceeds from sale of discontinued operations 8,054 - 1,736
Cash used in disposition of non-strategic business unit (691) - -
-------- -------- --------
Net cash provided (used) by investing activities 5,741 (3,905) (995)
-------- -------- --------
Cash flows from financing activities:
Purchase of treasury stock - (4,935) -
Payment of notes payable and long-term debt - (138) (473)
Proceeds from issuance of common stock 281 - 1,942
-------- -------- --------
Net cash provided (used) by financing activities 281 (5,073) 1,469
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 15,879 (2,692) 2,955
Cash and cash equivalents, beginning of period 15,273 17,965 15,010
-------- -------- --------
Cash and cash equivalents, end of period $ 31,152 $ 15,273 $ 17,965
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
12
<PAGE> 13
ELITE INFORMATION GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Paid-in Accumulated Treasury Stock
Shares Par value capital deficit Shares Cost Total
---------- ---------- -------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 8,988,608 $ 90 $ 36,276 $ (3,684) (38,552) $ (492) $ 32,190
Issuance of common shares in
business acquisitions 18,800 235 235
Issuance of common shares pursuant
to option and employee purchase plans 221,215 2 1,940 1,942
Tax benefit from exercise of certain
stock options 67 67
Net income 2,939 2,939
---------- ---------- -------- ---------- ---------- ---------- --------
Balance, December 31, 1997 9,228,623 $ 92 $ 38,518 $ (745) (38,552) $ (492) $ 37,373
Purchase of treasury stock (1,000,000) (4,935) (4,935)
Adjustments to paid-in-capital for
cancelled compensatory stock options 178 178
Net loss (7,597) (7,597)
---------- ---------- -------- ---------- ---------- ---------- --------
Balance, December 31, 1998 9,228,623 $ 92 $ 38,696 $ (8,342) (1,038,552) $ (5,427) $ 25,019
Issuance of common shares pursuant
to option and employee purchase plans 126,750 2 (377) 87,809 $ 823 448
Adjustments to paid-in-capital for
compensatory stock options 1,065 1,065
Net income 8,331 8,331
---------- ---------- -------- ---------- ---------- ---------- --------
Balance, December 31, 1999 9,355,373 $ 94 $ 39,384 $ (11) (950,743) $ (4,604) $ 34,863
========== ========== ======== ========== ========== ========== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
13
<PAGE> 14
ELITE INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS, CERTAIN SIGNIFICANT ESTIMATES AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Elite Information Group, Inc. ("Elite" or the "Company") is the parent
company to Elite Information Systems, Inc. and Elite.com, Inc. Elite Information
Systems is an international software product and services company that provides
a comprehensive suite of financial and practice management software applications
for law firms and other professional service organizations of all sizes. Elite
Information Systems' software products are often sold with related services to
aid the customer in implementation, data conversion and user training efforts.
Elite.com provides Internet-based time tracking and billing services to smaller
professional services companies including legal, management consulting, computer
systems consulting and integration, accounting and engineering. Elite.com
utilizes hosted, Internet-based applications and services delivered through its
various partners and alliances.
The presentation 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 the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. The more significant
estimates affecting the Company's financial statements relate to revenue
recognition, realizability of assets, allowance for uncollectible receivables
and useful lives used in depreciating property and equipment and amortizing
capitalized software costs and intangible assets.
The significant accounting policies used in the preparation of the
accompanying financial statements are as follows:
Principles of consolidation. The consolidated financial statements
include the accounts of the Company and its majority-owned subsidiaries. All
significant intercompany transactions have been eliminated in consolidation.
Discontinued operations. On May 19, 1999, the Company completed the sale
of its Customer Relationship Management ("CRM") business (see Note 14).
Operating results for CRM are classified as discontinued operations in the
Company's Consolidated Statement of Operations and prior periods have been
restated accordingly.
Historical balance sheet amounts. The December 31, 1998 balance sheet
includes certain assets and liabilities that were sold in May of 1999 as part of
the CRM business sale (See Discontinued operations above).
Revenue recognition. Revenue from services and from the licensing of
software with related services is generally recognized as work is performed
under the percentage of completion method of accounting with progress measured
using labor hours incurred to date compared to total estimated labor hours to be
incurred. Revenue from the licensing of software and the sale of hardware
products having no significant ongoing obligations is generally recognized upon
delivery of the product provided collection of the resulting receivable is
probable. Maintenance revenue is recognized ratably over the contract term.
