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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2005oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    of          
    to   Commission file number
    000-02333
  Open Solutions Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware

22-3173050(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)455 Winding Brook Drive,
    Glastonbury, CT(Address of principal
    executive offices)

06033(Zip
    Code)   (860) 652-3155
 (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, $0.01 par value per share
 (Title of Class)
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-KDocument Description

PartPortions of the Registrants
    Proxy Statement for the Annual
    Meeting of Stockholders to be held May 16, 2006


III




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##### 



INDEX
  PageSpecial Note
    Regarding Forward-Looking Statements


1PART IItem 1.

Business


2Item 2.

Properties


31Item 3.

Legal
    Proceedings


31Item 4.

Submission of
    Matters to a Vote of Security Holders


31PART IIItem 5.

Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


32Item 6.

Selected Financial
    Data


34Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


35Item 7A.

Quantitative and
    Qualitative Disclosure about Market Risk


49Item 8.

Financial
    Statements and Supplementary Data


49Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


49Item 9A.

Controls and
    Procedures


49Item 9B.

Other
    Information


50PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


51Item 11.

Executive
    Compensation


51Item 12.

Security Ownership
    of Certain Beneficial Owners and Management


51Item 13.

Certain
    Relationships and Related Transactions


51Item 14.

Principal
    Accounting Fees and Services


51PART IVItem 15.

Exhibits and
    Financial Statement Schedules


51Signatures


53Index to
    Consolidated Financial Statements


54EX-10.4 2003 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDEDEx-10.10 FORM OF RESTRICTED STOCK UNIT AGREEMENT FOR 2003 STOCK INCENTIVE PLANEX-10.11 FORM OF RESTRICTED STOCK AGREEMENT FOR 2000 AND 2003EX-10.13 FIRST AMENDMENT TO EMPLOYMENT AGREEMENT - LOUIS HERNANDEZ, JR.EX-10.15 FORM OF DIRECTOR AND OFFICER INDEMNITY AGREEMENTEX-10.19 LETTER AGREEMENT  JANUARY 26, 2006EX-10.20 LETTER AGREEMENT  FEBRUARY 23, 2006EX-10.22 FIFTH AMENDMENT TO LEASE AGREEMENTEX-10.25 AMENDMENT NO. 2 TO LEASEEX-10.31 CHANGE IN CONTROL PROTECTION PLAN FOR EXECUTIVE DIRECTORSEX-10.32 CHANGE IN CONTROL PROTECTION PLAN FOR NON-EMPLOYEE DIRECTORSEX-10.33 COMPENSATORY ARRANGEMENTS WITH EXECUTIVE DIRECTORSEX-10.34 COMPENSATORY ARRANGEMENTS WITH NON-EMPLOYEE DIRECTORSEX-21.1 LIST OF SUBSIDIARIES OF OPEN SOLUTIONS INC.EX-23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLPEX-31.1 SECTION 302 CERTIFICATION OF THE C.E.O.EX-31.2 SECTION 302 CERTIFICATION OF THE C.F.O.EX-32.1 SECTION 906 CERTIFICATION OF THE C.E.O.EX-32.2 SECTION 906 CERTIFICATION OF THE C.F.O.   SPECIAL
    NOTE REGARDING FORWARD-LOOKING STATEMENTS  Form 10-K Risk Factors
 1




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PART I  Item 1.
    Business  Overview
           2




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1-800-SEC-0330. www.sec.gov.
  Form 10-K. Form 10-K, Form 10-Q Form 8-K,
  Industry
    Background
       3




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
    combine high performance, scalability, reliability and security
    with the advantages associated with relational and highly
    normalized (which means data is easily accessible and not stored
    redundantly) technology based on industry standards,
    deliver new products and services to their customers quickly and
    efficiently without extensive custom development,
    integrate easily with other applications used in the enterprise
    (whether on an in-house or an outsourced basis) without
    expensive middleware,
    provide quick and effective access to customer and account data
    in order to offer better, more customized services, monitor
    trends and performance and cross-sell services and products,
    allow real-time access to customer data while preserving the
    financial institutions ability to batch process large
    transactions, and
    accommodate, in a single application, multiple delivery
    channels, such as ATMs, telephone banking, Internet banking and
    wireless banking, as well as new delivery channels as they
    emerge.      Our
    Solution
   4




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Full
    Integration at the Core Level
  
    Fully-Integrated Information Technology.  Our
    core software supports all of a financial institutions
    principal data processing requirements using a single relational
    database designed as an integral component of the system
    architecture. Our fully-integrated software suite allows our
    clients to replace their highly proprietary, inflexible and
    costly legacy systems, which generally contain many disparate
    software applications, multiple databases and cumbersome and
    expensive middleware, with one integrated software application
    based on a single database architecture.  Open
    Architecture
  
    Compatibility With Varied Non-Proprietary
    Hardware.  Because our core system was designed
    with an open architecture, our clients can run our software on
    desktop and server hardware supplied by a wide array of vendors,
    including Hewlett-Packard Company, IBM Corp., Dell Computer
    Corporation, Sun Microsystems, Inc. and Unisys Corporation. In
    contrast, legacy systems often require the financial institution
    to purchase vendor-specific hardware, a vendors core
    software product and vendor-specific complementary products,
    each of which must be customized to interface with a decades-old
    legacy system, imposing significant cost burdens, both in cash
    outlay and manpower.
    Software Compatibility.  The flexibility and
    scalability of our core applications permit our clients to
    incorporate complementary software applications, whether
    designed by us or by a third party, in a cost-effective manner.
    Our complementary products, which may be used with either our
    core software or a third-party system, include profitability,
    web-based imaging, loan origination, cash management,
    collections, interactive voice solutions and check and item
    processing modules that may be purchased as part of a
    fully-integrated software suite or individually. In addition,
    our open architecture allows a client to activate a particular
    software module as its functionality is desired, which provides
    our clients with the ability to react to their customers
    needs efficiently.
    Scalability.  Although most of our current
    clients have an asset base under $20 billion, our open
    architecture is designed to accommodate the needs of larger
    financial institutions, and to provide our clients the ability
    to continue to use our solution as they grow. In the past, we
    performed a three-week performance test and benchmark of our
    core software, the results of which demonstrated that our
    solution can meet the processing requirements of an institution
    with $40 billion in assets and four million accounts. The
    scalability of our architecture enables us to manage unexpected
    increases in clients processing volumes as well as support
    the growth of our clients businesses.  Flexibility
  
    Client Delivery of New Products and
    Services.  Our software allows our clients to
    offer new products and services to their customers without
    reconfiguring their information technology infrastructure. In
    contrast, modifications required by legacy systems in order to
    accommodate new financial products can be costly and
    time-consuming and may require the purchase and maintenance of
    additional middleware. In addition, our clients can change the
    way in which they serve their customers  such as
    converting from a thrift to a commercial
    bank  without replacing or making major
    modifications to our software.
    Direct License or Outsourced Distribution.  We
    can provide our core software to our clients by licensing it
    directly for use
    on-site,
    through our own outsourcing centers or through reseller
    outsourcing centers. We also provide certain complementary
    applications at our outsourcing centers, including our business
    intelligence, cash management, ATM, Internet banking, web-based
    imaging, collections, interactive voice solutions and check and
    item processing tools. Our flexibility in distribution method
    allows our clients to use our core software and other
    complementary applications in the most cost-effective method to
    meet their specific operational and competitive requirements. 5




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Customer-Centric
    Architecture
  
    Real-time Customer Information in a Single
    View.  Our core software uses a relational
    database organized around individual customers, which allows a
    financial institution to update and view customer information on
    a real-time basis instead of relying on periodic batch
    processing. Our clients can provide their customers with
    real-time information concerning their accounts, as well as
    create accurate and current management reports. Our software is
    designed to eliminate potential errors arising from the
    maintenance of multiple databases and to accommodate high
    volumes of customer data.
    Better Relationship Management.  Our
    relationship management software provides a set of business
    intelligence tools that is fully integrated with and acts as a
    natural extension of our core software. This allows our clients
    to eliminate the multiple databases required when layering
    traditional business intelligence tools onto a legacy core
    system. Because our suite exploits the strength of our core
    system that is based on a single, relational database designed
    around individual customers, a financial institution may easily
    collect and analyze that data to generate timely and responsive
    initiatives (such as promotional offers) and deliver those
    initiatives immediately to the customer as the customer
    interacts with the financial institution.  Efficiency
  
    Cost Savings.  We believe that our software
    reduces the overall cost of a financial institutions
    information technology and allows our clients to meet their
    strategic goals more efficiently. The hardware required by a
    legacy system is expensive to obtain and costly to keep to
    current specifications while the pool of expertise with older
    systems is constantly shrinking. In contrast, our core system
    can run on hardware provided by many different vendors. Because
    our core software is fully integrated with our complementary
    products and supports third-party products, development and
    implementation costs for an institutions information
    systems based on our software are lower than those for an
    institution which must modify its core software and obtain
    costly proprietary products for each new function. Our open
    architecture and flexibility allow our clients to modify their
    information systems requirements quickly and easily, without
    incurring the significant costs associated with supporting
    several disparate software applications. Our single relational
    database allows our clients to organize their data around
    individual customers, use our business intelligence tools to
    analyze and manage that data in the most efficient manner and
    launch new products and services desired by their customers in a
    cost-effective manner. In addition, because our software is
    based on widely adopted technologies, a financial institution
    using it requires less specialized expertise, which allows the
    institution to achieve greater operational efficiencies.  Business
    Strategy
    
    Expand Share of Our Historical Market.  We
    believe that our software is particularly well suited for
    financial institutions which have an asset base of under
    $20 billion. These financial institutions, which have
    historically constituted our target market, typically can
    neither afford, nor do they require, extensive customization in
    connection with the implementation of a core system. As a
    result, we believe that these financial institutions are willing
    to evaluate, and are well positioned to benefit from, our
    flexible, cost-effective technology. We intend to continue to
    pursue this market by marketing and selling our core software to
    new clients seeking to convert from a legacy system.
    Expand Our Sources of Recurring Revenue.  We
    generate recurring revenue through outsourcing and maintenance
    services and minimum license payments from our reseller
    partners. We currently host applications for approximately 815
    financial institutions in our outsourcing centers and intend to
    continue to enhance this service, which we believe is an
    attractive solution for many of our targeted clients. Our
    outsourcing centers serve clients using our core software and
    clients using one or more of our Internet banking, ATM, cView,
    check imaging, cash management, collections, automated clearing
    house, or ACH, payment processing and check and item processing
    products. 6




