SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1997
or
[ ]Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number: 0-26994
ADVENT SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of incorporation)
94-2901952
(IRS Employer Identification Number)
301 Brannan Street, San Francisco, California 94107
(Address of principal executive offices and zip code)
(415) 543-7696
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Acts: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The number of shares of the registrant's Common Stock outstanding as of March
25, 1998 was 7,901,000. The aggregate market value of the registrant's Common
Stock held by non-affiliates, based upon the closing price on March 27, 1998, as
reported on the Nasdaq National Market System, was approximately $176.0 million.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference into Parts II and
III of this Form 10-K: (1) 1997 Annual Report to Stockholders of the Registrant
(Part II of this Form 10-K); and (2) Definitive Proxy Statement for the
registrant's Annual Meeting of Stockholders to be held April 30, 1998 (Part III
of this Form 10-K).
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PART I
Item 1. BUSINESS
Overview
Advent Software, Inc. (Advent) is a leading provider of stand-alone and
client/server software products, data interfaces and related services that
automate and integrate certain mission-critical functions of investment
management organizations. Advent's suite of complementary products for the
front, middle and back office includes Axys(TM), Advent Partner(TM) and
Geneva(R), Advent's portfolio accounting and management systems; Moxy(R), a
trading and order management system; Qube(R), a client management system and
Rex(TM), an automated transaction and position reconciliation system. These
products address the need to facilitate the management of increasingly large and
complex information and data flows both within investment management
organizations and between such organizations and third parties, such as
brokerage firms, clients, custodians, banks, pricing services and other data
providers. Advent's products are designed to reduce client costs, improve the
accuracy of client information, and generally enable clients to devote more time
to improving the service they provide to their customers rather than focusing on
operational details. Advent's strategy is to develop long-term client
relationships and to maintain a high level of lifetime client satisfaction which
Advent believes will result in additional recurring revenues from new product
licenses, renewals of existing maintenance contracts and the introduction of new
data products.
Advent's clients include many of the world's leading investment management
organizations. These organizations vary significantly in size, assets under
management and the complexity of their investment environments. At present,
Advent has licensed its products to over 4,500 institutions in 22 countries for
use by more than 25,000 concurrent users.
Advent was incorporated in 1983 in California and reincorporated in the
State of Delaware in November 1995.
Industry Background
The investment management business includes a range of organizations that
manage investment portfolios, including investment advisors, brokerage firms,
banks and hedge funds. In addition, corporations, public funds, foundations,
universities and non-profit organizations manage investment portfolios and
perform similar portfolio management functions. Recently, the investment
management industry has experienced significant growth which, in combination
with other factors, has led to increasing demand for software products that
automate, simplify and integrate functions within investment management
organizations. This increasing demand is driven by several industry dynamics.
Financial assets under management have increased substantially during the last
decade. As the value of total financial assets under management has increased,
there has been a substantial increase in the number of investment management
organizations and a steady introduction of increasingly sophisticated financial
instruments. As a result, investment managers are faced with increasingly
complicated portfolio accounting and management requirements. Investment
management organizations are subject to extensive and evolving industry
standards and government regulations. These dynamics have increased the volume
and complexity of information and data flows within investment management
organizations and between such organizations and third parties, such as
brokerage firms, clients, custodians, banks, pricing services and other data
providers. Consequently, investment management organizations require more
sophisticated and integrated software products for their front, middle and back
offices. In order to operate efficiently within this environment, investment
management organizations must automate and integrate their mission-critical and
labor-intensive functions, including (i) investment decision support and client
relationship management, (ii) order management and trading and (iii) portfolio
accounting, performance measurement, report generation and compliance.
Investment management organizations historically have relied on internally
developed systems, timesharing services or simple spreadsheet-based systems to
manage information flows. Due to inherent limitations in each of these types of
systems, investment management
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organizations are demanding highly functional,
easy-to-use, scalable, cost-effective and flexible software applications that
automate and integrate their mission-critical business functions.
Software Products
Advent offers a suite of stand-alone and client/server software products
that automate and integrate work and data flows across the front, middle and
back offices within the investment management organization, as well as the
information flows between the investment management organization and external
parties. Advent's products are intended to reduce client costs, improve the
accuracy of client information and generally enable clients to improve the
service they provide to their customers rather than focusing on operational
details. Each software product is focused on certain mission-critical functions
of the front, middle or back offices of investment management organizations.
Individual products are tailored to meet the needs of a particular market
segment, as determined by size, assets under management and complexity of the
investment environment. In addition, Advent believes its products are well
suited for the investment management functions of corporations, public funds,
foundations, universities and non-profit organizations.
[Chart Appears Here]
Portfolio Accounting and Management
Advent offers three portfolio accounting and management systems, Axys,
Advent Partner and Geneva, each targeted at a different segment of the
investment management industry.
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Axys, Advent's core product, introduced in 1993, is a highly functional
portfolio accounting and management system targeted towards investment
management organizations of all sizes. Axys provides investment professionals
with broad portfolio accounting functionality, timely decision support,
sophisticated performance measurement and flexible reporting. Specifically,
clients can record, account for and report on a variety of investment
instruments, including equities, fixed income, mutual funds and cash. Axys users
gain access on demand to portfolio holdings, asset allocation, realized and
unrealized gains and losses, actual and projected income and other valuable
data. Portfolio performance can be measured for individual portfolios or related
groups, and for any specified time period. Investment professionals can choose
from over 200 pre-defined reports with flexible "as-of" reporting, which can be
customized as to formats and fonts. Clients can easily generate fully customized
reports with the assistance of the Axys Report Writer. Clients can also produce
presentation-quality graphics via an integrated link with Microsoft Excel's
charting capability. In addition, Axys offers integrated multicurrency
capabilities which, among other things, allows reports to be restated in any
currency, withholding tax to be automatically calculated, and components of
return attributable to market prices versus currency rate fluctuations to be
identified.
Axys also provides integration with a variety of investment tools and data,
including (i) trade order management via Moxy, (ii) pricing, corporate actions,
analytics and fundamental data via interfaces to data vendors, (iii) automatic
data entry and reconciliation of trades with interfaces to The Depository Trust
Corporation ( DTC ), and to certain brokerage firms and custodians, (iv)
automatic transaction and position reconciliation through the Internet via Rex,
Advent's custodial reconciliation service and software, and (v) Internet
reporting via the Axys WebView service, Advent's Internet reporting service.
Advent Partner, introduced in December 1996, is a tax layering and
partnership allocation solution which integrates with Axys. This product is
specifically designed for hedge funds, venture funds and limited investment
partnerships who face the complex and time-consuming task of consistently and
accurately accounting for and reporting on partnership tax allocation and other
activities. The Windows-based system tracks partner-specific information, layers
realized and unrealized gains, allocates performance incentive fees, provides
on-demand partner and partnership reporting on a book or tax allocation basis
and streamlines the production of partnership tax returns.
Geneva, introduced to target organizations in 1995 and made commercially
available in October 1997, is a high-end portfolio management system designed to
meet the needs of large, global investment management organizations with
complex, international accounting requirements. Geneva offers feature-rich
global accounting, extensive reporting and sophisticated multicurrency
capabilities. In addition, Geneva's highly flexible design allows users to add
newly created financial instruments and tailor accounting treatments to their
specific needs.
Trading and Order Management
Moxy, introduced in 1995, automates and streamlines the trading and order
management process. Moxy can be integrated with any portfolio accounting system,
facilitates accurate trade order management and preparation, tracks trade order
status, automates the allocation of block trades across multiple portfolios and
electronically interfaces with Axys to provide an integrated solution. Moxy
supports fixed income, mutual funds, and equity trading and offers multicurrency
capabilities. Moxy enables investment managers to accurately adjust portfolio
holdings, rebalance portfolios against models, interactively assess "what-if"
scenarios and automatically create orders to be executed. For traders, Moxy
tracks cash and positions during the trading day, enables the accurate
preparation of block trades and internal electronic trade tickets, facilitates
compliance with investment restrictions and trading requirements and minimizes
trading errors.
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Moxy also allows traders and others to view the status of orders via
customizable screens and maintain an electronic audit trail of the trade
process. Moxy automates the allocation process of partial and complete
executions and allows the user to send allocation results by fax directly from
the computer to brokers and banks. Moxy allows clients using OASYS, an
electronic allocation system, to communicate allocations to brokers
electronically. In the future, Moxy will have additional electronic links that
instantly communicate trade and allocation information to brokers and
custodians. Moxy electronically posts allocated trades into Axys on demand,
eliminating time-consuming and error-prone manual entry.
Client Management
Qube, introduced in 1995, is designed to help securities professionals
develop and improve client relationships by automating scheduling, client
communications and client data. For example, Qube enables investment
professionals to interactively screen client investment profiles and notes of
conversations to identify appropriate candidates for various investment
opportunities. In addition, Qube can be used to enhance direct marketing
campaigns by matching clients with market opportunities. Qube captures extensive
investment profile information, has on-line query capability, networking
features and mail merge capabilities and facilitates information sharing across
professionals in an office. Moreover, Qube is designed to be integrated with
Axys, allowing users to provide accurate and timely portfolio information to
clients.
