-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q3O2229U/mF6IM99NCdPo9hZP+R4Yfg2hvcHBA0Ed2RPR7LXMPlD5aYaQYL9LcfU 5odviYSoNM0nDU+ynahENQ== 0000950148-00-000565.txt : 20000331 0000950148-00-000565.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950148-00-000565 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELITE INFORMATION GROUP INC CENTRAL INDEX KEY: 0000885533 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 411522214 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20034 FILM NUMBER: 586556 BUSINESS ADDRESS: STREET 1: 5100 WEST GOLDLEAF CIRCLE STREET 2: SUITE 100 CITY: LOS ANGELES STATE: CA ZIP: 90056 BUSINESS PHONE: 704-372-4281 MAIL ADDRESS: STREET 1: 128 SOUTH TRYON STREET CITY: CHARLOTTE STATE: NC ZIP: 28202 FORMER COMPANY: FORMER CONFORMED NAME: BROADWAY & SEYMOUR INC DATE OF NAME CHANGE: 19930328 10-K 1 FORM 10-K YEAR ENDED DECEMBER 31, 1999 1 ================================================================================ 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 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 5100 WEST GOLDLEAF CIRCLE LOS ANGELES, CALIFORNIA 90056 ----------------------- ----- (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. ================================================================================ 2 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. 2 3 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 3 4 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. 4 5 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 5 6 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 6 7 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 7 8 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 8 9 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. 9 10 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. 10 11 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.
DIRECTOR EXECUTIVE NAME AND AGE PRINCIPAL OCCUPATION SINCE OFFICER SINCE ------------ -------------------- ----- ------------- 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)
11 12 - --------------------------- (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:
CLASS I CLASS II CLASS III ------------------------------------- ----------------------------------- ----------------------------------- Christopher K. Poole David A. Finley Alan Rich Roger Noall William G. Seymour Arthur G. Epker III
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 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 14 SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL COMPENSATION SECURITIES ------------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($) - ------------------------------------- ---- -------- -------- ------- ------- 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
---------------- (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 $144,772, paid to Mr. Hall for relocation expenses, and matching contributions made by the Company under the Company's 401(k) retirement plan. (7) Mr. Emerson's employment with the Company commenced in May 1999. 14 15 The following table sets forth certain information concerning grants of stock options during the year ended December 31, 1999 to the executive officers named in the Summary Compensation Table. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE NUMBER OF % OF TOTAL VALUE AT ASSUMED SECURITIES OPTIONS ANNUAL RATES OF STOCK UNDERLYING GRANTED PRICE APPRECIATION FOR OPTIONS TO EMPLOYEES EXERCISE OR OPTION TERM GRANTED IN BASE PRICE EXPIRATION ------------------------- NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($) - -------------------- -------- -------- -------- -------- -------- -------- 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 $219,250
---------------- (1) The options were 100% vested as of January 19, 2000. (2) These options are currently 100% unvested, and will vest over 3 years in annual installments of 33.33% beginning on May 26, 2000. The following table sets forth certain information with regard to stock options held at December 31, 1999 by each of the executive officers named in the Summary Compensation Table. No options were exercised by any of the executive officers named in the Summary Compensation Table in the year ended December 31, 1999. 15 16 FY-END OPTION VALUES
VALUE OF SECURITIES UNDERLYING NUMBER OF SECURITIES UNDERLYING UNEXERCISED IN-THE-MONEY UNEXERCISED OPTIONS AT FY-END(#) OPTIONS AT FY-END($) NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1) ---- ------------------------- ---------------------------- 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
----------------- (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 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 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 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:
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(1) ------------------- -------------------- ----------- 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
--------------------- (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 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.
SHARES BENEFICIALLY OWNED (2) ----------------------------- NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT - --------------------------- -------- ---------- 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%
---------------- * 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 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 22
Page ---- Schedule II - Valuation and Qualifying Accounts and Reserves 27 Report of Independent Accountants on the Financial Statement Schedule 28
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 23 (a)(3) Exhibits:
Exhibit No. Description - ----------- ----------- 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)
23 24 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)
24 25 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.
* Filed herewith. + Management contract or compensatory plan or arrangements required to be filed as an exhibit. (b) Reports on Form 8-K: None. 25 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.