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
    Expand Our Client Base by Licensing Our Core Software through
    Reseller Partners. Approximately 210 financial
    institutions use our core software application at two reseller
    outsourcing centers, one operated by BISYS, a major national
    outsourcing center, and the other operated by Connecticut
    On-Line Computer Center, Inc., or COCC, a major regional
    outsourcing center. A number of financial institutions outsource
    their core processing systems to third-party outsourcing centers
    such as these, which typically choose one or more significant
    core software products to provide their services. We also plan
    to work with resellers as we expand internationally, and have
    established reseller partnerships based in Canada, China and
    India. We plan to work with our existing resellers to add new
    clients, and to supplement these resellers with new
    relationships. In December 2005, we entered into a ten year
    agreement with Celero Solutions (Celero), a joint
    venture between five Canadian prairie cooperative organizations
    that serves more than 150 credit unions in Canada, to use our
    core software applications in its outsourcing centers.
    Provide Additional Products and Services to Our Installed
    Client Base.  We intend to continue to leverage
    our installed client base by expanding the range of
    complementary products and services available to our current
    clients, through both the internal development of new products
    and services and through acquisitions. In addition, each client
    has an account manager who recommends complementary products
    suitable for the clients business and works with our sales
    group to generate sales. We also intend to continue selling our
    complementary products to financial institutions that use core
    systems sold by third parties.
    Maintain Technological Leadership.  We believe
    that the uniqueness of the open, flexible architecture of our
    system provides us with competitive advantages over companies
    offering other core processing systems. For example, our core
    software suite can satisfy the technological requirements of a
    commercial bank, thrift or credit union without modification or
    customization. The same core software suite can be used by
    clients outside the United States. Our open architecture enables
    us to utilize leading, non-proprietary software and hardware to
    provide comprehensive functionality. We intend to extend our
    technological leadership by continuing to add new applications,
    integrate new technologies and expand the functionality of our
    system.
    Extend Target Markets.  Our primary market
    currently consists of small to mid-size commercial banks and
    thrifts and all credit unions, located in the United States and
    Canada. We believe that our core software has benefits beyond
    this market, and can scale to meet the operating requirements of
    any financial institution. We continue to explore additional
    ways to extend our target markets, including by selling our
    products and services to larger financial institutions and
    financial institutions outside North America. We also plan to
    market and sell our products and services to clients in the
    payroll services, insurance and brokerage industries.
    Pursue Strategic Acquisitions.  To complement
    and accelerate our internal growth, we continue to explore
    acquisitions of businesses and products that will complement our
    existing products and services as well as expand our client
    base. Since 2000, we have completed the following acquisitions:  7




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Date

Acquired Business

Products and ServicesJune 2000

Global Payment Systems LLC

Web-based cash management systemAugust 2001

Sound Software Development, Inc.

Loan and mortgage origination
    productDecember 2001

Imagic Corporation

Check imaging productMarch and October 2002

Certain business operations of HNC
    Financial Solutions, Inc. and HNC Software, Inc.

General ledger, profitability and
    other financial productsJuly 2003

Liberty FiTech Systems, Inc.

Core processing software for
    credit unionsFebruary 2004

Maxxar Corporation

Interactive voice response,
    contact center management and voice over IPJune 2004

Eastpoint Technologies, LLC

Core processing software for banksJuly 2004

re:Member Data Services, Inc.

Core processing software for
    credit unionsJuly 2004

Omega Systems of
    North America LLC

Remittance processing softwareOctober 2004

Datawest Solutions Inc.

Core processing software for
    credit unions and software for payment processing in Canada and
    internationallyMarch 2005

U.S. Based Services to Credit
    Unions Business of CGI-AMS Inc.

Core processing software for
    credit unionsApril 2005

S.O.S. Computer Systems, Inc.

Core processing software for
    credit unionsJune 2005

Financial Data Solutions, Inc.

Image and remittance item
    processing and image statement and rendering servicesAugust 2005

COWWW Software, Inc.

Web-based archival, retrieval, and
    document distribution servicesMarch 2006

Information Services Group of BISYS

Core processing software for banks
    and other financial institutions and document imaging services   Technology
   8




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
    an open architecture that permits full integration with
    third-party hardware and software and emerging technologies,
    flexible functionality, scalability and high
    performance, and
    a highly relational database designed around customer
    information.          Products
    and Services
    Core
    Software
  The Complete Banking Solution and The Complete Credit Union
    Solution.
 9




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
    customer-centric system,
    real-time customer touch-point integration,
    integrated real-time
    and/or batch
    processing,
    comprehensive lending and deposit processing,
    forms integration (including signature and photo storage),
    customizable web-based reporting,
    comprehensive teller/ customer service applications,
    commercial institution functionality,
    institution and branch operations,
    direct payroll processing, and
    product delivery manager.      Complementary
    Products
    cView.
  
    Dynamic Messaging Manager.  Application that
    allows the financial institution to set rules that define the
    real-time distribution and receipt of messages throughout the
    organization. 10




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
    Activity Manager.  Application that allows the
    financial institution to track and manage the activities of its
    customers and prospects.
    My Vision.  Access point for cView
    applications, intranet communications and access to relevant
    documents, messages and Internet links.
    Report Wizard.  Query and report writing tool,
    which allows users to simplify views of complex database table
    design, effectively collapsing multiple tables into one.
    Market Vision.  Customer data warehouse
    designed to permit financial institutions to learn about their
    customers, prospects, products and business lines so they can
    make sound business decisions and create effective marketing
    plans.    Channel Management Center.
  Interaction Management Center.
  eCommerce Banker  Consumer and eCommerce
    Banker  Business.
  
    Account Information.  Customers can view
    balance information for checking and savings accounts,
    certificates of deposit, lines of credit, automobile loans and
    mortgage loans. Customers can also view
    year-to-date
    interest accrued or paid, interest rates and deposit maturity
    dates.
    Cash Management.  Business customers can
    monitor their accounts, make tax payments and execute automated
    clearing house or wire transfers. We also provide a cash
    concentration function, which periodically sweeps cash from
    several accounts into a single interest-bearing account.
    Funds Transfer.  Customers can transfer funds
    among accounts and establish real-time electronic bill payment.
    Compatibility with Personal Financial Management
    Software.  Popular personal financial management
    software, such as Intuit
    Quicken®
    and Microsoft
    Money®,
    can be automatically synchronized with recent transactions.
    Bill Payment.  Customers can pay bills
    electronically 24 hours a day, seven days a week and can
    establish future and recurring payments.
    Secure Messaging.  Customers can communicate
    with a financial institution through secure encrypted message
    systems.
    Additional Features.  Customers can reorder
    paper checks, request an account statement or contact financial
    institution personnel by
    e-mail.   11




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e-mail
  Check Imaging.
  Remittance Systems.
  Loan Origination.
  
    The Sound Mortgage Management Systemprovides
    comprehensive mortgage lending management. This product
    automates the mortgage process, including advanced disclosures,
    prequalification, origination, document preparation, processing,
    loan tracking, underwriting, commitment, closing, full
    management and government reporting. The system automatically
    books loans to our clients in-house or outsourced
    servicing systems. The system can be wide-area network enabled
    throughout all branches, and also provides for remote
    origination using the Internet.
    The Sound Consumer Loan Management Systemprovides
    consumer loan management through a comprehensive set of
    features, including full document preparation, loan processing,
    tracking, underwriting, reporting and government reporting
    requirements as well as an automated decision service.
    The Sound Commercial Loan Documenterprovides commercial
    loan management from the creation of commitment/ proposal
    letters to the final production and tracking of complete
    document packages for any small-business to middle-market loan,
    including commercial and industrial, or C&I, commercial real
    estate and construction and Small Business Administration loans.  Financial Products.
  
    Financial Accounting Platform.  Our financial
    accounting platform is an integrated and comprehensive financial
    management suite. With detailed reporting and responsive
    service, it helps clients streamline accounting operations and
    improve the quality of their financial management. The financial
    accounting platform is comprised of four modules: general
    ledger, investment management, accounts payable and fixed assets
    accounting. Each system can operate as a stand-alone product or
    as part of the integrated financial accounting platform. As a
    whole or on a stand-alone basis, the open architecture and
    standardized file specifications are designed to allow
    integration with other accounting and information management
    software applications. 12




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
    Asset/Liability Management and Financial Planning
    System.  Our asset/ liability management and
    financial planning system provides analytical, budgeting and
    strategic planning software to enable financial institutions to
    better comprehend the factors driving their profitability. This
    software is designed to provide a financial institution with the
    ability to analyze the institutions balance sheet in order
    to determine market value and risk, helping to ensure
    preservation of capital.
    ProfitVision.  ProfitVision analyzes
    profitability at any level of the organization. It is designed
    to generate profit results and value indicators that reveal the
    contributors to an institutions bottom line. It can also
    be used to segment and profile valuable customers and determine
    which products, business units and channels are top performers.  Interactive Voice Solutions.
  
    Interactive Voice Response.  Our interactive
    voice response solution provides a financial institutions
    customer with round the clock access to their financial
    information and the ability to complete account transactions
    such as transferring funds, applying for loans, and accessing
    information about products and services. The product supports
    both touch-tone keypad response or natural language speech
    recognition.
    Contact Center Management.  Our contact center
    management solution is comprised of an enhanced Automatic Call
    Distributor (ACD) designed to provide sophisticated routing of
    telephone contacts and other forms of electronic media and agent
    workflow software used to manage a broad range of client
    services and marketing needs of a financial institution.
    Voice Over IP.  Our voice over IP product
    provides a financial institution with a reliable and economical
    voice communication solution to meet the needs of a multi-site
    organization.  Payments
    Products
    POSH (Payment Origination Service
    Handler).
  
    Transaction Routing.  Card-based transactions
    can be routed for approval to international networks, local
    processors, and in-house and remote hosts. Transactions are all
    managed with the integrity required by international standards.
    Data Security.  All mandated processing
    relating to the security of cardholder information and PINs is
    included in POSH.
    Settlement and Reconciliation.  POSH tracks and
    reports on all transaction activity and can provide all the
    needed information to ensure ongoing integrity in all processing
    and financial relationships with outside partners and agencies.
    Merchant/ ISO Management.  Fees, statements,
    and information provision are handled by POSH to allow all
    downstream partners in either a proprietary or service bureau
    business model to receive all their payments, revenues, and
    control information.
    POSHweb.  A variety of integrated information
    services are available over the public world-wide web, subject
    to security controls. These include: report distribution,
    financial and transaction history, cash positions, monitoring
    status, history, and statistics, and news alerts. 13




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ConCentre Application Monitoring.
  