Maintenance Support and Data Interfaces
Advent earns recurring revenues by offering a choice of maintenance
contracts and by providing proprietary interfaces to external sources of
critical data. These interfaces allow clients to (i) download pricing, corporate
actions and other data from third party vendors such as Interactive Data, a
wholly owned indirect subsidiary of Pearson plc (Interactive Data), and (ii)
interface with DTC, certain brokerage firms and custodians for trading activity.
Advent continually analyzes the ongoing external data needs of its clients and
expects to offer new data products in the future. Many of Advent's clients use
Advent's proprietary interface to electronically retrieve pricing and other data
from Interactive Data. Interactive Data pays Advent a commission based on
Interactive Data's revenues from providing such data to Advent's clients.
Due to the mission-critical nature of Advent's products, many clients
purchase annual maintenance contracts which entitle them to technical support
and product upgrades as they become available. Advent continually upgrades and
enhances its products to respond to changing market needs, evolving regulatory
requirements and new technologies.
Internet Initiative
Advent believes that the Internet can be a low-cost communications platform
to integrate external information into Advent products, thereby providing Advent
clients with straight through processing of business information. To take
advantage of the Internet, Advent has launched an Internet Initiative whereby it
is developing services, both announced and unannounced, to bring Internet-based
products and services to clients. The first of these services, Rex, was launched
during the second quarter of 1997. Rex is an electronic reconciliation service
which allows Advent clients to automate the tedious and time consuming tasks
associated with reconciling positions and transactions across custodians. Using
the Internet, Rex consolidates communication and information from all
participating custodians, enabling Advent clients to quickly and easily
reconcile transactions and holdings with a click of the mouse.
From time to time, as Advent begins development of new products and services
under its Internet Initiative, it plans to continue to enter into development
agreements with information providers, clients, or other companies in order to
accelerate the delivery of new products and services.
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Professional Services
Professional services consists of consulting, systems integration, custom
programming, and training. To ensure a successful product implementation,
consultants assist clients with the initial installation of a system, assist in
the conversion of the client's historical data and provide ongoing training and
education. Consulting services may be required for as little as two days for
small systems or up to many weeks for large implementations. Advent believes
that its consulting services facilitate a client's early success with its
products, strengthen the relationship with the client and generate valuable
feedback for Advent.
Advent's systems integration services develop new interfaces, either at the
request of existing clients or external organizations such as brokerage firms,
custodians, DTC, pricing services, and other data providers. These interfaces
are designed to provide easier and faster data entry, automatic reconciliation
or confirmations. These interfaces are licensed as an option which clients can
obtain when configuring the Axys system or later as their information needs
change. In addition, Advent also uses its systems integration services to
develop interfaces which Advent expects will satisfy anticipated needs of its
clients.
Advent provides its clients with custom programming services that enable
clients to tailor end-user reports to their own specifications. Advent also
provides training sessions to its clients at various sites across the country.
Clients
Advent's clients vary significantly in size and assets under management and
include investment advisors, brokerage firms, banks, hedge funds, corporations,
public funds, universities and non-profit organizations. At present, Advent has
licensed its products to over 4,500 institutions in 22 countries for use by more
than 25,000 concurrent users.
Sales and Marketing
Sales
Advent sells its products and services through a direct sales organization
comprised of field sales and telesales representatives. Advent's field sales
force is organized by geographic region and is primarily responsible for selling
Axys and Moxy to mid-sized and large investment management organizations. Advent
has sales offices in San Francisco, New York and Boston. Advent's telesales
organization is primarily focused on selling Advent's products to existing Axys
clients and small and mid-sized investment management organizations. Advent's
telesales representatives are located in San Francisco. Advent's sales force is
supported by extensive ongoing product and sales training.
Marketing
The marketing department is responsible for assessing market opportunities,
product planning and management and specific sales support. In addition to its
traditional marketing functions, the marketing organization is actively involved
in a process called "Market Validation(SM)," using a system of interaction with
and input from potential and existing clients, product development, sales and
client services and support departments to define the scope, features and
functionality of new products and product upgrades. In addition, product
managers are responsible for all phases of a product life cycle from product
development through product introduction and beyond. The marketing department is
also responsible for corporate marketing, including generating client leads,
targeted direct mail campaigns, seminars, advertising, trade shows and
conferences and public relations efforts. The marketing department also provides
the sales force with appropriate written and electronic materials to use during
the sales process.
Product Development
In recent years, Advent has substantially increased its product development
expenditures in order to accelerate the rate of new product introductions,
incorporate new technologies and sustain the quality of its products.
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In 1997, 1996, and 1995, Advent's product development expenditures were
approximately $9.4 million, $6.7 million and $4.2 million, respectively.
In addition to engineering, quality assurance and documentation, Advent's
product development activities include the identification and validation of
product specifications.
Advent's new products and product upgrades require varying degrees of
development time, depending upon the complexity of the accounting requirements
and securities regulations which they are intended to address, as well as the
number and type of features incorporated. Advent has primarily relied upon the
internal development of its products. Advent has in the past acquired, and may
again in the future acquire, additional technologies or products from third
parties or consultants. Advent intends to continue to support industry standard
operating environments, client/server architectures and network protocols.
There can be no assurance that Advent will be successful in developing,
introducing and marketing new products or product enhancements on a timely and
cost effective basis, if at all, or that its new products and product
enhancements will adequately meet the requirements of the marketplace or achieve
market acceptance. Delays in the commencement of commercial shipments of new
products or enhancements may result in client dissatisfaction and delay or loss
of product revenues. If Advent is unable, for technological or other reasons, to
develop and introduce new products or enhancements of existing products in a
timely manner in response to changing market conditions or client requirements,
or if new products or new versions of existing products do not achieve market
acceptance, Advent's business, operating results and financial condition would
be materially adversely affected. In addition, Advent's ability to develop new
products and product enhancements is dependent upon the products of other
software vendors, including certain system software vendors, such as Microsoft
Corporation, database vendors and development tool vendors. In the event that
the products of such vendors have design defects or flaws, or if such products
are unexpectedly delayed in their introduction, Advent's business, operating
results and financial condition could be materially adversely affected. Software
products as complex as those offered by Advent, particularly Advent's new Geneva
product, may contain undetected defects or errors when first introduced or as
new versions are released. Although Advent has not experienced material adverse
effects resulting from any software errors, there can be no assurance that,
despite testing by Advent and its clients, defects or errors will not be found
in new products after commencement of commercial shipments, resulting in loss of
or delay in market acceptance, which could have a material adverse effect upon
Advent's business, operating results and financial condition.
Competition
The market for investment management software is segmented by the relative
size of the organizations that manage investment portfolios. In addition, the
market in each segment is intensely competitive and highly fragmented, subject
to rapid change and highly sensitive to new product introductions and marketing
efforts by industry participants. Advent's competitors include providers of
software and related services as well as providers of timeshare services.
Competitors vary in size, scope of services offered and platforms supported. In
addition, Advent competes indirectly with existing and potential clients, many
of whom develop their own software for their particular needs and therefore may
be reluctant to license software products offered by independent vendors such as
Advent. With respect to the market for its portfolio accounting products, Advent
currently competes primarily with Shaw Data, a division of SunGard Data Systems,
Inc., Thomson Financial, a division of The Thomson Corporation, and with a
number of other smaller companies. Advent believes that the principal
competitive factors affecting its market include product performance and
functionality, ease of use, scalability, ability to integrate external data
sources, product and company reputation, client service and support and price.
There can be no assurance that Advent will be able to compete successfully
against current and future competitors or that competitive pressures will not
result in price reductions, reduced operating margins and the loss of market
share, any one of which could materially adversely affect Advent's business,
operating results and financial condition.
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Intellectual Property and Other Proprietary Rights
Advent's success is dependent in part on its ability to protect its
proprietary technology. Advent relies on a combination of copyright and
trademark laws, trade secrets, software security measures, confidentiality
agreements and license agreements to establish and protect its proprietary
rights and its software. Despite these efforts, it may be possible for
unauthorized third parties to copy certain portions of Advent's products or to
reverse engineer or otherwise obtain and use proprietary information of Advent.
Advent does not have any patents, and existing copyright laws afford only
limited protection. In addition, Advent cannot be certain that others will not
develop substantially equivalent or superseding proprietary technology, or that
equivalent products will not be marketed in competition with Advent's products,
thereby substantially reducing the value of Advent's proprietary rights.
Furthermore, there can be no assurance that any confidentiality agreements
between Advent and its employees or any license agreements with its clients will
provide meaningful protection of Advent's proprietary information in the event
of any unauthorized use or disclosure of such proprietary information. In
addition, the laws of certain countries do not protect Advent's proprietary
rights to the same extent as do the laws of the United States. Accordingly,
there can be no assurance that Advent will be able to protect its proprietary
software against unauthorized third party copying or use, which could adversely
affect Advent's business, operating results and financial condition.