Losses are recognized on contracts in the period in which the loss is determined
to be probable and estimable.
Cash equivalents. Cash equivalents are short-term, highly liquid
investments with maturities of three months or less.
Property and equipment. Property and equipment are recorded at cost.
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the related assets, which range from
three to ten years. Leasehold improvements are amortized using the straight-line
method over the lesser of their estimated useful lives, generally ten years, or
the remaining terms of the leases.
Software costs. The Company has capitalized certain software development
costs that are incurred after the establishment of technological feasibility and
prior to the availability of the software for general release in accordance with
Statement of Financial Accounting Standards No. 86 "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed." Capitalized
software costs are amortized using the straight-line method over the estimated
economic life of the products, up to a maximum of six years.
<PAGE> 15
Intangible assets. The excess of cost over fair value of assets acquired
is amortized using the straight-line method over ten years. Other intangible
assets are amortized using the straight-line method over the useful lives of the
assets, which range from five to ten years.
Impairment of long-lived assets. The Company continually monitors
conditions that may affect the carrying value of its property and equipment,
software costs and intangible assets. When conditions indicate potential
impairment of such assets, the Company undertakes necessary market and
technology studies and evaluates projected future earnings associated with these
assets. When projected future cash flows, not discounted for the time value of
money, are less than the carrying value of the asset, an impairment loss is
recognized.
Stock-based compensation. The Company has adopted Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation." Upon adoption, the Company elected to disclose in the footnotes
to its financial statements the impact of utilizing the fair value approach to
measure stock-based compensation, as provided for under the provisions of SFAS
123, and to exclude such impact from its recorded earnings. The Company measures
stock-based compensation based on the intrinsic value approach as provided for
under the provisions of Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" ("APB 25").
Fair Value of Financial Instruments. The fair value of the Company's
financial instruments such as cash and cash equivalents, receivables and
payables approximate the carrying value of such instruments at December 31,
1999.
Income (loss) per share. The Company computes earnings per share in
accordance with Statement of Financial Accounting Standards Number 128 "Earnings
per Share" ("SFAS 128"). SFAS 128 requires the presentation of basic and diluted
earnings per share for all periods presented. Basic earnings per share is
computed on the basis of the weighted average number of common shares
outstanding. Diluted earnings per share is computed on the basis of the weighted
average number of common shares outstanding combined with any outstanding common
stock equivalents (principally stock options) required to be included under the
"treasury stock" method. For the year ended December 31, 1998, there was no
difference between the basic and diluted number of common shares outstanding
because the Company had a net loss for the year and the effect of the assumed
exercise of common stock equivalents would have been anti-dilutive. The
following is a reconciliation of the denominator for the basic and diluted
earnings per share ("EPS") computation:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------------------------------
<S> <C> <C> <C>
Weighted average shares outstanding
Basic 8,305 8,815 9,085
-------------------------------
Effect of dilutive securities:
Options and employee stock purchase plan 279 -- 52
-------------------------------
Diluted 8,584 8,815 9,137
===============================
</TABLE>
Options with an exercise price greater than the average market price of
the common shares (or "anti-dilutive options") were not included in the
computation of diluted earnings per share. At December 31, 1999 and 1997, there
were outstanding anti-dilutive options to purchase 297,665 and 1,008,749 shares
of common stock at a weighted average price of $12.54 and $11.97, respectively.
Reclassifications. Certain prior year amounts have been reclassified to
conform with the current year presentation.
15
<PAGE> 16
New Accounting Pronouncements. In 1999, the Company adopted Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." This SOP provides guidance on accounting for certain
costs in connection with obtaining or developing computer software for internal
use and requires that entities capitalize such costs once certain criteria are
met.
Also in 1999, the Company adopted Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities." This SOP provides guidance on the
financial reporting of start-up costs and organization costs and requires costs
of start-up activities and organization costs to be expensed as incurred.
The adoption of SOP 98-1 and SOP 98-5 did not have a material impact on
the Company's consolidated results of operations, financial position or cash
flows.