    Flexible Error Detection.  The ConCentre
    Interface Agent provides testing of resources, application
    relationships, timing, and statuses of any application
    environment. This information is collected in a non-intrusive
    way to ensure no noticeable degradation in the application
    environment being monitored.
    Automated Remediation.  In addition to merely
    reporting errors in the environment, ConCentre can be configured
    to automatically attempt to repair errors. This feature can
    increase overall availability and reduce resource costs.
    Behavioral Analysis .  The TRAFC component of
    ConCentre is designed to observe transactional activity and
    detect patterns of unusual or suspicious behavior. This service
    is particularly useful when monitoring
    dial-up POS
    terminals and can be beneficial in detecting errors outside of
    the range of the customers own environment. It is also
    helpful in detecting signs of fraudulent activity.  Outsourcing
    Services
    Training,
    Maintenance and Support Services
  Installation and Training.
    Professional Services.
  Support Services.
  Clients
   14




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Sales and
    Marketing
    Direct
    Sales
    Indirect
    Sales
           15




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e-Commerce
  10-year
    Marketing
    
    direct mail,
    telemarketing,
    hosting an annual client conference,
    advertising in banking and credit union trade journals and
    periodicals,
    publishing articles and editorials,
    speaking engagements, and
    participating in seminars and trade shows.
    news letters
    on-line marketing  Product
    Development
   16




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Competition
    Intellectual
    Property and Other Proprietary Rights
    Bank-on-it Form 10-K
  Employees
    Infrastructure
  24-hour
  Item 1A.
    Risk
    Factors    We are
    dependent on the banking and credit union industry, and changes
    within that industry could reduce demand for our products and
    services.
   17




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Consolidation
    in the banking and financial services industry could adversely
    impact our business by eliminating a number of our existing and
    potential clients.
    Our
    success depends on decisions by potential clients to replace
    their legacy computer systems, and their failure to do so would
    adversely affect demand for our products and
    services.
    If we
    fail to expand our outsourcing business and other sources of
    recurring revenue, we may be unable to successfully implement
    our business strategy.
     18




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We
    have had several profitable quarters, but we may never achieve
    continued sustained profitability.
    If we
    fail to adapt our products and services to changes in technology
    or in the marketplace, we could lose existing clients and be
    unable to attract new business.
    We
    encounter a long sales and implementation cycle requiring
    significant capital commitments by our clients which they may be
    unwilling or unable to make.
      
    our clients budgetary constraints,
    the timing of our clients budget cycles and approval
    processes,
    our clients willingness to replace their core software
    solution vendor,
    the success and continued support of our strategic marketing
    partners sales efforts, and
    the timing and expiration of our clients current license
    agreements or outsourcing agreements for similar services.   19




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We
    utilize certain key technologies from third parties, and may be
    unable to replace those technologies if they become obsolete or
    incompatible with our products.
    We
    operate in a competitive business environment, and if we are
    unable to compete effectively, we may face price reductions and
    decreased demand for our products.
        An
    impairment of the value of our goodwill, capitalized software
    costs and other intangible assets could significantly reduce our
    earnings.
   20




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Our
    quarterly revenues, operating results and profitability will
    vary from quarter to quarter, which may result in volatility in
    our stock price.
    
    the timing, size and nature of our licensing transactions,
    lengthy and unpredictable sales cycles,
    the timing of introduction and market acceptance of new products
    or product enhancements by us or our competitors,
    the timing of acquisitions by us of businesses and products,
    product and price competition,
    the relative proportions of revenues derived from license fees
    and services,
    changes in our operating expenses,
    software bugs or other product quality problems, and
    personnel changes and fluctuations in economic and financial
    market conditions.  period-to-period
  We
    face a lengthy sales cycle for our core software, which may
    cause fluctuations in our revenues from quarter to
    quarter.
    If we
    do not retain our senior management and other key employees, we
    may not be able to successfully implement our business
    strategy.
   21




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##### Table of Contents



Our
    indebtedness could adversely affect our financial health and
    prevent us from fulfilling our obligations under our senior
    subordinated convertible notes and our bank
    financing.
    
    make it more difficult for us to satisfy our obligations with
    respect to our notes, our bank financing or other indebtedness,
    increase our vulnerability to general adverse economic and
    industry conditions,
    require us to dedicate a substantial portion of our cash flow
    from operations to payments on our indebtedness, thereby
    reducing the availability of our cash flow to fund working
    capital, capital expenditures, acquisitions, product development
    efforts and other general corporate purposes,
    limit our flexibility in planning for, or reacting to, changes
    in our business and the industry in which we operate,
    place us at a disadvantage compared to our competitors that have
    less debt, and
    limit our ability to borrow additional funds.    Our
    level of fixed expenses may cause us to incur operating losses
    if we are unsuccessful in maintaining our current revenue
    levels.
    We
    rely on our direct sales force to generate revenue, and may be
    unable to hire additional sales personnel in a timely
    manner.
   22




---



##### Table of Contents



We
    have entered into and may continue to enter into or seek to
    enter into business combinations and acquisitions which may be
    difficult to integrate, disrupt our business, dilute stockholder
    value or divert management attention.
    
    the difficulty of integrating the operations and personnel of
    the acquired companies,
    the maintenance of acceptable standards, controls, procedures
    and policies,
    the potential disruption of our ongoing business and distraction
    of management,
    the impairment of relationships with employees and clients as a
    result of any integration of new management and other personnel,
    the inability to maintain relationships with clients of the
    acquired business,
    the difficulty of incorporating acquired technology and rights
    into our products and services,
    the failure to achieve the expected benefits of the combination
    or acquisition,
    expenses related to the acquisition,
    the incurrence of additional debt related to the acquisition,
    potential unknown liabilities associated with acquired
    businesses,
    unanticipated expenses related to acquired technology and its
    integration into existing technology, and
    differing regulatory and industry standards, certification
    requirements and product functional requirements.      We
    receive a portion of our revenues from relationships with
    strategic marketing partners, and if we lose one or more of
    these marketing partners or fail to add new ones it could have a
    negative impact on our business.
   23




---



##### Table of Contents



10-year
    We
    rely on internally developed software and systems as well as
    third-party products, any of which may contain errors and
    bugs.
  and/or
  We
    could be sued for contract or product liability claims and
    lawsuits may disrupt our business, divert managements
    attention or have an adverse effect on our financial
    results.
     24




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##### Table of Contents



Government
    regulation of our business could cause us to incur significant
    expenses, and failure to comply with applicable regulations
    could make our business less efficient or
    impossible.
  truth-in-lending truth-in-deposit
        Our
    limited ability to protect our proprietary technology and other
    rights may adversely affect our ability to
    compete.
    If we
    are found to infringe the proprietary rights of others, we could
    be required to redesign our products, pay royalties or enter
    into license agreements with third parties.
   25




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##### Table of Contents




    be expensive and time consuming to defend,
    cause us to cease making, licensing or using products that
    incorporate the challenged intellectual property,
    require us to redesign our products, if feasible,
    divert managements attention and resources, and
    require us to enter into royalty or licensing agreements in
    order to obtain the right to use necessary technologies.    We may
    not have sufficient funds available to pay amounts due under our
    senior subordinated convertible notes.
    
    upon purchase of the notes by us at the option of holders on
    February 2 in each of 2012, 2015, 2020, 2025 and 2030, in an
    amount equal to the issue price and accrued original issue
    discount plus accrued and unpaid cash interest and liquidated
    damages, if any,
    upon purchase of the notes by us at the option of holders upon
    some changes of control, in an amount equal to the issue price
    and accrued original issue discount plus accrued and unpaid cash
    interest and liquidated damages, if any,
    at maturity of the notes, in an amount equal to the entire
    outstanding principal amount, and
    in the event that we elect to pay cash in lieu of the delivery
    of shares of common stock upon conversion of the notes, upon
    conversion, in an amount up to the conversion value of the notes.    We
    face risks associated with our Canadian operations that could
    harm our financial condition and results of
    operations.
    
    difficulties and costs of staffing and managing foreign
    operations,
    differing regulatory and industry standards and certification
    requirements,
    the complexities of foreign tax jurisdictions,
    currency exchange rate fluctuations, and
    import or export licensing requirements. 26




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##### Table of Contents



To
    service our indebtedness, we will require a significant amount
    of cash. Our ability to generate cash depends on many factors
    beyond our control.
      If we
    fail to effectively manage our growth, our financial results
    could be adversely affected.
      The
    requirements of being a public company strain our resources and
    distract management.
  Sarbanes-Oxley
  Failure
    to continue to comply with all of the requirements imposed by
    Section 404 of the Sarbanes-Oxley Act of 2002 could result
    in a negative market reaction.
   27




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##### Table of Contents



The
    design of other core vendors software or their use of
    financial incentives may make it more difficult for clients to
    use our complementary products.
    Operational
    failures in our outsourcing centers could cause us to lose
    clients.
  back-up
  Unauthorized
    disclosure of data, whether through breach of our computer
    systems or otherwise, could expose us to protracted and costly
    litigation or cause us to lose clients.
    We may
    need additional capital in the future, which may not be
    available to us, and if we raise additional capital, it may
    dilute your ownership in us.
    
    taking advantage of growth opportunities, including more rapid
    expansion,
    acquiring businesses and products,
    making capital improvements to increase our servicing capacity,
    paying amounts due under our senior subordinated convertible
    notes,
    developing new services or products, and
    responding to competitive pressures.  and/or
 28




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##### Table of Contents



The
    price of our common stock may be volatile.
    
    price and volume fluctuations in the overall stock market from
    time to time,
    significant volatility in the market price and trading volume of
    financial services companies,
    actual or anticipated changes in our earnings or fluctuations in
    our operating results or in the expectations of securities
    analysts,
    general economic conditions and trends,
    major catastrophic events,
    loss of a significant client or clients,
    sales of large blocks of our stock, or
    departures of key personnel.    If a
    substantial number of shares of our common stock become
    available for sale and are sold in a short period of time, the
    market price of our common stock could decline
    significantly.
    Form S-8
 29




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##### Table of Contents



Some
    provisions in our certificate of incorporation and by-laws may
    deter third parties from acquiring us.
    
    our board of directors is classified into three classes, each of
    which serves for a staggered three year term,
    only our board of directors, the chairman of our board of
    directors or our president may call special meetings of our
    stockholders,
    our stockholders may take action only at a meeting of our
    stockholders and not by written consent,
    we have authorized undesignated preferred stock, the terms of
    which may be established and shares of which may be issued
    without stockholder approval,
    our stockholders have only limited rights to amend our
    by-laws, and
    we require advance notice requirements for stockholder proposals.    Section 203
    of the Delaware General Corporation Law may delay, defer or
    prevent a change in control that our stockholders might consider
    to be in their best interest.
    Item 1B.
    Unresolved
    Staff Comments   30




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##### Table of Contents



Item 2.
    Properties    LeaseApproximate


ExpirationLocation

Operations Conducted

Square Feet


DateMurrietta, California

Sales office and item processing
    center


8,700



2008Murrietta, California

Storage facility


3,500



2006San Leandro, California

Item processing center


4,900



2010El Monte, California

Item processing center


5,200



2006Glastonbury, Connecticut

Executive offices and data center


66,000



2013Windsor Locks, Connecticut

Item processing center


6,000



2010Shelton, Connecticut

Sales office


1,200



2006Atlanta, Georgia

Support and data processing center


21,000



2007Marietta, Georgia

Sales office


6,000



2006Indianapolis, Indiana

Support and data processing center


60,000



2010Dryden, New York

Sales office


1,000



2007Whitesboro, New York

Item processing center


2,000



2007Wixom, Michigan

Sales office


12,000



2007Belmont, Michigan

Support and data processing center


5,900



2009Southfield, Michigan

Support and data processing center


11,000



2011New Bedford, New Hampshire

Sales office


7,000



2006Orem, Utah

Support and data processing center


23,000



2010Vancouver, British Columbia

Executive offices, support and
    data
    processing center


29,000



2007Missassauga, Ontario

Development office and disaster
    recovery center


4,000



2006Oakville, Ontario

Payment processing center


30,000



2009New Delhi, India

Product development center


12,000



2010   Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   31




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##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    High