Employees
As of December 31, 1997, Advent had 325 full-time employees, including 34 in
sales, 67 in professional services, 19 in marketing, 83 in product development,
68 in client services and support and 54 in finance, administration, operations
and general management. Advent believes that it maintains competitive
compensation, benefits, equity participation and work environment policies to
assist in attracting and retaining qualified personnel. Advent's success depends
to a significant extent upon a limited number of members of senior management
and other key employees, including Stephanie DiMarco, Advent's Chairman of the
Board and Chief Executive Officer. The loss of the service of one or more senior
managers or other employees could have a material adverse effect upon Advent's
business, operating results and financial condition. None of Advent's employees
is represented by a labor union. Advent has not experienced any work stoppages
and considers its relations with its employees to be good.
Item 2. PROPERTIES
Advent leases office space in facilities in San Francisco, New York and New
Jersey. Advent has three separate leases in San Francisco, a 33,000 square foot
lease that expires in 1998 with a 1 or 5 year extension option, another 23,700
square foot lease in the same building that expires in 2000, and a 16,000 square
foot lease in an adjacent building that expires in 2004. This is Advent's
principal executive office and is where product development, marketing,
technical support and production are located. Advent leases three separate
office spaces in New York; a 12,100 square foot lease and another 5,300 square
foot lease expire in 2003 and a 9,800 square foot lease expires in 1999. In
addition, Advent has a 1000 square foot lease in New Jersey that expires in
2000. Advent believes that its facilities are adequate for its current needs and
that suitable additional or alternative space will be available in the future on
commercially reasonable terms as needed.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive
officers of Advent as of March 27, 1998:
Name Age Position
Stephanie G. DiMarco 40 Chairman of the Board and Chief Executive Officer
Peter M. Caswell 41 President and Chief Operating Officer
Lily S. Chang 49 Executive Vice President and Chief Technology
Officer
Irv H. Lichtenwald 42 Senior Vice President, CFO and Secretary
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Ms. DiMarco founded Advent in June 1983 and, since such date, has served as
Chief Executive Officer. She became Chairman of the Board in September 1995. In
addition, she served as President until April of 1997, when Peter Caswell was
promoted to President and Chief Operating Officer. Ms. DiMarco holds a B.S. in
Business Administration from the University of California at Berkeley.
Mr. Caswell joined Advent in December 1993 as Vice President, Sales and
Professional Services. In 1996 Mr. Caswell took on responsibility for Advent's
marketing efforts and was promoted to Senior Vice President. In April 1997, Mr.
Caswell became President and Chief Operating Officer. From May 1986 to December
1993, Mr. Caswell held various management positions, including Vice President
and General Manager, Western Region, with Dun & Bradstreet Software Services,
Inc. and its predecessor, Management Science America, Inc., a supplier of
computer software for finance, marketing, manufacturing and human resource
functions. Mr. Caswell holds a diploma in Management Studies (M.B.A. equivalent)
and a Higher National Diploma in Agriculture (B.S. equivalent) from Seale Hayne
College in England.
Ms. Chang joined Advent in May 1993 as Vice President, Technology. In April
of 1997, Ms. Chang was promoted to Executive Vice President, Technology and was
also named Chief Technology Officer. From July 1989 to May 1993, Ms. Chang held
various positions, including Vice President, Strategic Accounts and Vice
President of Oracle Financial Applications, with Oracle Corporation, a software
licensing and consulting business. Ms. Chang holds a B.S. in Biochemistry from
Taiwan University.
Mr. Lichtenwald joined Advent in March 1995 as Chief Financial Officer.
From February 1984 to March 1995, Mr. Lichtenwald served as Chief Financial
Officer of Trinzic Corporation, a computer software developer, and its
predecessor Aion Corporation. From February 1982 to February 1984, he served as
controller of Visicorp, a computer software developer. Mr. Lichtenwald holds an
M.B.A. from the University of Chicago and a B.B.A. from Saginaw Valley State
College. Mr. Lichtenwald is a Certified Public Accountant.
PART II
With the exception of the information incorporated by reference to the 1997
Annual Report to Stockholders in Part II of this Form 10-K, Advent's 1997 Annual
Report to Stockholders is not deemed to be filed as part of this Form 10-K.
Item 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Advent had approximately 120 stockholders of record at March 27, 1998. Other
information required by this Item is incorporated by reference to the sections
entitled "Selected Financial Data - Price Range of Common Stock" and "Corporate
Information - Stock Information" in Advent's 1997 Annual Report to Stockholders.
Item 6. SELECTED FINANCIAL DATA
Other information required by this Item is incorporated by reference to the
sections entitled "Selected Financial Data - Selected Annual Data" and
"-Selected Quarterly Data" in Advent's 1997 Annual Report to Stockholders.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Advent's 1997 Annual Report to Stockholders.
In addition, Advent operates in a rapidly changing environment that involves
a number of risks, some of which are beyond Advent's control. The following
discussion highlights some of these risks.
Period to Period Fluctuations. As Advent's licenses into multi-user
networked environments have increased both in individual size and number, the
timing and size of individual license transactions are becoming increasingly
important factors in Advent's quarterly operating results. The sales cycles for
transactions of this size are often lengthy and unpredictable. There can be no
assurance that Advent will be successful in closing large license transactions
such as these on a timely basis or at all. Accordingly, if in the future
revenues from large site licenses constitute a material portion of Advent's net
revenues, the timing of such licenses could cause additional variability in
Advent's quarterly operating results. Advent's software products typically are
shipped shortly after receipt of a signed license agreement and initial payment
and, consequently, software product backlog at the beginning of any quarter
typically represents only a small portion of that quarter's expected revenues.
Advent's expense levels are based in significant part on Advent's expectations
of future revenues and therefore are relatively fixed in the short term. Due to
the fixed nature of these expenses combined with the relatively high gross
margin historically achieved by Advent on products and services, an
unanticipated decline in net revenues in any particular quarter is likely to
disproportionately adversely affect operating results.
Advent generally has realized lower revenues from license fees in the first
quarter of the year than in the immediately preceding quarter. Advent believes
that this has been due primarily to the concentration by some clients of larger
capital purchases in the fourth quarter of the calendar year and their lower
purchasing activity during the subsequent first quarter, compounded by Advent's
annual incentive compensation plans which result in increased year-end sales
activity. Furthermore, Advent has often recognized a substantial portion of its
license revenues in the last month of a quarter.
Due to all of the foregoing factors, Advent believes that period to period
comparisons of its operating results are not necessarily meaningful and that
such comparisons cannot be relied upon as indicators of future performance.
Advent's stock price has fluctuated significantly since the initial public
offering in November 1995. Like many companies in the technology and emerging
growth sector, Advent's stock price may be subject to wide fluctuations. If net
revenues or earnings in any quarter fail to meet the investment community's
expectations, there could be an immediate impact on Advent's stock price. In
addition, the stock price may be affected by broader market trends unrelated to
Advent's performance
Product Concentration. During 1995, 1996 and 1997, Advent derived a
substantial majority of its net revenues from the licensing of Axys and related
products and services. In addition, many of Advent's other products, such as
Moxy, Qube and various data interfaces, were designed to operate with Axys to
provide an integrated solution. As a result, Advent believes that a majority of
its net revenues, at least through 1998, will be dependent upon continued market
acceptance of Axys, enhancements or upgrades to Axys and related products and
services.
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Geneva. In 1995, Advent introduced Geneva to target organizations with
complex international accounting and reporting requirements, and, in 1997,
announced its full commercial availability. To date, revenues derived from
licenses of Geneva have not been material. Advent is directing a significant
amount of its product development expenditures to the on-going development of
Geneva and plans to devote a significant amount of its future sales and
marketing resources to Geneva. Advent has limited experience in developing
products for this market. Because of such limited client experience, there can
be no assurance that Geneva will not require substantial software enhancements
or modifications to satisfy performance requirements of clients or to fix design
defects or previously undetected errors. Further, there can be no assurance that
Advent will be successful in marketing Geneva. Advent's failure to successfully
market Geneva could adversely affect Advent's business and operating results.
Internet Initiative. To take advantage of the Internet, Advent has launched
an Internet Initiative whereby it is developing services, both announced and
unannounced, to bring Internet based products and services to clients. The first
of these services, Rex, was launched during the second quarter of 1997. As
Advent begins development of new products and services under its Internet
Initiative, it has and will continue to enter into development agreements with
information providers, clients, or other companies in order to accelerate the
delivery of new products and services. There can be no assurance that Advent
will be successful in marketing Rex or in developing other Internet services.
Advent's failure to do so could adversely affect Advent's business and operating
results.
New Products and Product Enhancements. Advent's future success will continue
to depend upon its ability to develop new products that address the future needs
of its target markets and to respond to emerging industry standards and
practices. Delays in the commencement of commercial shipments of new products or
enhancements may result in client dissatisfaction and delay or loss of product
revenues. In addition, Advent's ability to develop new products and product
enhancements is dependent upon the products of other software vendors, including
certain system software vendors, such as Microsoft Corporation, database vendors
and development tool vendors. In the event that the products of such vendors
have design defects or flaws, or if such products are unexpectedly delayed in
their introduction, Advent's business, operating results and financial condition
could be materially adversely affected.