In December 1999, the Securities and Exchange Commission staff (the
"staff") released Staff Accounting Bulletin No. 101 ("SAB 101") that provides
the staff's views in applying generally accepted accounting principles to
selected revenue recognition issues. The Company is required to adopt SAB 101
during 2000. Management is in the process of analyzing the provisions of SAB 101
and does not believe that adoption of SAB 101 will have a material Impact on the
Company's financial condition, results of operations or cash flows.
NOTE 2 - SIGNIFICANT TRANSACTIONS
On December 14, 1999 the Company entered into a merger agreement to be
acquired by Solution 6, which is based in Sydney, Australia. As contemplated in
the merger agreement, on December 21, 1999 Solution 6 initiated an all cash
tender offer to purchase 100% of the outstanding shares of Elite common stock at
$11.00 per share. The tender offer is conditioned upon, among other things,
Solution 6 acquiring a majority of the fully diluted share capital of Elite and
obtaining necessary regulatory approvals. The tender offer has been extended to
permit the Federal Trade Commission to complete its review of the merger. The
merger agreement may be terminated by either party without cause if the tender
offer has not been consummated by May 1, 2000. Per the terms of the merger
agreement, the Company must obtain authorization from Solution 6 before entering
into certain transactions as specified in the agreement.
On May 19, 1999 the Company sold its CRM business, based in Charlotte,
NC, to Science Applications International Corporation ("SAIC") (see Note 14).
During the second quarter ended June 30, 1999, the Company recorded a gain on
sale of discontinued operations of $4.9 million, after an income tax provision
of $2.9 million, related to this disposition.
In March 1999 the Company sold all of the outstanding shares of The
Minicomputer Company of Maryland, Inc. ("TMC") to a holding company owned by TMC
management. During the first quarter ended March 31, 1999 the Company recorded a
loss on disposition of this non-strategic business unit of $.3 million.
In September 1997, the Company sold substantially all of the assets of
its VisualImpact software product line. The Company is entitled to receive
royalties based primarily on end user revenue of the business, determined
quarterly through the fourth quarter of the year 2000. Subsequent to the sale
and under the terms of the sale agreement, the Company has received royalties
from the buyer of the VisualImpact product line of approximately $.6 million in
both 1998 and 1999, and $.2 million in 1997. The gain on the transaction was
approximately $.2 million. The operating results of VisualImpact and the gain on
sale are included in discontinued operations for the 1997 reporting year.
NOTE 3 - SEGMENT INFORMATION, SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
In June 1997, the FASB issued Statement of Financial Accounting
Standards Number 131 "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131") which changes the way that public companies report
information about operating segments in annual financial statements and interim
financial reports. The Company adopted SFAS 131 beginning in its 1998 annual
financial statements.
Following the sale of CRM and the TMC businesses, for 1999 the Company's
only reportable segment is its Elite Information Systems' financial and practice
management software business.
16
<PAGE> 17
The business and organizational characteristics of the Company's
customer base may vary significantly from period to period and may cause
fluctuations in the size and timing of revenue. The majority of Company's
revenue is concentrated in the legal services industry. However, no single
customer accounts for 10% or more of the Company's total revenue.
The Company's assets are principally located in North America. The
Company's revenue is principally generated in North America, however for the
years ending December 31, 1999, 1998 and 1997 the Company's revenue generated
outside the United States represented 16%, 17% and 22% of the consolidated
revenue, respectively. For those same periods, revenue generated in Europe
represented approximately 13%, 13% and 20% of consolidated revenue,
respectively. Since the Company's contracts with non-U.S. customers generally
denominate the amount of payments to be received by the Company in local
currencies, exchange rate fluctuations between such local currencies and the
U.S. dollar will subject the Company to currency translation risks. Also, the
Company may be subject to currency transaction risks when the Company's
contracts are denominated in a currency other than the currency in which the
Company incurs expenses related to such contracts.
NOTE 4 - RECEIVABLES
At December 31, 1999 and 1998 receivables consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Trade $ 22,490 $ 26,052
Unbilled 2,721 2,967
Other 485 1,036
--------- ---------
25,696 30,055
Less - Allowance for doubtful accounts (2,027) (1,638)
--------- ---------
$ 23,669 $ 28,417
========= =========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
At December 31, 1999 and 1998 property and equipment consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Equipment $ 3,347 $ 13,847
Furniture and fixtures 633 2,345
Leasehold improvements 911 1,568
-------- --------
4,891 17,760
Less - Accumulated depreciation (2,388) (12,593)
-------- --------
$ 2,503 $ 5,167
======== ========
</TABLE>
Depreciation expense from continuing operations was $.7 million, $.7
million and $.5 million for 1999, 1998 and 1997, respectively.