LowFirst Quarter 2004

$
26.07


$
17.40Second Quarter 2004

$
25.75


$
19.42Third Quarter 2004

$
25.86


$
20.33Fourth Quarter 2004

$
28.60


$
23.66First Quarter 2005

$
25.07


$
19.09Second Quarter 2005

$
20.54


$
17.49Third Quarter 2005

$
23.96


$
20.37Fourth Quarter 2005

$
24.45


$
19.23First Quarter 2006 (through
    March 1, 2006)

$
29.63


$
22.99       Repurchases
    of Our Common Stock
    Total Number ofShares Purchased as


Approximate Dollar ValuePart of Publicly


of Shares that May YetTotal Number of Shares


Average Price Paid


Announced Program


be Purchased UnderPeriod

Purchased (1)


per Share


(2)


the Program10/1/05  10/31/05


79,661


$
19.25



79,661


$
011/1/05  11/30/05





$








012/1/05  12/31/05





$








0Total


79,661


$
19.25



79,661     (1)
    
    All repurchases by us of our common stock during the three
    months ended December 31, 2005 were done pursuant to the
    repurchase program that we publicly announced on April 27,
    2005 (the Program).(2)
    
    Our Board of Directors approved the repurchase of
    $10.0 million of our common stock pursuant to the Program.
    The Program expires May 2, 2006 unless terminated earlier
    by resolution of our Board of Directors. The shares that we
    repurchased during October 2005 completed the purchase of shares
    authorized under the Program. 32




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##### Table of Contents



Securities
    Authorized for Issuance Under Equity Compensation
    Plans
    Equity
    Compensation Plan Information
  Number of SecuritiesRemaining Availablefor Future IssuanceNumber of Securities to


Weighted-average


Under Equitybe Issued Upon


Exercise Price of


Compensation PlansExercise of


Outstanding


(Excluding SecuritiesOutstanding Options,


Options, Warrants


Reflected in ColumnPlan Category

Warrants and
    Rights


and Rights


(a)) (1)(2)(a)


(b)


(c)Equity compensation plans approved
    by stockholders


3,562,047


$
14.99



4,674,251Equity compensation plans not
    approved by stockholders










Total


3,562,047


$
14.99



4,674,251     (1)
    
    In addition to being available for future issuance upon exercise
    of options that may be granted after December 31, 2005,
    shares issuable under our 2000 Stock Incentive Plan may instead
    be issued in the form of restricted stock and shares issuable
    under our 2003 Stock Incentive Plan may instead be issued in the
    form of restricted stock or other stock-based awards.(2)
    
    Includes 1,243,586 shares issuable under our 2003 Employee
    Stock Purchase Plan, including shares issuable in connection
    with the current offering period, which ends on May 31,
    2006. Also includes 1,383,768 shares available for issuance
    under our 2000 Stock Incentive Plan and 2,046,897 shares
    available for issuance under our 2003 Stock Incentive Plan.
    Under our 2000 Stock Incentive Plan, the number of shares
    issuable is automatically increased every January 1 by an amount
    equal to 5% of the total number of shares of our common stock
    issued and outstanding as of the close of business on the
    immediately preceding December 31, provided that the number
    of shares issuable may not exceed 10,344,827. 33




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##### Table of Contents



Item 6.
    Selected
    Financial Data  Form 10-K.
  Form 10-K.
  Year Ended
    December 31,2005


2004


2003


2002


2001(In thousands, except per share
    data)Statement of Operations Data:Revenues:Software license

$
51,534


$
33,032


$
21,391


$
13,449


$
9,971Service, maintenance and hardware


142,217



74,151



42,461



30,896



17,295Total revenues


193,751



107,183



63,852



44,345



27,266Cost of revenues:Software license


7,071



6,705



5,341



3,152



1,592Service, maintenance and hardware


76,302



37,919



23,540



18,430



10,084Total cost of revenues


83,373



44,624



28,881



21,582



11,676Operating expenses


80,419



46,396



33,471



25,773



25,929Income (loss) from operations


29,959



16,163



1,500



(3,010
)


(10,339
)Interest and other income


330



1,520



43



145



428Income (loss) before income taxes


30,289



17,683



1,543



(2,865
)


(9,911
)Income tax (provision) benefit


(11,739
)


7,441



(234
)


(32
)


250Net income (loss)


18,550



25,124



1,309



(2,897
)


(9,661
)Preferred stock accretion charge










(31,500
)






Net income (loss) attributable to
    common stockholders

$
18,550


$
25,124


$
(30,191
)

$
(2,897
)

$
(9,661
)Net income (loss) per common share  Basic

$
0.96


$
1.37


$
(7.74
)

$
(1.18
)

$
(4.71
)  Diluted

$
0.85


$
1.26


$
(7.74
)

$
(1.18
)

$
(4.71
)Weighted average common shares
    used to compute net income (loss) per common share  Basic


19,361



18,313



3,903



2,453



2,051  Diluted


24,977



19,896



3,903



2,453



2,051   34




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##### Table of Contents



December 31,2005


2004


2003


2002


2001(In thousands, except per share
    data)Balance Sheet Data:Cash and cash equivalents

$
174,426


$
49,447


$
14,853


$
11,414


$
11,552Working capital


171,734



59,084



73,305



1,486



3,261Total assets


411,212



225,474



133,071



35,839



33,745Convertible notes payable


144,061















Long-term debt, current portion






1,239







750



748Long-term debt, less current
    portion






1,736







700



Mandatorily redeemable convertible
    preferred stock














31,100



31,100Redeemable convertible preferred
    stock














26,480



26,480Stockholders equity (deficit)


195,704



178,313



105,419



(43,261
)


(40,699
)   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K. Risk Factors Form 10-K.
    Overview
      
    sales of licenses for our core software and complementary
    products, and
    fees from installation, training, maintenance and support
    services, as well as fees generated from our outsourcing centers
    and the outsourcing centers hosted by our resellers.   35




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##### Table of Contents



out-of-pocket
      Recent
    Developments
   36




---



##### Table of Contents



Results
    of Operations
  Year Ended
    December 31,2005


2004


2003(In thousands)As a Percentage of
    Revenues:Revenues:Software license


26.6
%


30.8
%


33.5
%Service, maintenance and hardware


73.4



69.2



66.5Total revenues


100.0



100.0



100.0Cost of revenues:Software license


3.6



6.3



8.4Service, maintenance and hardware


39.4



35.3



36.9Total cost of revenues


43.0



41.6



45.3Operating expenses:Sales and marketing


12.6



13.3



16.8Product development


10.1



10.3



10.7General and administrative


18.8



19.7



24.9Total operating expenses


41.5



43.3



52.4Income from operations


15.5



15.1



2.3Interest and other income


0.2



1.4



0.1Income before income taxes


15.7



16.5



2.4Income tax (provision) benefit


(6.1
)


6.9



(0.4
)Net income


9.6
%


23.4
%


2.0
%   Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
  Revenues. CGI-AMS
 37




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##### Table of Contents



Cost of Revenues.
  Operating
    Expenses
  Sales and Marketing.
  Product Development.
  General and Administrative.
 38




---



##### Table of Contents



Interest Income and Other.
  Interest Expense.
  Income Tax (Benefit) Provision.
  Year
    Ended December 31, 2004 Compared to Year Ended
    December 31, 2003
  Revenues.
  Cost of Revenues.
 39




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##### Table of Contents



Operating
    Expenses
  Sales and Marketing.
  Product Development. non-U.S. banking
  General and Administrative.
  Interest Income and Other.
  Interest Expense.
  Income Tax (Benefit) Provision.
 40




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##### Table of Contents



Liquidity
    and Capital Resources
      Year Ended
    December 31,2005


2004


2003(In thousands)Net cash provided by operating
    activities

$
43,980


$
19,767


$
10,069Net cash used in investing
    activities


(48,953
)


(22,201
)


(87,682
)Net cash provided by financing
    activities


129,782



37,023



81,052   Cash
    from Operating Activities
    Cash
    from Investing Activities
    CGI-AMS
   41




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##### Table of Contents



Cash
    from Financing Activities
               42




---



##### Table of Contents



Off
    Balance Sheet Arrangements
    Contractual
    Obligations as of December 31, 2005
  Payments Due by PeriodLess than








More thanContractual
    Obligations

Total


1 Year


1-3 Years


3-5 Years


5 YearsConvertible Notes Payable

$
144,061


$



$



$



$
144,061Capital Lease Obligations


224



102



122







Operating Leases


27,415



5,313



9,714



8,016



4,372Total Contractual Obligations

$
171,700


$
5,415


$
9,836


$
8,016


$
148,433     Income
    Taxes
       43




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##### Table of Contents



Acquisitions
            U.S.-based CGI-AMS
   44




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
  Form 10-K.
  Revenue
    Recognition
    percentage-of-completion
 45




---



##### Table of Contents



SOP 97-2
  percentage-of-completion
    Allowance
    for Doubtful Accounts
    Stock
    Compensation
   46




---



##### Table of Contents



Software
    Development Costs
  Accounting for the Costs of Computer Software to be Sold,
    Leased, or Otherwise Marketed
  Accounting
    for Purchase Business Combinations
        Long-Lived
    Assets, Intangible Assets and Goodwill
    
    significant underperformance relative to expected historical or
    projected future operating results,
    significant changes in the manner of our use of the acquired
    assets or the strategy for our overall business, and
    significant negative industry or economic trends.   47




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##### Table of Contents



Income
    Taxes
      Recent
    Accounting Pronouncements
  Accounting
    Changes and Error Corrections Accounting
    Changes Reporting
    Accounting Changes in Interim Financial Statements
  Exchanges of Nonmonetary Assets and amendment of APB Opinion
    No. 29 Accounting for Nonmonetary
    Transactions
  Share-Based Payment: an amendment of FASB Statements
    No. 123 and 95 Statement of Cash Flows
 48




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##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk         Item 8.
    Financial
    Statements and Supplementary Data  page F-1 Form 10-K.
   Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure     Item 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures.
  Rules 13a-15(e) 15d-15(e)
  Changes
    in Internal Control over Financial Reporting
   49




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##### Table of Contents



Rules 13a-15(f) 15d-15(f)
  Managements
    Report on Internal Control Over Financial
    Reporting
  Rule 13a-15(f) 15d-15(f)
  
    Pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of our assets;
    Provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that our receipts and expenditures are being made only in
    accordance with authorizations of our management and
    directors; and
    Provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of our
    assets that could have a material effect on the financial
    statements.    Internal Control-Integrated
    Framework.
    CGI-AMS CGI-AMS
    Item 9B.
    Other
    Information   50




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##### Table of Contents



PART III  Item 10.
    Directors
    and Executive Officers of the Registrant  Regulation S-K
  www.opensolutions.com
   Item 11.
    Executive
    Compensation       Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters     Item 13.
    Certain
    Relationships and Related Transactions     Item 14.
    Principal
    Accounting Fees and Services   PART IV   Item 15.
    Exhibit
    and Financial Statement Schedules  Form 10-K:
  Financial Statements
    
    Consolidated Balance Sheets as of December 31, 2005 and 2004
    Consolidated Statements of Operations for the years ended
    December 31, 2005, 2004 and 2003 51




---



##### Table of Contents




    Consolidated Statements of Stockholders Equity (Deficit)
    and Comprehensive Income (Loss) for the years ended
    December 31, 2005, 2004 and 2003
    Consolidated Statements of Cash Flows for the years ended
    December 31, 2005, 2004 and 2003
    Notes to Consolidated Financial Statements.  Exhibits
  Form 10-K.
  Financial Statement Schedules
  Form 10-K.
 52




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##### Table of Contents



SIGNATURES       By:
    /s/  Louis
    Hernandez, Jr.    Chairman of the Board and
  Chief Executive Officer
    Name

Capacity

Date/s/  LOUIS
    HERNANDEZ, JR.Louis
    Hernandez, Jr.