Financial Markets. The target clients for Advent's products include a range
of organizations that manage investment portfolios, including investment
advisors, brokerage firms, banks and hedge funds. In addition, Advent targets
corporations, public funds, universities and non-profit organizations which also
manage investment portfolios and have many of the same needs. The success of
many of Advent's clients is intrinsically linked to the health of the financial
markets. Advent believes that demand for its products could be
disproportionately affected by fluctuations, disruptions, instability or
downturns in the financial markets which may cause clients and potential clients
to exit the industry or delay, cancel or reduce any planned expenditures for
investment management systems and software products
Relationship with Interactive Data. Many of Advent's clients use Advent's
proprietary interface to electronically retrieve pricing and other data from
Interactive Data. Interactive Data pays Advent a commission based on Interactive
Data's revenues from providing such data to Advent's clients. Advent's software
products have been customized to be compatible with Interactive Data's system
and such software would need to be redesigned if Interactive Data's services
were unavailable for any reason. In the event that Advent's relationship with
Interactive Data were terminated or Interactive Data's services were unavailable
to Advent's clients for any reason, replacing these services could be costly and
time consuming.
Competition. The market for investment management software is segmented by
the relative size of the organizations that manage investment portfolios. In
addition, the market in each segment is intensely competitive and highly
fragmented, subject to rapid change and highly sensitive to new product
introductions and marketing efforts by industry participants. Advent's
competitors include providers of software and related services as well as
providers of timeshare services.
-11-
<PAGE>
Competitors vary in size, scope of services offered and platforms supported.
In addition, Advent competes indirectly with existing and potential clients,
many of whom develop their own software for their particular needs and
therefore may be reluctant to license software products offered by
independent vendors such as Advent. Many of Advent's competitors have
longer operating histories and greater financial, technical, sales and
marketing resources than Advent. There can be no assurance that Advent will be
able to compete successfully against current and future competitors or that
competitive pressures will not result in price reductions, reduced
operating margins and loss of market share, any one of which could materially
adversely affect Advent's business, operating results and financial condition.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(1) Financial Statements.
The following financial statements of Advent and the Report of
Independent Accountants are incorporated by reference to page 39
through 53 of Advent's 1997 Annual Report to Stockholders:
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Operations - Years Ended December 31, 1997,
1996, and 1995
Consolidated Statements of Stockholders' Equity- Years Ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows- Years Ended December 31, 1997,
1996, and 1995
Notes to Consolidated Financial Statements
Report of Independent Accountants
(2) Financial Statement Schedules.
The following financial statement schedules of Advent for the
years ended December 31, 1997, 1996, and 1995 are filed as part of
this Form 10-K and should be read in conjunction with Advent's
Financial Statements.
Report of Independent Accountants S-1
Schedule II --- Valuation and Qualifying Accounts S-2
Schedules not listed above have been omitted because they are
not applicable or are not required or because the required
information is included in the Financial Statements or Notes
thereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-12-
<PAGE>
PART III
Certain information required by Part III is omitted from this Form 10-K in
that the Registrant will file a definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, (Proxy
Statement) not later than 120 days after the end of the fiscal year covered by
this Form 10-K and certain information included therein is incorporated herein
by reference. Only those sections of the Proxy Statement that specifically
address the items set forth herein are incorporated by reference and such
incorporation does not include, specifically, the Performance Graph included in
such Proxy Statement.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning Advent's directors required by this Item is
incorporated by reference to Advent's Proxy Statement.
The information concerning Advent's executive officers required by this Item
is incorporated by reference herein to the section of the Form 10-K in Part I,
Item 4, entitled "Executive Officers of Advent."
The information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is to be set forth in Advent's Proxy Statement and such
information is hereby incorporated by reference.
Item 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference to Advent's
Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated by reference to Advent's
Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference to Advent's
Proxy Statement.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Annual Report
on Form 10-K:
1. Consolidated Financial Statements required to be filed by Item
8 of Form 10-K. See the list of Financial Statements contained in
Item 8 of this Report.
2. Financial Statement Schedules required to be filed by Item 8
of Form 10-K. See the list of Financial Statement Schedules
contained in Item 8 of this Report.
-13-
<PAGE>
3. Exhibits.
The Exhibits listed on the accompanying Index to Exhibits
immediately following the financial statement schedules are
filed as part of, or incorporated by reference into, this
Form 10-K.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
<S> <C>
2.1+ Agreement and Plan of Merger between Registrant and Advent Software,
Inc., a California corporation, effective November 10, 1995.
3.1+ Certificate of Incorporation of Registrant.
3.2+ Amended and Restated Certificate of Incorporation of Registrant.
3.3 Amended and Restated Bylaws of Registrant.
4.1+ Specimen Common Stock Certificate of Registrant.
10.1+ Form of Indemnification Agreement for Executive Officers and Directors.
10.2+ 1992 Stock Plan, as amended, and form of stock option agreement.
10.3+ 1993 Profit Sharing & Employee Savings Plan, as amended.
10.4+ 1995 Employee Stock Purchase Plan and form of subscription agreement.
10.5+ 1995 Director Option Plan and form of stock option agreement.
10.6+ Common Stock Option Agreement between Advent and Maurice J. Duca dated
September 15, 1989 as amended by the Amendment and Correction to
Common Stock Option Agreement dated July 1993.
10.7+ Full Service Office Lease dated April 14, 1992, as amended, between
Brannan Street Properties and Advent for facilities located at
301 Brannan in San Francisco, California.
10.8+ Standard Form of Lease dated November 6, 1992 between Broadway
Management Company as agent for 500 Fifth Avenue Associates and
Advent for facilities located at 500 Fifth Avenue, New York,
New York.
10.9+ Severance Agreement between Advent and Peter M. Caswell dated
December 10, 1993.
10.10+* Agreement between Advent and Interactive Data Corporation dated
January 1, 1995.
10.13** Lease dated January 28, 1992 between Orient Overseas Associates
and Data Exchange, Inc. for facilities located at 88 Pine Street,
a/k/a Wall Street Plaza, New York, New York.
13.1 Selected Portions of Advent Software, Inc.'s 1997 Annual Report to
Stockholders.
21.1 Subsidiaries of Advent.
23.1 Consent of Coopers & Lybrand LLP, Independent Accountants.
24.1 Power of Attorney (included on page 15 of this Form 10-K).
27.1 Financial Data Schedule.
</TABLE>
- ----------
+ Incorporated by reference to the exhibit filed with Advent's
registration statement filed on Form SB-2 (commission file number
33-97912-LA), declared effective on November 15, 1995
* Confidential treatment requested as to certain portions of this exhibit.
** Incorporated by reference to Advent's Annual Report on Form 10-KSB for the
year ended December 31, 1995.
(b) Reports on Form 8-K
None
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 25th day of March, 1998.
ADVENT SOFTWARE, INC.
STEPHANIE G. DIMARCO
By: /s/ ________________________
Stephanie G. DiMarco
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephanie G. DiMarco and Irv H. Lichtenwald,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934 this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- -------------------------- ------------------------------------ --------------
/s/ STEPHANIE G. DIMARCO Chairman of the Board and March 27, 1998
- ------------------------- Chief Executive Officer --------------
Stephanie G. DiMarco (Principal Executive Officer)
/s/ IRV H. LICHTENWALD Senior Vice President, Chief March 27, 1998
- ----------------------- Financial Officer and Secretary --------------
Irv H. Lichtenwald (Principal Financial and
Accounting Officer)
/s/ FRANK H. ROBINSON Director March 27, 1998
- ---------------------- --------------
Frank H. Robinson
/s/ WENDELL G. VAN AUKEN Director March 27, 1998
- ------------------------- --------------
Wendell G. Van Auken
/s/ WILLIAM F.ZUENDT Director March 27, 1998
- ------------------- --------------
William F. Zuendt
/s/ MONTE ZWEBEN Director March 27, 1998
- ----------------- --------------
Monte Zweben
-15-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Advent Software, Inc.:
Our report on the consolidated financial statements of Advent Software, Inc.
has been incorporated by reference in this report on Form 10-K from page 53 of
the 1997 Annual Report to Shareholders of Advent Software, Inc. In connection
with our audit of such consolidated financial statements, we have audited the
related financial statement schedule listed in the index on page 12 of this Form
10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material aspects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
San Francisco, California
January 20, 1998
S-1
<PAGE>
Schedule II
ADVENT SOFTWARE, INC
VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1995, 1996, and 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
-------------- ---------- -------- -------- -------- --------
Additions
Balance at Charged Charged Balance at
Beginning to to Other End of
Description of Period Expense Accounts Deduction Period
----------- ---------- ------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts
1995.................... $ 67,000 $240,000 -- $ 49,000 $258,000
1996.................... $258,000 $115,000 -- $138,000 $235,000
1997.................... $235,000 $248,000 -- $218,000 $265,000
</TABLE>
S-2
AMENDED AND RESTATED
BYLAWS
OF
ADVENT SOFTWARE, INC.