NOTE 6 - SOFTWARE COSTS
The Company capitalized software development costs from continuing
operations of approximately $.2 million in both 1998 and 1997. The Company
capitalized software development costs, on a consolidated basis including
discontinued
17
<PAGE> 18
operations, of $1.0 million and $.2 million in 1998 and 1997, respectively.
Capitalized software costs in the accompanying balance sheet also include the
cost of purchased software.
Accumulated amortization for software costs was $5.4 million and $9.0
million at December 31, 1999 and 1998, respectively. The reduction in
accumulated amortization in 1999 from 1998 is the result of the sale of the
Company's CRM business in May 1999. Software amortization expense from
continuing operations was approximately $1.0 million in 1999, 1998 and 1997.
In connection with certain software developed or acquired by the Company
and licensed to customers, the Company is obligated to pay royalties to third
parties. The agreements generally provide for payment of a specific amount for
each user licensed by the Company. Royalty expense from continuing operations
was $.9 million, $1.6 million and $.6 million for 1999, 1998 and 1997,
respectively.
NOTE 7 - INTANGIBLE ASSETS
At December 31, 1999 and 1998 intangible assets consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Excess of cost over fair value of assets acquired $ 5,690 $ 6,443
Customer lists and maintenance contracts 2,700 2,700
Assembled workforce 1,800 1,800
-------- --------
10,190 10,943
Less- Accumulated amortization (6,633) (6,161)
-------- --------
$ 3,557 $ 4,782
======== ========
</TABLE>
Intangible asset amortization expense from continuing operations was $.9 million
for 1999, and $1.2 million for both 1998 and 1997.
NOTE 8 - RESTRUCTURING CHARGE
In 1998 the Company incurred restructuring charges of approximately $.6
million for termination benefits for 17 people related to the Company's efforts
to re-size its CRM staff, reflecting changing business conditions. In 1998 the
Company utilized cash of approximately $.4 million to satisfy obligations
related to these termination benefits and the remaining $.2 million was paid out
in January 1999. Due to the May 1999 sale of the CRM business, the restructuring
charges have been classified as part of discontinued operations in the Company's
Consolidated Statement of Operations.
NOTE 9 - BANK AND CREDIT FACILITY
In the third quarter of 1999 the Company made the decision to change
banking relationships and chose not to renew its two-year, $15 million revolving
credit facility, which it allowed to expire in October 1999. The Company did not
borrow under the credit facility during 1999. The Company is in the process of
negotiating a new revolving credit facility with another financial institution.
Cash paid for credit line fees and interest on debt was less than $.1
million for 1999, 1998 and 1997, respectively.
NOTE 10 - EMPLOYEE BENEFIT PLANS
18
<PAGE> 19
The Company maintains a 401(k) retirement plan to which qualified
employees may contribute from 1% to 15% of eligible annual compensation. The
Company matches 50% of these contributions, up to a maximum of 6% of each
participant's compensation for the plan year. Company contributions totaled
approximately $.5 million, $.8 million and $.7 million for 1999, 1998 and 1997,
respectively.
The Company had an Employee Stock Purchase Plan ("ESPP"), which expired
December 31, 1999, under which substantially all employees could purchase up to
an aggregate of 1,000,000 shares of the Company's common stock. The purchase
price of the shares under the plan was 85% of the lesser of the fair value of
the Company's common stock at the beginning of the plan year or at the end of
the plan year. Employees could designate up to 10% of their compensation to be
withheld towards the purchase of stock under the plan, up to a maximum value of
$25,000 based on the fair market value as of the beginning of each plan year.
The Company could provide shares under the plan from shares authorized and
unissued or from shares acquired and held in treasury. The Company will consider
instituting a new ESPP during 2000.