Chairman of the Board and 
    Chief Executive Officer
    (Principal Executive Officer)

March 15, 2006/s/  KENNETH J.
    SAUNDERSKenneth
    J. Saunders

Executive Vice President and Chief
    Financial Officer (Principal Financial Officer and Principal
    Accounting Officer)

March 15, 2006/s/  DOUGLAS K.
    ANDERSONDouglas
    K. Anderson

Director

March 15, 2006/s/  HOWARD L. CARVERHoward
    L. Carver

Director

March 15, 2006/s/  DENNIS F. LYNCHDennis
    F. Lynch

Director

March 15, 2006/s/  SAMUEL F. McKAYSamuel
    F. McKay

Director

March 15, 2006/s/  CARLOS P. NAUDONCarlos
    P. Naudon

Director

March 15, 2006/s/  RICHARD P. YANAKRichard
    P. Yanak

Director

March 15, 2006  53




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##### Table of Contents



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS  PageOpen Solutions Inc.Report of
    Independent Registered Public Accounting Firm


F-1Consolidated
    Balance Sheets at December 31, 2005 and 2004


F-3Consolidated
    Statements of Operations for the years ended December 31,
    2005, 2004 and 2003


F-4Consolidated
    Statements of Stockholders Equity (Deficit) and
    Comprehensive Income (Loss) for the years ended
    December 31, 2005, 2004 and 2003


F-5Consolidated
    Statements of Cash Flows for the years ended December 31,
    2005, 2004 and 2003


F-6Notes to
    Consolidated Financial Statements


F-7  54




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      Consolidated financial statements
    Internal control over financial reporting
  Internal Control  Integrated Framework Internal Control  Integrated Framework
   F-1




---



##### Table of Contents







CGI-AMS CGI-AMS




PRICEWATERHOUSECOOPERS
    LLP












F-2



---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  CONSOLIDATED BALANCE SHEETS
  December 31,2005


2004(In thousands, except share and
    per share data)ASSETSCurrent assets:Cash and cash equivalents

$
174,426


$
49,447Investments in marketable
    securities






12,736Accounts receivable, net


36,582



19,975Deferred costs


5,656



2,067Prepaid expenses and other current
    assets


8,697



3,922Deferred tax assets


13,000



12,356Total current assets


238,361



100,503Fixed assets, net


20,779



14,410Capitalized software, net


7,355



6,211Other intangible assets, net


39,439



31,168Goodwill


94,081



66,548Deferred tax assets, less current
    portion


4,283



4,560Other assets


6,914



2,074Total assets

$
411,212


$
225,474LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
7,313


$
2,521Accrued expenses


24,624



15,338Deferred revenue, current portion


34,588



21,586Long-term debt from customers,
    current portion






1,239Capital lease obligations, current
    portion


102



735Total current liabilities


66,627



41,419Convertible notes payable


144,061



Deferred revenue, less current
    portion


3,251



2,706Long-term debt from customers,
    less current portion






1,736Capital lease obligations, less
    current portion


122



223Other long-term liabilities


1,447



1,077Total liabilities


215,508



47,161Commitments and contingencies
    (Note 13)Stockholders EquityPreferred stock, $0.01 par
    value; 5,000,000 shares authorized; no shares issued and
    outstanding at December 31, 2005 and 2004






Common stock, $0.01 par
    value; 95,000,000 shares authorized; 19,980,262 and
    19,379,701 shares issued and outstanding at
    December 31, 2005 and 2004, respectively


200



194Additional paid-in capital


206,483



199,272Deferred compensation


(127
)


Accumulated other comprehensive
    income


2,469



718Accumulated deficit


(3,321
)


(21,871
)Treasury stock, at cost, 546,134
    and no treasury shares at December 31, 2005 and 2004,
    respectively


(10,000
)


Total stockholders equity


195,704



178,313Total liabilities and
    stockholders equity

$
411,212


$
225,474    F-3




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  CONSOLIDATED STATEMENTS OF OPERATIONS
  Year Ended
    December 31,2005


2004


2003(In thousands, except per share
    data)Revenues:Software license

$
51,534


$
33,032


$
21,391Service, maintenance and hardware


142,217



74,151



42,461Total revenues


193,751



107,183



63,852Cost of revenues:Software license


7,071



6,705



5,341Service, maintenance and hardware


76,302



37,919



23,540Total cost of revenues


83,373



44,624



28,881Gross profit


110,378



62,559



34,971Operating expenses:Sales and marketing


24,460



14,272



10,729Product development


19,608



11,001



6,854General and administrative


36,351



21,123



15,888Total operating expenses


80,419



46,396



33,471Income from operations


29,959



16,163



1,500Interest income and other


4,808



1,645



197Interest expense


(4,478
)


(125
)


(154
)Income before income taxes


30,289



17,683



1,543Income tax (provision) benefit


(11,739
)


7,441



(234
)Net income


18,550



25,124



1,309Preferred stock accretion charge
    (Note 10)










(31,500
)Net income (loss) attributable to
    common stockholders

$
18,550


$
25,124


$
(30,191
)Net income (loss) per common share:  Basic

$
0.96


$
1.37


$
(7.74
)  Diluted

$
0.85


$
1.26


$
(7.74
)Weighted average common shares
    used to compute net income (loss) per common share:  Basic


19,361



18,313



3,903  Diluted


24,977



19,896



3,903    F-4




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  CONSOLIDATED STATEMENTS OF STOCKHOLDERS
    EQUITY (DEFICIT) 
    AND COMPREHENSIVE INCOME (LOSS)
  Accumulated











TotalAdditional





Other











Stockholders


ComprehensiveCommon Stock


Paid-In


Deferred


Comprehensive


Accumulated


Treasury Stock


Equity


IncomeShares


Amount


Capital


Compensation


Income (Loss)


Deficit


Shares


Amount


(Deficit)


(Loss)(In thousands, except share
    data)Balance at December 31, 2002


2,474,917


$
25


$
5,018


$



$



$
(48,304
)





$



$
(43,261
)Exercise of stock options


7,943







10























10Issuance of restricted stock


680,530



7



3,269



(3,276
)


















Amortization of deferred
    compensation














3,276



















3,276Reversal of accrued compensation
    from exercise or forfeiture of stock options










60























60Tax provision related to restricted
    stock










72























72Issuance of common stock


5,570,000



56



87,891























87,947Issuance cost from sale of common
    stock










(1,545
)






















(1,545
)Preferred stock accretion charge










(31,500
)






















(31,500
)Conversion of preferred stock


8,052,939



80



89,036























89,116Deemed preferred stock dividends
    and accretion










(37
)






















(37
)Unrealized loss on marketable
    securities


















(28
)














(28
)

$
(28
)Net income






















1,309











1,309



1,309Comprehensive income





































$
1,281Balance at December 31, 2003


16,786,329



168



152,274







(28
)


(46,995
)










105,419Exercise of stock options


880,820



9



3,911























3,920Issuance of common stock through
    employee stock purchase plan


47,086







799























799Reversal of accrued compensation
    from exercise or forfeiture of stock options










321























321Issuance of common stock


1,665,466



17



34,000























34,017Issuance cost from sale of common
    stock










(578
)






















(578
)Unrealized loss on marketable
    securities, net of tax effects


















(9
)














(9
)

$
(9
)Valuation of stock options issued
    in acquisition










789























789Tax benefit related to stock options










7,756























7,756Cumulative translation adjustment


















755















755



755Net income






















25,124











25,124



25,124Comprehensive income





































$
25,870Balance at December 31, 2004


19,379,701



194



199,272







718



(21,871
)










178,313Exercise of stock options


504,739



5



3,014























3,019Issuance of common stock through
    employee stock purchase plan


88,754



1



1,327























1,328Reversal of accrued compensation
    from exercise or forfeiture of stock options










297























297Issuance of restricted stock


7,068







138



(138
)


















Purchase of treasury stock


























546,134



(10,000
)


(10,000
)Unrealized gain on marketable
    securities, net of tax effects


















52















52


$
52Amortization of deferred
    compensation














11



















11Tax benefit related to stock options










2,435























2,435Cumulative translation adjustment


















1,699















1,699



1,699Net income






















18,550











18,550



18,550Comprehensive income





































$
20,301Balance at December 31, 2005


19,980,262


$
200


$
206,483


$
(127
)

$
2,469


$
(3,321
)


546,134


$
(10,000
)

$
195,704    F-5




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended
    December 31,2005


2004


2003(In thousands)Cash flows from operating
    activitiesNet income

$
18,550


$
25,124


$
1,309Adjustments to reconcile net
    income to net cash provided by operating activities:Depreciation and amortization


11,380



6,434



3,901Non-cash interest expense


688







Stock-based compensation expense


402



388



3,542Tax benefit on restricted stock










72Deferred tax provision


11,197



(8,057
)


Provision for doubtful accounts


876



156



205Changes in operating assets and
    liabilities, excluding effects from acquisitions:Accounts receivable


(12,948
)


(3,950
)


(1,038
)Prepaid expenses and other current
    assets


(6,844
)


(604
)


(1,299
)Other assets


(590
)


(139
)


Accounts payable and accrued
    expenses


10,572



(394
)


2,586Deferred revenue


10,697



809



791Net cash provided by operating
    activities


43,980



19,767



10,069Cash flows from investing
    activitiesPurchase of fixed assets


(10,748
)


(5,555
)


(1,469
)Purchase of developed software


(1,373
)






(20
)Purchase of marketable securities


(160,655
)


(62,016
)