Signature Title --------- ----- /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
26 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)
Balance at Additions Balance at beginning charged to end of period expense Deductions Other of period ------- ------- ------- ------- ------- 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
(1) Relates to reserve balance of the CRM business, sold on May 19, 1999. 27 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 EX-10 2 MATERIAL CONTRACT 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. 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 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 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 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 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 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 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 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 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 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 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 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 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 EX-10.21 3 MATERIAL CONTRACT 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 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 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 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 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 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 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. 7 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 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. 9 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 10 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. 11 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. 12 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: ------------------------------------- EX-11 4 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 Elite Information Group, Inc. COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share data)
Year Ended December 31, ----------------------------------------------------- 1999 1998 1997 --------- --------- --------- 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 ========= ========= =========
EX-13 5 ANNUAL REPORT 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 1 2 SELECTED FINANCIAL DATA CONSOLIDATED OPERATIONS(a)
1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- (In thousands, except per share data) 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
(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 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. 3 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 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 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 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 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 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 10 ELITE INFORMATION GROUP, INC. Consolidated Statement of Operations (In thousands, except per share data)
For the Years Ended December 31, -------------------------------------- 1999 1998 1997 -------- -------- -------- 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
The accompanying notes are an integral part of these consolidated financial statements. 10 11 ELITE INFORMATION GROUP, INC. Consolidated Balance Sheet (In thousands, except share data)
As of December 31, ----------------------- 1999 1998 -------- -------- 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 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 11 12 ELITE INFORMATION GROUP, INC. Consolidated Statement of Cash Flows (In thousands)
For the Years Ended December 31, 1999 1998 1997 -------- -------- -------- 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 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 12 13 ELITE INFORMATION GROUP, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands, except share data)
Common Stock Paid-in Accumulated Treasury Stock Shares Par value capital deficit Shares Cost Total ---------- ---------- -------- ---------- ---------- ---------- -------- 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 ========== ========== ======== ========== ========== ========== ========
The accompanying notes are an integral part of these consolidated financial statements. 13 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. 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:
FOR THE YEARS ENDED DECEMBER 31, ------------------------------- 1999 1998 1997 ------------------------------- 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 ===============================
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 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 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:
1999 1998 -------- -------- (In thousands) 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 ========= =========
NOTE 5 - PROPERTY AND EQUIPMENT At December 31, 1999 and 1998 property and equipment consisted of the following:
1999 1998 -------- -------- (In thousands) 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 ======== ========
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 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:
1999 1998 -------- -------- (In thousands) 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 ======== ========
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 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:
1999 1998 1997 ------- ------- ------- (In thousands) 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) ======= ======= =======
A reconciliation of income taxes computed at the statutory federal income tax rate to the recorded provision for income taxes is as follows:
1999 1998 1997 ------- ------- ------- (In thousands) 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) ======= ======= ========
19 20 Deferred tax assets (liabilities) recognized in the Company's balance sheet at December 31, 1999 and 1998 were as follows:
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 ========= ==========
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 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 $.5 million of stock based compensation related to options granted under this plan in 1999, 1998 and 1997, respectively. The following table sets forth the changes in the number of shares subject to options for the 1985 and 1996 Plans during 1999, 1998 and 1997:
Weighted Number Option Price Average of Shares per Share($) Option Price($) ---------- ----------- ----- 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 ==========
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 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 $5.93, respectively. Had compensation expense been determined consistent with SFAS No. 123, utilizing these assumptions and the straight-line amortization method over the vesting period, the Company's net income (loss) and net income (loss) per common and common equivalent share would have been as follows:
1999 1998 1997 --------- --------- --------- ($ in thousands, except per share amounts) 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
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:
Future Minimum Lease Payments ----------------- (In thousands) Years ending December 31: 2000 $ 712 2001 816 2002 816 2003 837 2004 & thereafter 4,057 ------- $ 7,238 =======
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 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 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 25 RESULTS BY QUARTER AND CAPITAL STOCK INFORMATION Unaudited
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 -------- -------- ------- ------- ------- -------- -------- -------- 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) ======== ======== ======= ======= ======= ======== ======== ========
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:
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 ------ ------ ------ ------- ------- ------ ------ ------ 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
25 EX-21 6 SUBSIDIARIES 1 Exhibit 21 ELITE INFORMATION GROUP, INC. SUBSIDIARIES OF THE REGISTRANT
State of Percentage Name of subsidiary Incorporation ownership ------------------ ------------- --------- Elite Information Systems, Inc. California 100% Elite.com, Inc. Delaware 100% Elite Information Systems International, Inc. California 100% Elite Belgium, Inc. North Carolina 100%
EX-23 7 CONSENT OF EXPERTS AND COUNSEL 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 EX-27 8 FINANCIAL DATA SCHEDULE
5 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. 1 US CURRENCY YEAR DEC-31-1999 JAN-1-1999 DEC-31-1999 1 31,152,000 0 25,696,000 (2,027,000) 0 59,114,000 4,891,000 (2,388,000) 66,116,000 30,447,000 0 0 0 94,000 34,769,000 66,116,000 59,266,000 59,266,000 33,943,000 33,943,000 19,696,000 1,751,00 (1,154,000) 6,486,000 (2,692,000) 3,794,000 4,537,000 0 0 8,331,000 1.00 0.97
-----END PRIVACY-ENHANCED MESSAGE-----