NOTE 11 - INCOME TAXES
The components of the provision (benefit) for income taxes from
continuing operations for 1999, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Current provision (benefit):
Federal $ 1,535 $ 2,957 ($ 613)
State 141 261 (54)
------- ------- -------
1,676 3,218 (667)
------- ------- -------
Deferred provision (benefit):
Federal 933 (3,047) 277
State 83 (269) 24
------- ------- -------
1,016 (3,316) 301
------- ------- -------
$ 2,692 $ (98) $ (366)
======= ======= =======
</TABLE>
A reconciliation of income taxes computed at the statutory federal
income tax rate to the recorded provision for income taxes is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Provision (benefit) for income taxes computed
at the statutory federal rate $ 2,205 ($ 475) ($ 845)
Non-deductible amortization and
impairment of intangible assets 207 204 204
Stock compensation 18 181 181
State income taxes, net of federal income
tax benefit 201 (43) (77)
Other 61 35 171
------- ------- --------
$ 2,692 ($ 98) ($ 366)
======= ======= ========
</TABLE>
19
<PAGE> 20
Deferred tax assets (liabilities) recognized in the Company's balance sheet at
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
--------- -----------
(In thousands)
Deferred tax assets:
Assets allowances $ 750 $ 710
Deferred revenue and other accruals 1,778 4,989
Net operating losses and other carryforwards 1,684 1,555
Compensation deductions 344 --
Other deductions 449 432
-------- ----------
Gross deferred tax assets 5,005 7,686
-------- ----------
Less: valuation allowance (1,684) (1,555)
-------- ----------
Deferred tax assets 3,321 6,131
-------- ----------
Deferred tax liabilities, net:
Property and equipment -- (73)
Software costs and intangible assets (804) (1,094)
Other liabilities -- (225)
--------- ----------
(804) (1,392)
--------- ----------
$ 2,517 $ 4,739
========= ==========
</TABLE>
Cash paid for income taxes was approximately $3.5 million, $1.0 million
and $3.4 million for 1999, 1998 and 1997, respectively.
At December 31, 1999, the Company had approximately $19 million in state
net operating loss ("NOL") carryforwards. A full valuation allowance has been
recorded against the state NOLs based on management's judgement as to current
separate company income limitations. Management has evaluated the Company's
other deferred tax assets and believes that such assets will more likely than
not be realized. The Company utilized $2.4 million and $4.9 million of its state
NOLs during 1999 and 1997, respectively.
NOTE 12 - STOCKHOLDERS' EQUITY
The Company's authorized capital stock consists of 20,000,000 shares of
$.01 par value common stock and 2,000,000 shares of $.01 par value preferred
stock. The preferred stock is issuable in one or more series with such rights,
preferences and privileges, as the Company's Board of Directors shall determine.
On April 13, 1999, the Board of Directors of the Company implemented a
shareholder rights plan and declared a dividend of one preferred share purchase
right (a "Right") for each outstanding share of common stock, par value $.01 per
share, of the Company. The dividend was paid on April 26, 1999, to the
stockholders of record on that date. Each Right entitles the registered holder
to purchase from the Company one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $.01 per share, of the Company (the
"Preferred Stock") at a price of $22.00 per one one-hundredth of a share of
Preferred Stock, subject to adjustment. The description and terms of the Rights
are set forth in a Rights Agreement, dated as of April 14, 1999, as the same may
be amended from time to time, between the Company and EquiServe Trust Company,
N.A., as Rights Agent. On December 14, 1999, in connection with the Company's
execution of the merger agreement with Solution 6, it amended the Rights
Agreement to exempt the transactions contemplated by the merger agreement from
the operation of the Rights Agreement.
At December 31, 1999, options for 125,665 shares of common stock were
outstanding under the Company's former Restated 1985 Incentive Stock Option Plan
(the "1985 Plan"), which was terminated in June 1995. No additional options
20
<PAGE> 21
may be granted under this plan. The 1985 Plan is administered by the
Compensation Committee of the Company's Board of Directors. Options were granted
under the 1985 Plan at a price not less than 100% of the fair market value of
the shares subject to options (or 110% of fair market value in the case of an
optionee who owns, directly or indirectly, more than 10% of the total combined
voting power of all classes of shares of the Company immediately before such
option is granted). Options are exercisable in six equal annual installments
beginning on the date of grant and expire ten years from the date of grant.