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside
the State of Delaware designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders
1
<PAGE>
shall be held on the second Friday in June in each year at 10:00 a.m. However,
if such day falls on a legal holiday, then the meeting shall be held at the same
time and place on the next succeeding full business day. At the meeting,
directors shall be elected, and any other proper business may be trans acted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the chief executive
officer, or by one or more stockholders holding shares in the aggregate entitled
to cast not less than twenty percent (20%) of the votes of all shares of stock
owned by stockholders entitled to vote at that meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise
given in accordance with Sections 2.5 and 2.6 of these bylaws not less than ten
(10) nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date and hour of the meeting and (i) in the case of a
special meeting, the purpose or purposes for which the meeting is called (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the stockholders
(but any proper matter may be presented at the meeting for such action). The
notice of any meeting at which directors are to be elected shall include the
name of any nominee or nominees who, at the time of the notice, the board
intends to present for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER
BUSINESS
To be properly brought before an annual meeting or special meeting,
nominations for the election of director or other business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors or other person so authorized pursuant to
Section 2.3 of these bylaws, (b) otherwise properly brought before the meeting
by or at the direction of the board of directors or (c) otherwise properly
brought before the meeting by a stockholder. For such nominations or other
business to be considered properly brought before the meeting by a stockholder,
such stockholder must have given timely notice and in proper form of his intent
to bring such business before such meeting. To be timely, such stockholder's
notice must be delivered to or mailed and received by the secretary of the
Corporation not less than 90 days prior to the meeting; provided, however, that
in the case of a meeting called by or on behalf of the Board of Directors of the
Corporation where prior notice, or public disclosure, of the meeting has not
been given or made at least 100 days prior to such meeting, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. To be in proper form,
a stockholder's notice to the secretary shall set forth:
2
<PAGE>
(i) the name and address of the stockholder who intends to
make the nominations, propose the business, and, as the case
may be, the name and address of the person or persons to be
nominated or the nature of the business to be proposed;
(ii) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such
meeting and, if applicable, intends to appear in person or by
proxy at the meeting to nominate the person or persons
specified in the notice or introduce the business specified in
the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and
any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made
by the stockholder;
(iv) such other information regarding each nominee or each
matter of business to be proposed by such stockholder as would
be required to be included in a proxy statement filed pursuant
to the proxy rules of the Securities and Exchange Commission
had the nominee been nominated, or intended to be nominated,
or the matter been proposed, or intended to be proposed by the
board of directors' and
(v) if applicable, the consent of each nominee to serve as
director of the Corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
3
<PAGE>
2.7 QUORUM
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.8 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation
or these bylaws, each stockholder shall be entitled to one vote for each share
of capital stock held by such stockholder.
4
<PAGE>
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing setting forth the action so
taken shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Such consents shall be delivered to the corporation by delivery to it
registered office in the state of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section
8.1 of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
5
<PAGE>
2.13 ORGANIZATION
The chairman of the board, or in the absence of the chairman, the
president, shall call the meeting of the stockholders to order, and shall act as
chairman of the meeting. In the absence of the chairman of the board, the
president, and all of the vice presidents, the stockholders shall appoint a
chairman for such meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedures at the meeting, including
such matters as the regulation of the manner of voting and the conduct of
business. The secretary of the corporation shall act as secretary of all
meetings of the stockholders, but in the absence of the secretary at any meeting
of the stockholders, the chairman of the meeting may appoint any person to act
as secretary of the meeting.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and to any limitations in the certificate of incorporation or these bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 NUMBER OF DIRECTORS
The board of directors shall consist of four (4) members. The number of
directors may be changed by an amendment to this bylaw, duly adopted by the
board of directors or by the stockholders, or by a duly adopted amendment to the
certificate of incorporation.
6
<PAGE>
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director elected or appointed to fill
a vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Each director so elected shall hold office
until the next annual meeting of the stockholders and until a successor has been
elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
7
<PAGE>
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of Delaware that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
at such time as shall from time to time be determined by the board of directors.
If any regular meeting day shall fall on a
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legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day.
3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least
forty-eight (48) hours before the time of the holding of the meeting. Any oral
notice given personally or by telephone may be communicated either to the
director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. The
notice need not specify the purpose or the place of the meeting, if the meeting
is to be held at the principal executive office of the corporation.
3.10 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.12 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the quorum for that meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
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3.12 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting of the board to another time and place.
3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting of the
board need not be given unless the meeting is adjourned for more than
twenty-four (24) hours. If the meeting is adjourned for more than twenty-four
(24) hours, then notice of the time and place of the adjourned meeting shall be
given before the adjourned meeting takes place, in the manner specified in
Section 3.9 of these bylaws, to the directors who were not present at the time
of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board of directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of one (1) or more directors, to serve at the pleasure of the board.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, but no such committee
shall have the power or authority to (i) amend the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corpo ration or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the corporation), (ii) adopt an
agreement of merger or consolidation under Sections 251 or 252 of the General
Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease
or exchange of all or substantially all of the corporation's property and
assets, (iv) recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution or (v) amend the bylaws of the corporation; and,
unless the board resolution establishing the committee, the bylaws or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the following provisions of Article III of these
bylaws: Section 3.6 (place of meetings; meetings by telephone), Section 3.8
(regular meetings), Section 3.9 (special meetings; notice), Section 3.10
(quorum), Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section
3.13 (notice of adjournment) and Section 3.14 (board action by written consent
without meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee, that special meetings of committees may also be
called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of
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directors may adopt rules for the government of any committee not inconsistent
with the provisions of these bylaws.
4.3 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
ARTICLE V
OFFICERS
5.1 OFFICERS
The Corporate Officers of the corporation shall be a chief executive
officer, a president, a secretary and a chief financial officer. The corporation
may also have, at the discretion of the board of directors, a chairman of the
board, one or more vice presidents (however denominated), one or more assistant
secretaries, one or more assistant treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 5.3 of these bylaws. Any
number of offices may be held by the same person.
In addition to the Corporate Officers of the Company described above,
there may also be such Administrative Officers of the corporation as may be
designated and appointed from time to time by the chief executive officer of the
corporation in accordance with the provisions of Section 5.13 of these bylaws.
5.2 ELECTION OF OFFICERS
The Corporate Officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the chief executive
officer to appoint, such executive officers who are not Corporate Officers as
the business of the corporation may require, each of whom shall hold office for
such period, have such power and authority, and perform such duties as are
provided in these bylaws or as the board of directors may from time to time
determine.
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The chief executive officer may from time to time designate and appoint
Administrative (or non-executive) Officers of the corporation in accordance with
the provisions of Section 5.13 of these bylaws.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an executive officer under any
contract of employment, any executive officer may be removed, either with or
without cause, by the board of directors at any regular or special meeting of
the board or, except in case of an executive officer chosen by the board of
directors, by any Corporate Officer upon whom such power of removal may be
conferred by the board of directors.
Any executive officer may resign at any time by giving written notice
to the corporation. Any resignation shall take effect at the date of the receipt
of that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the executive
officer is a party.
Any Administrative (or non-executive) Officer may be removed, either
with or without cause, at any time by the chief executive officer. Any
Administrative (or non-executive) Officer may resign at any time by giving
written notice to the chief executive officer or to the secretary of the
corporation.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such other
powers and perform such other duties as may from time to time be assigned to him
or her by the board of directors or as may be prescribed by these bylaws. If
there is no chairman of the board, then the chief executive officer of the
corporation shall have the powers and duties prescribed herein.
5.7 CHIEF EXECUTIVE OFFICER
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the chief executive officer of the corporation shall, subject to the control of
the board of directors, have general supervision, direction and control of the
business and the officers of the corporation. He or she shall preside at all
meetings of the stockholders and, in the absence or nonexistence of a chairman
of the board, at all meetings of the
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board of directors. He or she shall have the general powers and duties of
management usually vested in the chief executive officer of a corporation, and
shall have such other powers and perform such other duties as may be prescribed
by the board of directors or these bylaws.
5.8 PRESIDENT AND CHIEF OPERATING OFFICER
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman and chief executive officer, if there be such
an officer, the president and chief operating officer of the corporation shall,
subject to the control of the board of directors, have general supervision over
the operation of the corporation, including the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and perform such other duties as may be prescribed by the
board of directors or these bylaws.
5.9 VICE PRESIDENTS
In the absence or disability of the president, and if there is no
chairman of the board, the vice presidents, if any, in order of their rank as
fixed by the board of directors or, if not ranked, a vice president designated
by the board of directors, shall perform all the duties of the chief executive
officer and when so acting shall have all the powers of, and be subject to all
the restrictions upon, the chief executive officer. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
chief executive officer or the chairman of the board.
5.10 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of the board
of directors, committees of directors and stockholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if special,
how authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolu tion of the board of
directors, a share register or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He or she shall keep the
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seal of the corporation, if one be adopted, in safe custody and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or by these bylaws.
5.11 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director for a purpose reasonably related to his
position as a director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He or she shall disburse the funds of
the corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
5.12 ASSISTANT SECRETARY
The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
5.13 ADMINISTRATIVE OFFICERS
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative (or non-executive) Officers of the corporation as may be
designated and appointed from time to time by the chief executive officer of the
corporation. Administrative Officers shall perform such duties and have such
powers as from time to time may be determined by the chief executive officer or
the board of directors in order to assist the Corporate Officers in the
furtherance of their duties. In the performance of such duties and the exercise
of such powers, however, such Administrative Officers shall have limited
authority to act on behalf of the corporation as the board of directors shall
establish, including but not limited to limitations on the dollar amount and on
the scope of agreements or commitments that may be made by such Administrative
Officers on behalf of the corporation, which limitations may not be exceeded by
such individuals or altered by the chief executive officer without further
approval by the board of directors.