(78,156
)Sales and maturities of marketable
    securities


173,443



127,375



Business acquisitions, net of cash
    received


(49,620
)


(82,005
)


(8,037
)Net cash used in investing
    activities


(48,953
)


(22,201
)


(87,682
)Cash flows from financing
    activitiesProceeds from convertible notes
    payable


144,061







Payment of debt-issuance costs


(4,970
)






Repayment of long-term debt from
    customers


(2,918
)


(459
)


Proceeds from exercise of stock
    options


3,019



3,920



10Proceeds from issuance of common
    stock through employee stock purchase plan


1,328



799



Proceeds from issuance of
    long-term debt










1,661Repayment of long-term debt










(5,014
)Repayment of capital lease
    obligation


(738
)


(676
)


(207
)Purchase of common stock


(10,000
)






(1,800
)Proceeds from sale of common stock






33,439



86,402Net cash provided by financing
    activities


129,782



37,023



81,052Effect of exchange rate on cash
    and cash equivalents


170



5



Net increase in cash and cash
    equivalents


124,979



34,594



3,439Cash and cash equivalents,
    beginning of period


49,447



14,853



11,414Cash and cash equivalents, end of
    period

$
174,426


$
49,447


$
14,853Supplemental
    disclosuresCash paid for interest

$
2,152


$
125


$
178Cash paid for income taxes


1,178



506



118See Notes 4, 9, 10 and
    11 for non-cash investing and financing disclosures    F-6




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    The
    Company        2.
    Summary
    of Significant Accounting Policies  Principles
    of Consolidation
    Use of
    Estimates
    Foreign
    Currency Translation and Transactions
    Segment
    Reporting
  Disclosures about Segments of an Enterprise and Related
    Information.
 F-7




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended
    December 31,2005


2004


2003Software license

$
51,534,000


$
33,032,000


$
21,391,000Installation, training and
    professional services


26,938,000



17,754,000



10,686,000Maintenance and support


43,577,000



29,926,000



19,736,000Data center and payment processing
    services


63,371,000



21,635,000



8,771,000Hardware and other


8,331,000



4,836,000



3,268,000Service, maintenance and hardware


142,217,000



74,151,000



42,461,000Total revenue

$
193,751,000


$
107,183,000


$
63,852,000     Year Ended
    December 31,2005


2004


2003Revenues:United States

$
153,507,000


$
101,717,000


$
63,852,000Canada


40,244,000



5,466,000



$
193,751,000


$
107,183,000


$
63,852,000   As of
    December 31,2005


2004Tangible Long-lived assets:United States

$
14,773,000


$
9,664,000Canada


6,006,000



4,746,000$
20,779,000


$
14,410,000   Cash
    and Cash Equivalents
      Investments
    in Marketable Securities
  available-for-sale Accounting for Certain
    Investments in Debt
 F-8




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accounts
    Receivable
      Balance at


AdditionsBeginning


Charge to Costs


Charge to


Deductions,


Balance atDescription

of Period


and Expenses


Other Accounts


Net


End of PeriodAllowance for Doubtful Accounts:Years ended December 31,2005

$
531,000


$
876,000


$



$
46,000


$
1,361,0002004


420,000



156,000







45,000



531,0002003


418,000



205,000







203,000



420,000   Fixed
    Assets
    Computer equipment and software


3 to 5 yearsOffice furniture and equipment


7 yearsLeasehold improvements


7 years       Capitalized
    Software
   F-9




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting for the Costs of Computer
    Software to be Sold, Leased, or Otherwise Marketed
  Research
    and Development Costs
    Long-Lived
    Assets
    Goodwill
    and Other Intangibles
    Revenue
    Recognition
  when-and-if-available
   F-10




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   percentage-of-completion
             F-11




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Income
    Taxes
      Net
    Income and Loss Per Share
  in-the-money in-the-money
    Years Ended
    December 31,2005


2004


2003Net income (loss) used for basic
    calculation

$
18,550,000


$
25,124,000


$
(30,191,000
)Interest expense from convertible
    debt, net of tax


2,635,000







Net income (loss) used for diluted
    calculation


21,185,000



25,124,000



(30,191,000
)Basic net income per
    share  weighted average common shares outstanding


19,360,574



18,312,997



3,903,252Dilutive effect of restricted
    stock, stock options and warrants


1,087,475



1,583,450



Dilutive effect of convertible debt


4,528,986







Diluted net income per
    share  weighted average common shares outstanding


24,977,035



19,896,447



3,903,252    F-12




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Comprehensive
    Income
    Concentration
    of Credit Risk
    Fair
    Value of Financial Instruments
    Stock
    Compensation
  Accounting for Stock Issued to
    Employees. Share-Based Payment: an amendment of FASB Statements
    No. 123 and 95
 F-13




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Stock Compensation
  Year Ended
    December 31,2005


2004


2003Net income (loss) attributable to
    common stockholders, as reported

$
18,550,000


$
25,124,000


$
(30,191,000
)Add: Stock compensation expense,
    net of tax effect, included in reported net income (loss)


292,000



212,000



3,542,000Subtract: Total stock compensation
    expense determined under fair value method, net of tax effect


(6,061,000
)


(2,658,000
)


(5,630,000
)Pro forma net income (loss)

$
12,781,000


$
22,678,000


$
(32,279,000
)Reported net income (loss) per
    shareBasic

$
0.96


$
1.37


$
(7.74
)Diluted


0.85



1.26



(7.74
)Pro forma net income (loss) per
    shareBasic

$
0.66


$
1.24


$
(8.27
)Diluted


0.62



1.17



(8.27
)     Recent
    Accounting Pronouncements
  Accounting
    Changes and Error Corrections Accounting
    Changes Reporting
    Accounting Changes in Interim Financial Statements
  Exchanges of Nonmonetary Assets and amendment of APB Opinion
    No. 29 Accounting for Nonmonetary
    Transactions
   F-14




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Statement of Cash Flow,
      3.
    Investments
    in Marketable Securities  available-for-sale
  Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair ValueDecember 31, 2004 Corporate
    notes and bonds

$
9,797,000


$



$
(42,000
)

$
9,755,000Federal notes and bonds


2,000,000







(14,000
)


1,986,000Municipal notes and bonds


1,000,000







(5,000
)


995,000Total

$
12,797,000


$



$
(61,000
)

$
12,736,000December 31, 2003 Corporate
    notes and bonds

$
77,935,000


$
3,000


$
(31,000
)

$
77,907,000  F-15




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   4.
    Acquisitions    US servicesBusiness to creditUnions of CGI-AMS,


S.O.S. Computer


Financial Data


COWWW


DatawestInc.


Systems, Inc.


Solutions, Inc.


Software, Inc


Solutions Inc.(2005)


(2005)


(2005)


(2005)


(2004)Tangible assets acquired

$
2,592,000


$
4,972,000


$
3,052,000


$
1,096,000


$
23,194,000Purchased technology


350,000



500,000







500,000



2,223,000Goodwill


16,745,000



5,552,000



4,996,000



6,222,000



23,901,000Other intangibles


5,200,000



3,320,000



1,250,000



1,100,000



11,476,000Liabilities assumed


(1,127,000
)


(2,799,000
)


(249,000
)


(445,000
)


(13,166,000
)Purchase price

$
23,760,000


$
11,545,000


$
9,049,000


$
8,473,000


$
47,628,000   OmegaSystems of


re:Member


Eastpoint


Maxxar


Liberty FiTechNorth America LLC


Data Services, Inc.


Technologies, LLC


Corporation


Systems, Inc.(2004)


(2004)


(2004)


(2004)


(2003)Tangible assets acquired

$
580,000


$
2,732,000


$
1,387,000


$
1,789,000


$
4,006,000Purchased technology


250,000



750,000



290,000



760,000



530,000Goodwill


1,901,000



12,038,000



5,122,000



4,268,000



4,843,000Other intangibles


200,000



11,440,000



1,990,000



700,000



6,700,000Liabilities assumed


(472,000
)


(4,206,000
)


(2,026,000
)


(642,000
)


(4,089,000
)Purchase price

$
2,459,000


$
22,754,000


$
6,763,000


$
6,875,000


$
11,990,000     Information
    Services Group of BISYS
    U.S.-based
    services to credit unions business of
    CGI-AMS
    Inc.
  U.S.-based CGI-AMS
 F-16




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    S.O.S.
    Computer Systems, Inc.
    Financial
    Data Solutions, Inc.
    COWWW
    Software, Inc.
    Datawest
    Solutions Inc.
   F-17




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Omega
    Systems of North America LLC
    re:Member
    Data Services, Inc.
    Eastpoint
    Technologies, LLC
    Maxxar
    Corporation
    Liberty
    FiTech Systems, Inc.
   F-18




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Pro
    Forma Financial Information (unaudited)
    Year Ended
    December 31,2005


2004Pro forma revenues

$
196,965,000


$
160,835,000Pro forma net income


18,465,000



24,859,000Pro forma net income per
    share  basic

$
0.95


$
1.36Pro forma net income per
    share  diluted


0.84



1.25   5.
    Fixed
    Assets  December 31,2005


2004Computer equipment and software

$
26,780,000


$
19,266,000Office furniture and equipment


4,385,000



2,946,000Leasehold improvements


3,591,000



1,391,000Construction in progress


4,080,000



2,186,00038,836,000



25,789,000Less: accumulated depreciation


(18,057,000
)


(11,379,000
)$
20,779,000


$
14,410,000     6.
    Capitalized
    Software and Other Intangible Assets   F-19




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,2005


2004Purchased technology

$
11,596,000


$
10,148,000Internal use software


1,839,000



1,746,000Purchased third-party software


1,700,000



442,00015,135,000



12,336,000Less: accumulated amortization


(7,780,000
)


(6,125,000
)$
7,355,000


$
6,211,000     December 31,2005


2004Customer relationships

$
43,316,000


$
32,175,000Tradenames


550,000



626,000Other intangible assets


160,000



160,00044,026,000



32,961,000Less: accumulated amortization


(4,587,000
)


(1,793,000
)$
39,439,000


$
31,168,000       Capitalized


OtherSoftware


Intangible Assets2006

$
1,815,000


$
3,223,0002007


1,815,000



3,223,0002008


1,639,000



3,223,0002009


1,143,000



3,185,0002010


516,000



3,138,000  F-20




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   7.
    Accrued
    Expenses  December 31,2005


2004Compensation related

$
12,932,000


$
5,984,000Third party license fees


2,379,000



4,246,000Professional fees


1,823,000



653,000Accrued interest


1,651,000



Hardware and software purchases


1,911,000



229,000Sales tax payable


867,000



931,000Other


3,061,000



3,295,000$
24,624,000


$
15,338,000   8.
    Convertible
    Notes Payable       F-21




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   paid-in-capital No. 03-7, Accounting for the Settlement of the Equity-Settled Portion
    of a Convertible Debt Instrument That Permits or Requires the
    Conversion Spread to Be Settled in Stock.
  9.
    Long-Term
    Debt and Capital Lease Obligations      December 31,