During 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan") under which options for up to 875,000 shares of the Company's common
stock may be granted to key employees and directors. Options for 568,975 shares
of common stock were outstanding under the 1996 Plan at December 31, 1999. The
1996 Plan is administered by the Compensation Committee of the Company's Board
of Directors which determines the price, exercise date and term (not to exceed
10 years) of each option granted to employees. Options may be granted under the
1996 Plan at a price not less than 100% of the fair market value of the shares
subject to options. In addition, the 1996 Plan provides for the formula grant of
options to members of the Company's Board of Directors. During 1999, an employee
of the Company voluntarily forfeited 400,000 options, returning them to the
Company. In January 1999, the Company granted 503,000 options under the 1996
plan at the then current fair market value of $2.34 to certain key employees,
which did not include the employee who had forfeited options. These options
vested one-half upon grant and one-half one-year later. The Company recognized
$.1 million, $. 5 million and $.5 million of stock based compensation related to
options granted under this plan in 1999, 1998 and 1997, respectively.
The following table sets forth the changes in the number of shares
subject to options for the 1985 and 1996 Plans during 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Weighted
Number Option Price Average
of Shares per Share($) Option Price($)
---------- ----------- -----
<S> <C> <C> <C>
Outstanding at December 31, 1996 1,316,505 6.80-25.50 12.10
Granted 37,000 11.00-14.00 12.60
Exercised (101,668) 6.80-11.25 9.05
Canceled or expired (201,754) 7.75-25.50 15.24
----------
Outstanding at December 31, 1997 1,050,083 7.75-25.50 11.82
Granted 28,000 3.06-8.69 6.19
Exercised --
Canceled or expired (102,839) 7.75-25.50 11.02
----------
Outstanding at December 31, 1998 975,244 3.06-25.50 11.62
Granted 673,000 2.34-7.50 3.15
Exercised (126,750) 2.34-3.34 2.36
Canceled or expired (826,854) 2.34-25.50 9.68
----------
Outstanding at December 31, 1999 694,640 2.34-25.50 7.32
==========
Exercisable at December 31, 1999 359,988
==========
</TABLE>
During 1999, the Board of Directors of Elite.com adopted the Elite.com
1999 Stock Option Plan ("the 1999 Plan"). Under the 1999 Plan, an aggregate of
1,500,000 shares of Elite.com common stock is reserved for option grants to
officers and key employees of Elite.com. The 1999 Plan is administered by the
Elite.com Board of Directors, which determines the price, exercise date and term
(not to exceed 10 years) of each option granted to employees. Under the 1999
Plan, options may be granted at a price not less than 100% of the fair market
value of the shares subject to options. Because Elite.com common stock is not
publicly traded, all options granted in 1999 were granted at an exercise price
of $0.15 per share, the deemed fair market value per share. Such value is
determined by the Elite.com Board of Directors based on factors that the board
believes affects fair market value. As of December 31, 1999, 1,090,000 options
were granted and no options had been exercised or canceled.
21
<PAGE> 22
Pursuant to the requirements of SFAS No. 123, the following disclosures
are presented to reflect the Company's pro forma net income (loss) and net
income (loss) per common and common equivalent share, as if the Company had
elected to use the fair value method of accounting prescribed by SFAS No. 123,
rather than continuing to apply the provisions of APB 25. In preparing these
disclosures, the Company has determined the value of all options granted during
1999, 1998 and 1997 using the average value method, as described in SFAS No.
123, and based on an assumed dividend yield rate of zero percent, a weighted
average risk free rate of 6.7% for 1999, 4.5% for 1998 and 6.1% for 1997 and
weighted average expected lives of approximately 5 to 9 years, depending on the
grant date. The weighted average fair value of options on the date of grant for
1999, 1998 and 1997 were $1.83, $3.03 and $5.93, respectively. Had compensation
expense been determined consistent with SFAS No. 123, utilizing these
assumptions and the straight-line amortization method over the vesting period,
the Company's net income (loss) and net income (loss) per common and common
equivalent share would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
($ in thousands, except per share amounts)
<S> <C> <C> <C>
Net income (loss) As reported $ 8,331 $ (7,597) $ 2,939
Pro forma 8,007 $ (9,365) $ 479
Income (loss) per diluted share As reported $ 0.97 $ (0.86) $ 0.32
Pro forma $ 0.93 $ (1.06) $ 0.05
</TABLE>
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases equipment and facilities under operating leases.
Rental expense from continuing operations for operating leases was $.7 million,
$.7 million and $.4 million for 1999, 1998 and 1997, respectively. As of
December 31, 1999 there is approximately $.9 million of deferred lease
incentives that will reduce the annual lease expense related to the Company's
office facilities by approximately $.1 million per year through June 30, 2008.