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5.14 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing powers, authority and duties, all officers
of the corporation shall respectively have such authority and powers and perform
such duties in the management of the business of the corporation as may be
designated from time to time by the board of directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware as the same now exists or
may hereafter be amended, indemnify any person against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit, or proceeding in which such person was or is a party or is
threatened to be made a party by reason of the fact that such person is or was a
director or officer of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation shall mean any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director or officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
The rights conferred on any person by this Article shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the corporation's Certificate of Incorporation,
these bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
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Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or officer) shall mean any person (i) who
is or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.4 SAVINGS CLAUSE
If this Article VI or any portion thereof shall be invalidated on any
ground by any court of competent jurisdiction, then the corporation shall
nevertheless indemnify each director, officer, employee or agent of the
corporation against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement with respect to any action, suit, proceeding or
investigation, whether civil, criminal or administrative, and whether internal
or external, including a grand jury proceeding and an action or suit brought by
or in the right of the corporation, to the full extent permitted by any
applicable portion of this Article that shall not have been invalidated, or by
any other applicable law.
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6.5 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise prided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
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7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the president, any vice president,
the chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such person
directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise altered
to date, certified by the secretary, shall be kept at the corporation's
principal executive office and shall be open to inspection by the stockholders
of the corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date so fixed
are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corpo ration after the record date so fixed, except
as otherwise provided by law.
If the board of directors does not so fix a record date, then the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
applicable resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other
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evidences of indebtedness that are issued in the name of or payable to the
corporation, and only the persons so authorized shall sign or endorse those
instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize and empower any officer or officers, or agent or agents, to enter
into any contract or execute any instrument in the name of and on behalf of the
corporation; such power and authority may be general or confined to specific
instances. Unless so authorized or ratified by the board of directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of such corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board
of directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
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The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, each of which shall be an
incorporated bank or trust company -- either domestic or foreign, who shall be
appointed at such times and places as the requirements of the corporation may
necessitate and the board of directors may designate.
21
<PAGE>
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of this
provision, as used in these bylaws, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both an
entity and a natural person.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in
the book of bylaws with the original bylaws, in the appropriate place. If any
bylaw is repealed, the fact of repeal with the date of the meeting at which the
repeal was enacted or the filing of the operative written consent(s) shall be
stated in said book.
22
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
ADVENT SOFTWARE, INC.
(a Delaware corporation)
<PAGE>
TABLE OF CONTENTS
(Continued)
AMENDED AND RESTATED
BYLAWS OF
ADVENT SOFTWARE, INC.
(a Delaware corporation)
TABLE OF CONTENTS
Page
ARTICLE I CORPORATE OFFICES............................................... 1
1.1 REGISTERED OFFICE..................................................1
1.2 OTHER OFFICES......................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS........................................1
2.1 PLACE OF MEETINGS..................................................1
2.2 ANNUAL MEETING.....................................................1
2.3 SPECIAL MEETING....................................................2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS...................................2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND
STOCKHOLDER BUSINESS...............................................2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.......................3
2.7 QUORUM.............................................................4
2.8 ADJOURNED MEETING; NOTICE..........................................4
2.9 VOTING.............................................................4
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING............5
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.........................5
2.12 PROXIES............................................................5
2.13 ORGANIZATION.......................................................6
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE..............................6
ARTICLE III DIRECTORS......................................................6
3.1 POWERS.............................................................6
3.2 NUMBER OF DIRECTORS................................................7
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS...........................7
3.4 RESIGNATION AND VACANCIES..........................................7
3.5 REMOVAL OF DIRECTORS...............................................8
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE...........................8
3.7 FIRST MEETINGS.....................................................8
3.8 REGULAR MEETINGS...................................................9
3.9 SPECIAL MEETINGS; NOTICE...........................................9
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
3.10 QUORUM.............................................................9
3.11 WAIVER OF NOTICE..................................................10
3.12 ADJOURNMENT.......................................................10
3.13 NOTICE OF ADJOURNMENT.............................................10
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.................10
3.15 FEES AND COMPENSATION OF DIRECTORS................................10
3.16 APPROVAL OF LOANS TO OFFICERS.....................................11
ARTICLE IV COMMITTEES.....................................................11
4.1 COMMITTEES OF DIRECTORS...........................................11
4.2 MEETINGS AND ACTION OF COMMITTEES.................................12
4.3 COMMITTEE MINUTES.................................................12
ARTICLE V OFFICERS........................................................12
5.1 OFFICERS..........................................................12
5.2 ELECTION OF OFFICERS..............................................13
5.3 SUBORDINATE OFFICERS..............................................13
5.4 REMOVAL AND RESIGNATION OF OFFICERS...............................13
5.5 VACANCIES IN OFFICES..............................................14
5.6 CHAIRMAN OF THE BOARD.............................................14
5.7 CHIEF EXECUTIVE OFFICER...........................................14
5.8 PRESIDENT AND CHIEF OPERATING OFFICER.............................14
5.9 VICE PRESIDENTS...................................................14
5.10 SECRETARY.........................................................15
5.11 CHIEF FINANCIAL OFFICER...........................................15
5.12 ASSISTANT SECRETARY...............................................15
5.13 ADMINISTRATIVE OFFICERS...........................................16
5.14 AUTHORITY AND DUTIES OF OFFICERS..................................16
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS..................................................................16
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.........................16
6.2 INDEMNIFICATION OF OTHERS.........................................17
6.3 INSURANCE.........................................................18
6.4 SAVINGS CLAUSE....................................................18
6.5 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES..........................................................18
-ii-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
ARTICLE VII RECORDS AND REPORTS............................................18
7.1 MAINTENANCE AND INSPECTION OF RECORDS..............................18
7.2 INSPECTION BY DIRECTORS............................................19
7.3 ANNUAL STATEMENT TO STOCKHOLDERS...................................19
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.....................19
7.5 CERTIFICATION AND INSPECTION OF BYLAWS.............................19
ARTICLE VIII GENERAL MATTERS...............................................20
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING..............20
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS..........................20
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED.................20
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES...................20
8.5 SPECIAL DESIGNATION ON CERTIFICATES................................21
8.6 LOST CERTIFICATES..................................................22
8.7 TRANSFER AGENTS AND REGISTRARS.....................................22
8.8 CONSTRUCTION; DEFINITIONS..........................................22
ARTICLE IX AMENDMENTS......................................................23
-iii-
EXHIBIT 13.1
SELECTED PORTIONS OF ADVENT'S 1997 ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Advent provides stand-alone and client/server software products, data
interfaces and related maintenance and services that automate, integrate and
support certain mission-critical functions of the front, middle and back office
of investment management organizations. Advent's clients vary significantly in
size and assets under management and include investment advisors, brokerage
firms, banks, hedge funds, corporations, public funds, universities and
non-profit organizations.
Initial Public Offering
In November 1995, Advent completed an initial public offering (IPO) in which
it sold 1,450,000 shares of its common stock at $18.00 per share which generated
net proceeds to Advent of $23.4 million.
Recent Developments
In February 1998, Advent issued 250,000 shares of Advent's common stock in
exchange for all of the outstanding shares of MicroEdge, Inc., a private
software development company based in New York. MicroEdge is the leading
provider of software products to foundations, corporations and other
organizations to manage their grant-making activities. This business combination
was accounted for as a pooling of interests. The results of operations as well
as the assets and liabilities of MicroEdge in 1997 and 1996 were not material to
the consolidated results of operations or financial position of Advent.
Acquisitions
In February 1996, Advent acquired Data Exchange, Inc. (the DX Group), a
private company based in New York, for $4.0 million in cash and an $800,000 note
payable. This note was paid during the third quarter of 1996 and did not bear
interest. The transaction was accounted for as a purchase. Advent incurred a
one-time charge of $5.6 million in connection with the write-off of in-process
research and development. This expense was recorded in purchased research and
development and other expenses.
In November 1996, Advent issued 35,000 shares of Advent's common stock in
exchange for all of the outstanding shares of Bold Software, Inc., a private
software development company based in New York. This business combination was
accounted for as a pooling of interests. Prior year amounts have not been
restated to include Bold Software's results of operations as such operations
were immaterial. As a result of this business combination, Advent introduced
Advent Partner, a tax layering and partnership allocation solution which
integrates with Axys.
-1-
<PAGE>
Results of Operations For The Years Ended December 31, 1997, 1996 and 1995
Revenues
Net revenues were $48.6 million, $36.7 million and $26.0 million in 1997,
1996 and 1995, respectively, representing increases of 32% from 1996 to 1997 and
42% from 1995 to 1996. Advent's net revenues are derived from license and
development fees, maintenance and other recurring revenues, and professional
services related to its software products. Substantially all of Advent's net
revenues were from domestic sales, with international sales representing less
than 3% of net revenues in each of 1997, 1996 and 1995. License revenues are
derived from the licensing of software products. Development fees are derived
from development contracts that Advent has entered into with other companies.