December 31,2005


2004Computer equipment lease

$
224,000


$
931,000Automobile lease






27,000224,000



958,000Less: current portion


(102,000
)


(735,000
)Capital lease obligations, net of
    current portion

$
122,000


$
223,000     Year Ended December 31,2006

$
115,0002007


90,0002008


30,000Total minimum lease payments


235,000Amounts representing interest


(11,000
)Present value of minimum lease
    payments

$
224,000   10.
    Capital
    Stock , Treasury Stock and Redeemable Convertible Preferred
    Stock  Capital
    Stock
    Treasury
    Stock
   F-22




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Redeemable
    Convertible Preferred Stock
    11.
    Stock
    Option Plans  1994
    Stock Option Plan
      2000
    Stock Incentive Plan
       F-23




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            2003
    Stock Incentive Plan
           F-24




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   2003
    Employee Stock Purchase Plan
        Weighted AverageNumber of Shares


Exercise PriceOutstanding at December 31,
    2002


2,304,042


$
5.60Granted


663,737



4.32Canceled


(49,544
)


6.35Exercised


(7,943
)


1.35Outstanding at December 31,
    2003


2,910,292



5.32Granted


1,095,710



22.60Canceled


(82,757
)


14.64Exercised


(880,820
)


4.41Outstanding at December 31,
    2004


3,042,425



11.55Granted


1,165,641



20.76Canceled


(141,280
)


20.22Exercised


(504,739
)


5.98Outstanding at December 31,
    2005


3,562,047


$
14.99  F-25




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Weighted AverageSFAS 123Numbers of


Weighted Average


Fair ValueOptions Granted


Exercise Price


at Grant Date2003Options granted with an exercise
    price equal to market value


88,959



13.05



8.71Options granted with an exercise
    price greater than market value


11,019



7.25



1.89Options granted with an exercise
    price less than market value


563,759



2.89



4.582004Options granted with an exercise
    price equal to market value


1,043,862



23.08



12.98Options granted with an exercise
    price less than market value


51,848



12.86



8.342005Options granted with an exercise
    price equal to market value


1,165,641



20.76



9.67       Options OutstandingNumber


Weighted Average





Options ExercisableOutstanding at


Remaining





NumberDecember 31,


Contractual Life


Weighted Average


Exercisable atRange of Exercise
    Price

2005


in Years


Exercise Price


December 31, 2005$ 0.00 - 2.82


33,813



2.85


$
0.40



26,7452.83 - 5.62


409,962



6.95



2.97



196,0205.63 - 8.45


1,020,013



4.99



6.80



1,001,3768.46 - 16.90


82,466



7.31



13.08



40,33816.91 - 19.72


596,175



9.25



19.30



2,63419.73 - 22.54


718,532



8.21



21.41



290,81222.55 - 28.17


701,086



8.97



24.63



86,5973,562,047



7.40


$
14.99



1,644,522    F-26




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     2005


2004


2003Risk free interest rate


4.21
%


3.28
%


2.99
%Expected dividend yield


None



None



NoneExpected life of option


4 years



5 years



6 yearsExpected volatility


48
%


66
%


74
%       12.
    401(k)
    Plan    13.
    Commitments
    and Contingencies    2006


5,313,0002007


4,993,0002008


4,721,0002009


4,170,0002010


3,846,000Thereafter


4,372,000Total minimum obligations

$
27,415,000      F-27




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Legal
    Proceedings
    Filing
    of Internal Revenue Service Tax Forms on Behalf of Certain
    Customers
    14.
    Income
    Taxes    Year Ended
    December 31,2005


2004


2003United States

$
21,833,000


$
16,731,000


$
1,543,000Foreign


8,456,000



952,000



Total

$
30,289,000


$
17,683,000


$
1,543,000     Year Ended
    December 31,2005


2004


2003Tax provision recognized in
    statement of operations

$
11,739,000


$
(7,441,000
)

$
234,000Goodwill, for recognition of tax
    benefit of stock option deduction related to an acquisition






(110,000
)


Goodwill, for initial recognition
    of acquired tax benefits that previously were included in the
    valuation allowance


(7,971,000
)


(774,000
)


Stockholders equity, for tax
    benefit related to stock option deductions in excess of amounts
    recognized for financial reporting purposes


(2,435,000
)


(7,756,000
)


Other comprehensive income, for
    unrealized loss on marketable securities


33,000



(24,000
)


  F-28




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year Ended
    December 31,2005


2004


2003Current:Federal

$
498,000


$
328,000


$
72,000State


436,000



288,000



69,000Foreign


51,000







Deferred:Federal


6,864,000



(6,284,000
)


81,000State


925,000



(2,143,000
)


12,000Foreign


2,965,000



370,000



Total

$
11,739,000


$
(7,441,000
)

$
234,000     December 31,2005


2004Gross deferred tax assetsNet operating loss carryforwards

$
21,742,000


$
29,776,000Research and development and other
    credits


2,257,000



1,791,000Stock compensation expense


52,000



48,000Deferred revenue


427,000



577,000Accrued expenses






390,000Accounts receivable


521,000



357,000Accelerated depreciation


3,175,000



693,000Other


51,000



74,000Deferred tax assets, gross


28,225,000



33,706,000Less: Valuation allowance






(9,380,000
)Total deferred tax assets, net of
    valuation allowance


28,225,000



24,326,000Gross deferred tax liabilitiesIntangible assets


(10,667,000
)


(7,410,000
)Accrued expenses


(275,000
)


Deferred tax liabilities, gross


(10,942,000
)


(7,410,000
)Net deferred tax asset

$
17,283,000


$
16,916,000    F-29




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       2005


2004


2003Computed expected tax
    expense

$
10,601,000


$
6,012,000


$
525,000State income taxes, net of federal
    tax benefit


932,000



(1,224,000
)


100,000Non-deductible expenses


272,000



104,000



67,000Deferred compensation


75,000



28,000



78,000Losses benefited






(12,414,000
)


(513,000
)Foreign tax rate differential


44,000



15,000



Other


188,000



38,000



(23,000
)Change in deferred tax asset due
    to revised federal statutory tax rate


(373,000
)






Income tax (benefit) expense

$
11,739,000


$
(7,441,000
)

$
234,000Computed expected tax
    expense


35.0
%


34.0
%


34.0
%State income taxes, net of federal
    tax benefit


3.1
%


(6.9
)%


6.5
%Non-deductible expenses


0.9
%


0.6
%


4.3
%Deferred compensation


0.2
%


0.1
%


5.1
%Losses benefited



%


(70.2
)%


(33.2
)%Foreign tax rate differential


0.1
%


0.1
%



%Other


0.7
%


0.2
%


(1.5
)%Change in deferred tax asset due
    to revised federal statutory tax rate


(1.2
)%



%



%Income tax (benefit) expense


38.8
%


(42.1
)%


15.2
%      F-30




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      15.
    Related
    Parties    16.
    Reseller
    Agreements        10-year
   F-31




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    17.
    Subsequent
    Event  Acquisition
    of BISYSs Information Services Group
         F-32




---



##### Table of Contents



OPEN
    SOLUTIONS INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   18.
    Selected
    Quarterly Financial Data (Unaudited)  First Quarter


Second Quarter


Third Quarter


Fourth Quarter2004Revenue

$
20,950,000


$
21,820,000


$
28,332,000


$
36,081,000Gross profit


11,895,000



12,735,000



16,821,000



21,108,000Income from operations


2,925,000



3,006,000



4,362,000



5,870,000Net income


3,002,000



3,139,000



4,470,000



14,513,000Basic income per share


0.18



0.18



0.23



0.75Diluted income per share


0.16



0.16



0.21



0.702005Revenue

$
37,726,000


$
47,087,000


$
49,189,000


$
59,749,000Gross profit


21,334,000



26,708,000



26,676,000



35,660,000Income from operations


4,911,000



6,456,000



6,184,000



12,408,000Net income


2,965,000



3,835,000



3,842,000



7,908,000Basic income per share


0.15



0.20



0.20



0.41Diluted income per share


0.14



0.18



0.18



0.34  F-33




---



##### Table of Contents



EXHIBIT INDEX
  Exhibit

Description2
.1

Asset Purchase Agreement between
    Liberty FiTech Systems, Inc., Liberty Enterprises, Inc., Open
    Solutions FiTech, Inc. and Open Solutions Inc. dated
    June 30, 2003, together with Promissory Note made by Open
    Solutions FiTech, Inc. in favor of Liberty FiTech Systems, Inc.
    for the principal sum of $1,700,000 dated June 30, 2003,
    together with Security Agreement between Open Solutions FiTech,
    Inc. and Liberty FiTech Systems, Inc. dated June 30, 2003
    (Incorporated by reference to the Registrants registration
    statement on
    Form S-1,
    filed with the Securities and Exchange Commission on
    August 28, 2003 (File
    No. 333-108293)).2
.2

Stock Purchase Agreement among
    Open Solutions Inc., OSI Acquisition Sub, Inc., Maxxar
    Corporation and the Stockholders listed on Schedule 1 thereto,
    dated as of February 24, 2004 (Incorporated by reference to
    the Registrants Current Report on
    Form 8-K
    dated February 24, 2004).2
.3

Asset Purchase Agreement, dated as
    of June 18, 2004, between Eastpoint Technologies, LLC and
    EP Acquisition Corp. (Incorporated by reference to the
    Registrants Current Report on
    Form 8-K
    dated June 18, 2004).2
.4

Stock Purchase Agreement, dated as
    of July 8, 2004, by and among David B. Becker, John E.
    Taylor, as Trustee of the David B. Becker Family Trust and David
    B. Becker, as Trustee of the David B. Becker Charitable
    Remainder Unitrust, as shareholders of re:Member Data Services,
    Inc., and RD Acquisition Corp. (Incorporated by reference to the
    Registrants Current Report on
    Form 8-K
    dated July 8, 2004).2
.5

Asset Purchase Agreement, dated as
    of July 23, 2004, among Omega Systems of North America LLC,
    Evan P. Lewis, as sole trustee of Omega Systems of North America
    Voting Trust, Evan P. Lewis, as sole trustee of Omega Systems of
    North America Holding Trust, Tri-Core Systems Enterprises, LLC,
    Evan P. Lewis, as sole trustee of Tri-Core Holding Trust, Evan
    P. Lewis and Open Solutions Inc. (Incorporated by reference to
    the Registrants Current Report on
    Form 8-K
    dated July 23, 2004).2
.6

Acquisition Agreement, dated as of
    August 25, 2004, between Open Solutions Inc., 6259936
    Canada Inc. and Datawest Solutions Inc. (Incorporated by
    reference to the Registrants Current Report on
    Form 8-K
    dated August 25, 2004).2
.7

Asset Purchase Agreement, dated as
    of March 10, 2005, between CGI-AMS Inc. and OS Acquisition
    Corp. (Incorporated by reference to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2004).2
.8