Future minimum lease payments under operating leases having an initial or
remaining non-cancelable term in excess of one year are as follows:
<TABLE>
<CAPTION>
Future Minimum
Lease Payments
-----------------
(In thousands)
<S> <C>
Years ending December 31:
2000 $ 712
2001 816
2002 816
2003 837
2004 & thereafter 4,057
-------
$ 7,238
=======
</TABLE>
Legal Matters
The Company is exposed to certain asserted and unasserted claims
encountered in the normal course of business. In the opinion of management, the
resolution of these matters is not expected to have a material adverse effect on
the Company's financial position or results of operations.
22
<PAGE> 23
Acquisition Earnout
In June 1995, the Company acquired certain assets and liabilities of
TMC. In connection with this acquisition, the sellers of TMC were entitled to
receive additional shares of the Company's common stock through June of 1998 in
the event certain annual financial and other targets were met. In 1998 the
Company amended its purchase agreement with the sellers of TMC to specify that
the 1998 earn-out would be paid in cash. In connection with this earn-out
provision, the Company paid cash of $320,000 in 1998 and issued stock valued at
approximately $235,000 in 1997 to the sellers of TMC and recorded expense for
such amounts.
NOTE 14 - DISCONTINUED OPERATIONS
On May 19, 1999 the Company sold its CRM business, based in Charlotte,
NC, to Science Applications International Corporation ("SAIC"). During the
second quarter ended June 30, 1999, the Company recorded a gain on sale of
discontinued operations of $4.9 million, after an income tax provision of $2.9
million, related to this disposition. The gain on sale included certain
transaction costs and other direct costs associated with the sale. The Company
received approximately $14.3 million in cash proceeds from the transaction.
Operating results for CRM are classified as discontinued operations on
the Company's Consolidated Statement of Operations. Revenue applicable to
discontinued operations for 1999 through the date of sale, and for the years
ended December 31, 1998 and 1997 totaled $10,911,000, $23,973,000 and
$45,626,000, respectively. Income (loss) from discontinued operations for 1999
through the date of sale, and for the years ended December 31, 1998 and 1997 are
net of income tax provision (benefits) of $(222,000), $(3,444,000) and
$2,765,000, respectively.
NOTE 15 - CORPORATE NAME CHANGE
On May 27, 1999, the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to change its name to Elite Information
Group, Inc., from Broadway & Seymour, Inc. The name change became effective on
May 27, 1999. The Company also changed its NASDAQ trading symbol to ELTE and
will continue to trade as a National Market Issue on the NASDAQ under ELTE.
NOTE 16 - SUBSEQUENT EVENT
On January 6, 2000 the Company announced that the Federal Trade
Commission ("FTC") had requested additional information and documentary material
in connection with its review of the proposed merger between Elite and Solution
6 Holdings Limited. The FTC request has resulted in an extension of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act. The Company can
give no assurances as to the timing or outcome of the FTC's review or as to the
timing or completion of the tender offer and merger.