Maintenance and other recurring revenues are derived from maintenance fees
charged in the initial licensing year, renewals of maintenance services in
subsequent years and revenues derived from client utilization of proprietary
interfaces to access pricing and other data supplied by third parties.
Professional services and other includes fees for consulting, systems
integration projects, custom programming and conversions of data from clients'
previous systems.
During 1995, Axys and its related products and services accounted for a
substantial majority of such net revenues. In 1996 and 1997, Advent has been
successful in increasing multi-product sales by emphasizing its suite of
products and, therefore, new products have accounted for an increasing portion
of net revenues.
Each of the major revenue categories has historically varied as a percentage
of net revenues and this variability is expected to continue in future periods.
This variability is primarily due to the timing of the introduction of new
products, the relative size and timing of individual licenses, as well as the
complexity of the implementation and the resulting proportion of the maintenance
and professional services components of these license transactions, Advent's
pricing model and the amount of client utilization of pricing and related data.
License and Development Fees. License and development fees revenues were
$23.7 million, $17.0 million and $12.1 million in 1997, 1996 and 1995,
respectively, representing increases of 40% in both the periods from 1996 to
1997 and from 1995 to 1996. License and development fees revenues as a
percentage of net revenues was relatively stable at 49%, 46% and 47% in 1997,
1996 and 1995, respectively. The growth in license revenues during 1996 and 1997
was due to continued demand for Advent's suite of products. Advent typically
licenses its products on a per server, per user basis with the price per site
varying based on the selection of the products licensed and the number of
authorized users. In addition, during 1997, development fees constituted a
larger portion of net revenues. As Advent carries out larger implementations and
continues its Internet Initiative, Advent may enter into further development
contracts through which it earns development fees.
-2-
<PAGE>
Maintenance and Other Recurring. Maintenance and other recurring revenues
were $18.0 million, $14.7 million, and $9.9 million in 1997, 1996 and 1995,
respectively, representing increases of 23% from 1996 to 1997 and 49% from 1995
to 1996. Maintenance and other recurring revenues as a percentage of net
revenues was 37%, 40% and 38% in 1997, 1996 and 1995, respectively . The growth
in maintenance and other recurring revenues in both periods was primarily
attributable to a larger customer base and higher average maintenance fees.
Higher average maintenance fees are due to the increased complexity of the
maintenance services provided and increased client utilization of proprietary
interfaces to access pricing and other data supplied by external parties.
Advent's proprietary interfaces enable users of Axys to retrieve critical data
from external sources, including pricing, corporate actions, and analytical and
fundamental data via interfaces to information vendors, such as Interactive
Data. The impact of the change in higher average maintenance fees was more
pronounced in 1996 versus 1997 which led to a smaller percentage increase in
maintenance and other recurring revenues from 1996 to 1997. In addition, this
led to the increase in the percentage of these revenues as a percentage of net
revenues in 1996 and the subsequent decrease in 1997.
Professional Services and Other. Revenues from professional services and
other were $6.9 million, $5.1 million and $3.9 million in 1997, 1996 and 1995,
respectively, representing increases of 35% from 1996 to 1997 and 30% from 1995
to 1996. Professional services and other as a percentage of net revenues was
relatively stable at 14%, 14% and 15% in 1997, 1996 and 1995, respectively. The
growth in revenues from professional services and other in 1996 and 1997 was due
to additional consulting revenue associated with higher product sales activity,
and additional interface business resulting from higher market demand for
automated interfaces.
Cost of Revenues
Cost of License and Development Fees. Cost of license revenues were
$601,000, $600,000 and $469,000 in 1997, 1996 and 1995, respectively,
representing 3%, 4% and 4% of license revenues in these periods, respectively.
Cost of license revenues consists primarily of the cost of product media and
duplication, manuals, packaging materials and the direct labor involved in
producing and distributing Advent's software.
Cost of Maintenance and Other Recurring. Cost of maintenance and other
recurring revenues were $4.8 million, $3.8 million and $2.4 million in 1997,
1996 and 1995, respectively, representing 27%, 26% and 24% of maintenance and
other recurring revenues in these periods, respectively. These costs are
primarily comprised of the direct costs of providing technical support and other
services for recurring revenues and the engineering costs associated with
product updates. These expenses as a percentage of maintenance and other
recurring revenues increased in 1996 and 1997 due to increased resources
allocated to the support services.
-3-
<PAGE>
Cost of Professional Services and Other. Cost of professional services and
other revenues were $3.6 million, $2.5 million and $2.0 million in 1997, 1996
and 1995, respectively, representing 53%, 49% and 52% of professional services
and other revenues in these periods, respectively. These costs consist primarily
of personnel related costs of the client services and support organization that
are incurred in providing consulting, systems integration projects, custom
programming, conversions of data from clients' previous systems, and
participating in Advent-sponsored conferences. To the extent that such personnel
are not fully utilized in consulting, training, conversion or custom programming
projects, they are allocated to presales, marketing and engineering activities
and the resultant costs are charged to operating expenses. Cost of professional
services and other increased in 1997 and 1996 primarily as a result of the
increased staffing necessary to provide services to an expanding installed base.
Cost of professional services increased as a percentage of the related revenues
in 1997 compared with 1996 due primarily to the increase in personnel dedicated
to accelerating the conversion of existing clients to Axys Release 2. Cost of
professional services decreased as a percentage of the related revenues in 1996
compared with 1995 due to economies of scale.
Operating Expenses
Sales and Marketing. Sales and marketing expenses were $15.6 million, $12.4
million and $9.3 million in 1997, 1996 and 1995, respectively, representing
increases of 25% from 1996 to 1997 and 34% from 1995 to 1996. Sales and
marketing expenses as a percentage of net revenues were 32%, 34% and 36% in
1997, 1996 and 1995, respectively. Sales and marketing expenses consist
primarily of costs of all personnel involved in the sales and marketing process,
sales commissions, advertising and promotional materials, sales facilities
expense, trade shows, and seminars. Sales and marketing expenses increased in
1997 and 1996 primarily due to the continued increase in sales and marketing
employees and expenses for marketing materials needed to address new sales
opportunities and to support the introduction of new products. The decrease in
sales and marketing expenses as a percentage of net revenues in both periods was
due primarily to the ability of Advent's sales and marketing organization to
support an increased revenue base. In addition, the decrease was due to
increased contribution of maintenance and other recurring revenues to net
revenues which did not have significant associated sales and marketing expenses.
Product Development. Product development expenses were $9.4 million, $6.7
million and $4.2 million in 1997, 1996 and 1995, respectively, representing
increases of 40% from 1996 to 1997 and 60% from 1995 to 1996. Product
development expenses as a percentage of net revenues were 19%, 18% and 16% of
net revenues in these periods, respectively. Product development expenses
consist primarily of personnel costs and, accordingly, the increase in product
development expenses in absolute dollars and as a percentage of net revenues in
each of these periods was primarily attributable to an increase in personnel as
Advent increased its product development efforts to accelerate the rate of new
product introductions. Advent anticipates that it will continue to devote
substantial resources to product development. Development costs subsequent to
achievement of technological feasibility have not been significant during these
periods and, accordingly, all such costs have been expensed as incurred.
-4-
<PAGE>
General and Administrative. General and administrative expenses were $5.1
million, $4.4 million and $3.4 million in 1997, 1996 and 1995, respectively,
representing increases of 16% from 1996 to 1997 and 29% from 1995 to 1996.
General and administrative expenses as a percentage of net revenues were 11%,
12% and 13% in 1997, 1996 and 1995, respectively. General and administrative
expenses consist primarily of personnel costs for finance, administration,
operations and general management, as well as legal and accounting expenses. The
increase in general and administrative expenses in these periods was primarily
due to continued growth in finance, administration and operations which was
necessary to support Advent's growth. General and administrative expenses as a
percentage of net revenues decreased in 1997 and 1996 due to economies of scale.
Purchased Research and Development and Other. In the first quarter of 1996,
Advent incurred a one-time charge of $5.6 million in connection with the
write-off of in-process research and development due to the acquisition of the
DX Group.
Interest Income, Net
Interest income, net was $1,236,000, $1,165,000 and $447,000 and in 1997,
1996 and 1995, respectively. Interest income, net consists of interest income,
interest expense and miscellaneous non-operating income and expense items. The
increases were due to greater interest income generated in 1996 and 1997 from
higher cash and cash equivalent balances. The increase in cash and cash
equivalents in 1997 was due primarily to cash generated from operating
activities. The increase in 1996 was primarily as a result of the IPO.
Income Taxes
Advent had effective tax rates of 37%, 163% and 39% in 1997, 1996 and 1995,
respectively. The effective tax rate in 1996 reflected the $5.6 million
write-off of in-process research and development which was not deductible for
tax purposes. Excluding the effect of the write-off on the 1996 rate, these
rates differ from the federal statutory rate primarily due to state income tax,
offset by certain research and development credits.
Liquidity and Capital Resources
Advent funds its operations primarily from cash generated from operations.