Stock Purchase Agreement, dated as
    of September 15, 2005, by and among Open Solutions Inc.,
    Husky Acquisition Corporation, The BISYS Group, Inc. and BISYS,
    Inc. (Incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    dated September 15, 2005).2
.9

Amendment to Stock Purchase
    Agreement, dated as of December 15, 2005, by and among Open
    Solutions Inc., Husky Acquisition Corporation, The BISYS Group,
    Inc. and BISYS, Inc. (Incorporated by reference to the
    Registrants Current Report on
    Form 8-K
    dated December 15, 2005).2
.10

Second Amendment to Stock Purchase
    Agreement, dated as of February 27, 2006, by and among Open
    Solutions Inc., Husky Acquisition Corporation, The BISYS Group,
    Inc. and BISYS, Inc. (Incorporated by reference to the
    Registrants Current Report on
    Form 8-K
    dated February 27, 2006).2
.11

Waiver and Third Amendment to
    Stock Purchase Agreement, dated as of March 3, 2006, by and
    among Open Solutions Inc., Husky Acquisition Corporation, The
    BISYS Group, Inc. and BISYS, Inc. (Incorporated by reference to
    the Registrants Current Report on
    Form 8-K
    dated March 3, 2006).3
.1

Restated Certificate of
    Incorporation of the Registrant (Incorporated by reference to
    Amendment No. 3 to the Registrants registration
    statement on
    Form S-1,
    filed with the Securities and Exchange Commission on
    November 7, 2003 (File
    No. 333-108293)).3
.2

Amended and Restated By-Laws of
    the Registrant (Incorporated by reference to Amendment
    No. 3 to the Registrants registration statement on
    Form S-1,
    filed with the Securities and Exchange Commission on
    November 7, 2003 (File
    No. 333-108293)).4
.1

Specimen certificate for shares of
    the Registrants Common Stock (Incorporated by reference to
    Amendment No. 3 to the Registrants registration
    statement on
    Form S-1,
    filed with the Securities and Exchange Commission on
    November 7, 2003 (File
    No. 333-108293)).4
.2

Indenture, dated as of
    February 2, 2005, between Open Solutions Inc. and
    U.S. Bank National Association, as Trustee (Incorporated by
    reference to the Registrants Current Report on
    Form 8-K
    dated February 2, 2005).




---



##### Table of Contents



Exhibit

Description+10
.1

1994 Stock Option Plan, as amended
    (Incorporated by reference to Amendment No. 1 to the
    Registrants registration statement on
    Form S-1,
    filed with the Securities and Exchange Commission on
    October 7, 2003 (File
    No. 333-108293)).+10
.2

2000 Stock Incentive Plan, as
    amended (Incorporated by reference to Amendment No. 1 to
    the Registrants registration statement on
    Form S-1,
    filed with the Securities and Exchange Commission on
    October 7, 2003 (File
    No. 333-108293)).+10
.3

2003 Stock Incentive Plan
    (Incorporated by reference to Amendment No. 1 to the
    Registrants registration statement on
    Form S-1,
    filed with the Securities and Exchange Commission on
    October 7, 2003 (File
    No. 333-108293)).+10
.4

2003 Employee Stock Purchase Plan,
    as amended.+10
.5

Form of Incentive Stock Option
    Agreement for the Registrants 2000 Stock Incentive Plan
    (Incorporated by reference to the Registrants Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2004).+10
.6

Form of Nonstatutory Stock Option
    Agreement for the Registrants 2000 Stock Incentive Plan
    (Incorporated by reference to the Registrants Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2004).+10
.7

Form of Incentive Stock Option
    Agreement for the Registrants 2003 Stock Incentive Plan
    (Incorporated by reference to the Registrants Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2004).+10
.8

Form of Nonstatutory Stock Option
    Agreement for the Registrants 2003 Stock Incentive Plan
    (Incorporated by reference to the Registrants Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2004).+10
.9

Form of Restricted Stock Unit
    Agreement for the Registrants 2003 Stock Incentive Plan
    used prior to January 1, 2006 (Incorporated by reference to
    the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2004).+10
.10

Form of Restricted Stock Unit
    Agreement for the Registrants 2003 Stock Incentive Plan
    used beginning January 1, 2006.+10
.11

Form of Restricted Stock Agreement
    for the Registrants 2000 and 2003 Stock Incentive Plans.+10
.12

Employment Agreement between Open
    Solutions Inc. and Louis Hernandez, Jr. dated
    April 21, 2005 (Incorporated by reference to the
    Registrants Current Report on
    Form 8-K
    dated April 21, 2005).+10
.13

First Amendment to Employment
    Agreement between Open Solutions Inc. and Louis
    Hernandez, Jr. dated February 17, 2006.+10
.14

Employment Letter Agreement
    between Open Solutions Inc. and Kenneth J. Saunders dated
    December 19, 2005 (Incorporated by reference to the
    Registrants Current Report on
    Form 8-K
    dated December 19, 2005).+10
.15

Form of Director and Officer
    Indemnity Agreement entered into between Open Solutions Inc. and
    each of its directors and executive officers.10
.16

Amended and Restated
    Investors Rights Agreement between Open Solutions Inc. and
    the Investors (as defined therein) dated March 17, 2000
    (Incorporated by reference to the Registrants registration
    statement on
    Form S-1,
    filed with the Securities and Exchange Commission on
    August 28, 2003 (File
    No. 333-108293)).10
.17

Software License Agreement between
    Open Solutions Inc. and BISYS, Inc. dated as of
    September 1, 2003 (Incorporated by reference to Amendment
    No. 5 to the Registrants registration statement on
    Form S-1,
    filed with the Securities and Exchange Commission on
    November 21, 2003 (File
    No. 333-108293)).10
.18

Letter Agreement, dated
    October 10, 2005, between Open Solutions Inc. and BISYS,
    Inc. (Incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    dated October 10, 2005).10
.19

Letter Agreement, dated
    January 26, 2006, between Open Solutions Inc. and BISYS,
    Inc.10
.20

Letter Agreement, dated
    February 23, 2006, between Open Solutions Inc. and BISYS,
    Inc.10
.21

Gross Lease between Open Solutions
    Inc. and Principal Mutual Life Insurance Company dated
    February 29, 1996, as amended by the First Amendment to
    Lease between Open Solutions Inc. and Principal Mutual Life
    Insurance Company dated January 27, 1998, as amended by the
    Second Amendment to Lease between Open Solutions Inc. and
    Principal Life Insurance Company (f/k/a Principal Mutual Life
    Insurance Company) dated May 25, 1999, as amended by the
    Third Amendment to Lease between Open Solutions Inc. and Foster
    Properties, LLC (as
    successor-in-interest
    to Principal Life Insurance Company) dated September 16,
    1999, as amended by the Fourth Amendment to Lease between Open
    Solutions Inc. and Foster Properties, LLC dated
    November 29, 2000 (Incorporated by reference to the
    Registrants registration statement on
    Form S-1,
    filed with the Securities and Exchange Commission on
    August 28, 2003 (File
    No. 333-108293)).




---



##### Table of Contents



Exhibit

Description10
.22

Fifth Amendment  to Lease
    Agreement between Open Solutions Inc. and WB Partners LLC (as
    successor-in-interest
    to Foster Properties, LLC) dated January 16, 2006.10
.23

Lease between Open Solutions Inc.
    and WB Development Partnership dated May 4, 2004
    (Incorporated by reference to Amendment No. 2 to the
    Registrants registration statement on
    Form S-1,
    filed with the Securities and Exchange Commission on May 6,
    2004 (File
    No. 333-114704)).10
.24

Amendment No. 1 to Lease
    between Open Solutions Inc. and Winding Brook Drive LLC, dated
    as of March 1, 2005 (Incorporated by reference to the
    Registrants Current Report on
    Form 8-K
    dated April 1, 2005).10
.25

Amendment No. 2 to Lease
    between Open Solutions Inc. and Winding Brook Drive LLC, dated
    as of January 15, 2006.10
.26

Registration Rights Agreement,
    dated as of February 2, 2005, among Open Solutions Inc. and
    the initial purchasers named therein (Incorporated by reference
    to the Registrants Current Report on
    Form 8-K
    dated February 2, 2005).10
.27

Asset Purchase Agreement, dated as
    of April 6, 2005, among Ship Acquisition Corp., S.O.S.
    Computer Systems, Inc., the Clark Lindsay Ballantyne Trust, the
    Laura Ballantyne Warner Trust, the Dunster Family Trust and
    David Smart (Incorporated by reference to the Registrants
    Current Report on
    Form 8-K
    dated April 6, 2005).10
.28

First Lien Senior Secured Credit
    Agreement, dated as of March 3, 2006, among Open Solutions
    Inc., the Guarantors named therein, the Swing Line Bank and
    Issuing Bank, each named therein, the lending institutions names
    therein, the Administrative Agent and the other parties thereto
    (Incorporated by reference to the Registrants Current
    Report on
    Form 8-K
    dated March 3, 2006).10
.29

Second Lien Senior Secured Term
    Loan Agreement, dated as of March 3, 2006, among Open
    Solutions Inc., the Guarantors named therein, the lending
    institutions names therein, the Administrative Agent and the
    other parties thereto (Incorporated by reference to the
    Registrants Current Report on
    Form 8-K
    dated March 3, 2006).10
.30

Intercreditor Agreement, dated as
    of March 3, 2006, among Wachovia Bank, National
    Association, Open Solutions Inc., the loan parties listed
    therein and such other parties as shall from time to time become
    party thereto (Incorporated by reference to the
    Registrants Current Report on
    Form 8-K
    dated March 3, 2006).+10
.31

Change in Control Protection Plan
    for Executive Officers.+10
.32

Change in Control Protection Plan
    for Non-Employee Directors.+10
.33

Compensatory Arrangements with
    Executive Officers.+10
.34

Compensatory Arrangements with
    Non-Employee Directors.21
.1

List of Subsidiaries of Open
    Solutions Inc.23
.1

Consent of PricewaterhouseCoopers
    LLP.31
.1

Certification of Louis
    Hernandez, Jr., Chairman of the Board and Chief Executive
    Officer, pursuant to
    Rules 13a-14(a)
    and
    15d-14(a) of
    the Exchange Act, as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.31
.2

Certification of Kenneth J.
    Saunders, Executive Vice President and Chief Financial Officer,
    pursuant to
    Rules 13a-14(a)
    and
    15d-14(a) of
    the Exchange Act, as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.32
.1

Certification of Louis
    Hernandez, Jr., Chairman of the Board and Chief Executive
    Officer, pursuant to 18 U.S.C. section 1350.32
.2

Certification of Kenneth J.
    Saunders, Executive Vice President and Chief Financial Officer,
    pursuant to 18 U.S.C. section 1350.     
    
    Confidential treatment granted as to certain portions, which
    portions have been omitted and filed separately with the
    Securities and Exchange Commission.+
    
    Management contract or compensatory plan or arrangement.