23
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Elite Information Group, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, cash flows and changes in stockholders'
equity present fairly, in all material respects, the financial position of Elite
Information Group, Inc. (formerly Broadway & Seymour, Inc.) and its subsidiaries
at December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
February 14, 2000
24
<PAGE> 25
RESULTS BY QUARTER AND CAPITAL STOCK INFORMATION
Unaudited
<TABLE>
<CAPTION>
1999 Quarter Ended 1998 Quarter Ended
----------------------------------------- -------------------------------------------
In thousands except per share data 3/31/99 6/30/99 9/30/99 12/31/99 3/31/98 6/30/98 9/30/98 12/31/98
-------- -------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 12,988 $ 15,401 $15,381 $15,496 $ 8,343 $ 10,850 $ 12,385 $ 13,484
Cost of revenue 7,926 8,430 8,974 8,613 5,805 7,192 7,643 8,041
Operating expenses 4,804 5,801 4,765 4,326 3,521 4,464 4,838 5,812
Operating income (loss) 258 1,170 1,642 2,557 (983) (806) (96) (369)
Loss on disposition of
non-strategic business units (295) -- -- -- -- -- -- --
Interest income, net 163 260 354 377 249 235 246 127
-------- -------- ------- ------- ------- -------- -------- --------
Income (loss) from
continuing operations 67 720 1,217 1,790 (683) (531) 139 (224)
Discontinued operations:
Income (loss) from operations,
net of income tax (49) (333) -- -- 684 (2,136) (2,852) (1,994)
Gain on sale, net of income tax -- 4,919 -- -- -- -- -- --
-------- -------- ------- ------- ------- -------- -------- --------
Net income (loss) $ 18 $ 5,306 $ 1,217 $ 1,790 $ 1 $ (2,667) $ (2,713) $ (2,218)
======== ======== ======= ======= ======= ======== ======== ========
Net income (loss) per diluted share:
Continuing operations $ 0.01 $ 0.08 $ 0.14 $ 0.21 $ (0.07) $ (0.06) $ 0.02 $ (0.03)
Discontinued operations:
Income (loss) from operations,
net of income tax $ (0.01) $ (0.04) -- -- $ 0.07 $ (0.23) $ (0.33) $ (0.24)
Gain on sale, net of income tax -- $ 0.57 -- -- -- -- -- --
Net income (loss) $ 0.00 $ 0.62 $ 0.14 $ 0.21 $ 0.00 $ (0.29) $ (0.31) $ (0.27)
======== ======== ======= ======= ======= ======== ======== ========
</TABLE>
MARKET FOR COMMON STOCK
The Company's common stock, $.01 par value, trades on the National Association
of Securities Dealers, Inc. Nasdaq National Market System ("NASDAQ") under the
symbol ELTE (formerly BSIS). The following table shows the price range of the
Company's common stock for the past two years:
<TABLE>
<CAPTION>
1999 Quarter Ended 1998 Quarter Ended
------------------------------------------- -------------------------------------------
3/31/99 6/30/99 9/30/99 12/31/99 3/31/98 6/30/98 9/30/98 12/31/98
------ ------ ------ ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High $ 4.00 $ 6.00 $ 6.63 $10.69 $ 9.06 $ 8.00 $ 7.63 $ 3.75
Low $ 2.25 $ 3.63 $ 4.94 $ 4.66 $ 7.13 $ 5.25 $ 3.25 $ 2.25
</TABLE>
25
<PAGE> 1
Exhibit 21
ELITE INFORMATION GROUP, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of Percentage
Name of subsidiary Incorporation ownership
------------------ ------------- ---------
<S> <C> <C>
Elite Information Systems, Inc. California 100%
Elite.com, Inc. Delaware 100%
Elite Information Systems International, Inc. California 100%
Elite Belgium, Inc. North Carolina 100%
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-85924 and No. 33-81130) of Elite Information
Group, Inc. of our report dated February 14, 2000, relating to the financial
statements, which appears in the Annual Report to shareholders, which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated February 14, 2000 relating to the
financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Los Angeles, California
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ON MAY 19, 1999, THE COMPANY COMPLETED THE SALE OF ITS CUSTOMER RELATIONSHIP
MANAGEMENT BUSINESS. THE COMPANY RECORDED A GAIN ON SALES OF DISCONTINUED
OPERATIONS OF $4,919,000, NET OF TAXES.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US CURRENCY
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 31,152,000
<SECURITIES> 0
<RECEIVABLES> 25,696,000
<ALLOWANCES> (2,027,000)
<INVENTORY> 0
<CURRENT-ASSETS> 59,114,000
<PP&E> 4,891,000
<DEPRECIATION> (2,388,000)
<TOTAL-ASSETS> 66,116,000
<CURRENT-LIABILITIES> 30,447,000
<BONDS> 0
0
0
<COMMON> 94,000
<OTHER-SE> 34,769,000
<TOTAL-LIABILITY-AND-EQUITY> 66,116,000
<SALES> 59,266,000
<TOTAL-REVENUES> 59,266,000
<CGS> 33,943,000
<TOTAL-COSTS> 33,943,000
<OTHER-EXPENSES> 19,696,000
<LOSS-PROVISION> 1,751,00
<INTEREST-EXPENSE> (1,154,000)
<INCOME-PRETAX> 6,486,000
<INCOME-TAX> (2,692,000)
<INCOME-CONTINUING> 3,794,000
<DISCONTINUED> 4,537,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,331,000
<EPS-BASIC> 1.00
<EPS-DILUTED> 0.97
</TABLE>