Net cash provided by operating activities was $7.7 million, $1.6 million and
$5.7 million in 1997, 1996 and 1995, respectively. Net cash used in investing
activities was $14.1 million, $5.6 million and $1.0 million in 1997, 1996 and
1995, respectively. The 1997 amount includes $8.9 million in purchases of
short-term investments, net of maturities. Included in the 1996 amount for cash
used in investing activities was $4.0 million for the acquisition of the DX
Group. The remaining 1996 amount and the 1997 and 1995 amounts were primarily
for the acquisition of fixed assets. Net cash provided by financing activities
was $2.0 million in 1997 primarily from proceeds from the exercise of stock
options and from proceeds from the issuance of common stock through Advent's
employee stock purchase plan. Net cash provided
-5-
<PAGE>
by financing activities was $601,000 in 1996 primarily from proceeds from the
issuance of common stock and from proceeds from the exercise of stock options
offset by the payment of debt assumed and a note issued in the DX Group
acquisition. Net cash provided by financing activities in 1995 was $22.7
million, primarily from net proceeds from the IPO. As of December 31, 1997,
Advent had $36.1 million in cash, cash equivalents and short-term investments.
Advent believes that its existing cash and cash equivalents, short-term
investments and cash expected to be generated from operations will be sufficient
to meet its cash and capital requirements at least through fiscal 1998.
Impact of Year 2000 Issue
Advent's products have been and will continue to be Year 2000 compliant.
Year 2000 compliant means that Advent's products will continue to operate
substantially in accordance with Advent's published documentation on and after
January 1, 2000. In addition, internal systems that Advent relies upon for
day-to-day operations are believed to be Year 2000 compliant. Accordingly,
Advent does not anticipate incurring significant expenditures related to Year
2000 issues.
New Accounting Pronouncements
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income", (SFAS 130) which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. It is effective for Advent's first quarter of fiscal year
1998.
In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments
of an Enterprise and Related Information", (SFAS 131) which changes current
practice under SFAS 14 by establishing a new framework on which to base segment
reporting (referred to as the "management" approach) and also requires interim
reporting of segment information. It is effective for Advent's fiscal year-end
1998.
In October 1997, the AICPA issued Statement of Position (SOP) 97-2 on
Software Revenue Recognition which supersedes SOP 91-1. The SOP is effective for
all fiscal years beginning after December 15, 1997 and will be effective for
Advent's fiscal year 1998.
Advent will be studying the implications of these standards and has not yet
determined the impact of their implementation on Advent's financial statements.
Forward-Looking Statements
The discussion in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contains trend analysis and other forward-looking
statements that are based on current expectations and assumptions made by
management. Words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", "estimates", and variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks
and uncertainties which are difficult to predict. Therefore, actual results
could differ materially from those expressed or forecasted in the
forward-looking
-6-
<PAGE>
statements as a result of the factors summarized below and other risks detailed
from time to time in reports filed with the Securities and Exchange Commission,
including Advent's 1997 Form 10-K Report. Additionally, the financial statements
for the periods presented are not necessarily indicative of results to be
expected for any future period. Advent undertakes no obligation to update any
forward-looking statements.
Advent operates in a rapidly changing environment that involves a number of
risks, some of which are beyond Advent's control. These risks include the
potential for period to period fluctuations in operating results and the
dependence on the successful development and market acceptance of new products
and product enhancements on a timely, cost effective basis, as well as the
stability of financial markets, maintenance of Advent's relationship with
Interactive Data and price and product/performance competition. In particular,
Advent's net revenues and operating results have varied substantially from
period-to-period on a quarterly basis and may continue to fluctuate due to a
number of factors. Advent's software products typically are shipped shortly
after receipt of a signed license agreement. License backlog at the beginning of
any quarter typically represents only a small portion of that quarter's expected
revenues. In addition, as Advent's licenses into multi-user networked
environments have increased both in individual size and number, the timing and
size of individual license transactions are becoming increasingly important
factors in Advent's quarterly operating results. The sales cycles for these
transactions are often lengthy and unpredictable, and the ability to close large
license transactions on a timely basis or at all could cause additional
variability in Advent's quarterly operating results. Advent's future success
will continue to depend upon its ability to develop new products, such as Moxy,
Qube, and Geneva, that address the future needs of its target markets and to
respond to emerging industry standards and practices. Advent is directing a
significant amount of its product development efforts on the on-going
development of Geneva. The failure to achieve widespread market acceptance of
Geneva on a timely basis would adversely affect Advent's business and operating
results. To take advantage of the Internet, Advent has launched an Internet
Initiative whereby it is developing services, both announced and unannounced, to
bring Internet based products and services to clients. The first of these
services, Rex, was launched during the second quarter of 1997. As Advent begins
development of new products and services under its Internet Initiative, it has
and will continue to enter into development agreements with information
providers, clients, or other companies in order to accelerate the delivery of
new products and services. There can be no assurance that Advent will be
successful in marketing Rex or in developing other Internet services. Advent's
failure to do so could adversely affect Advent's business and operating results.
-7-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 1996
- ----------------------------------------------------------------------------
(in thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents $ 26,025 $ 30,477
Short-term investments 10,031 1,173
Accounts receivable, net of allowance
for doubtful accounts of $265 in 1997
and $235 in 1996 12,226 8,499
Prepaid expenses and other 1,391 592
Deferred income taxes 1,418 1,064
------------ -------------
Total current assets 51,091 41,805
------------ -------------
Fixed assets, net 7,424 3,862
Other assets, net 770 1,024
------------ -------------
Total assets $ 59,285 $ 46,691
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 814 $ 646
Accrued liabilities 2,977 2,627
Deferred revenues 6,832 5,071
Income taxes payable 1,632 686
------------ -------------
Total current liabilities 12,255 9,030
------------ -------------
Long-term liabilities:
Other liabilities 537 599
------------ -------------
Total liabilities 12,792 9,629
------------ -------------
Stockholders' equity:
Preferred Stock, $0.01 par value
Authorized: 2,000 shares
Issued and outstanding: None - -
Common Stock, $0.01 par value
Authorized: 40,000 shares
Issued and outstanding: 7,582 shares
in 1997 and 7,344 shares in 1996 76 73
Additional paid-in-capital 37,776 35,061
Retained earnings 8,641 1,928
------------ -------------
Total stockholders' equity 46,493 37,062
------------ -------------
Total liabilities and stockholders'
equity $ 59,285 $ 46,691
============ =============
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
-8-
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 1996 1995
- -----------------------------------------------------------------------------
(in thousands, except per share data)
Revenues
License and development fees $ 23,710 $ 16,951 $ 12,146
Maintenance and other recurring 18,042 14,707 9,903
Professional services and other 6,861 5,086 3,908
---------------------------------------
Net revenues 48,613 36,744 25,957
---------------------------------------
Cost of revenues
License and development fees 601 600 469
Maintenance and other recurring 4,832 3,793 2,389
Professional services and other 3,638 2,513 2,049
---------------------------------------
Total cost of revenues 9,071 6,906 4,907
---------------------------------------
Gross margin 39,542 29,838 21,050
---------------------------------------
Operating expenses
Sales and marketing 15,580 12,446 9,268
Product development 9,439 6,731 4,206
General and administrative 5,125 4,422 3,418
Purchased research and
development and other - 5,648 -
---------------------------------------
Total operating expenses 30,144 29,247 16,892
---------------------------------------
Income from operations 9,398 591 4,158
Interest income, net 1,236 1,165 447
---------------------------------------
Income before income taxes 10,634 1,756 4,605
Provision for income taxes 3,921 2,855 1,786
---------------------------------------
Net income (loss) $ 6,713 $(1,099) $ 2,819
=======================================
NET INCOME (LOSS) PER SHARE DATA
Diluted
Net income (loss) per share $ 0.84 $ (0.16) $ 0.46
Shares used in per share calculations 8,017 7,070 6,160
Basic
Net income (loss) per share $ 0.89 $ (0.16) $ 0.82
Shares used in per share calculations 7,521 7,070 3,455
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
-9-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL
FOR THE YEARS ENDED PREFERRED STOCK COMMON STOCK PAID-IN- RETAINED TOTAL
-------------------- -----------------
DECEMBER 31, 1997, 1996 AND 1995 SHARES AMOUNT SHARES AMOUNT CAPITAL OTHER EARNINGS EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1994 1,117 $ 7,530 2,918 $ 135 $ -- $ (13) $ 639 $ 8,291
Repurchase of common stock prior to
initial public offering (30) (19) (144) (163)
Reincorporation in Delaware (227) 227 --
Preferred stock converted to common stock (1,117) (7,530) 2,234 22 7,508 --
Initial public offering of common stock,
net of expenses of $2,677 1,450 14 23,409 23,423
Exercise of stock options and warrants 301 143 58 201
Realized loss on sale of investments 13 13
Net income 2,819 2,819
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 -- -- 6,873 68 31,202 -- 3,314 34,584
Exercise of stock options 383 4 702 706
Tax benefit from exercise of stock options 2,175 2,175
Common stock issued under employee
stock purchase plan 53 1 982 983
Pooling of interests with Bold Software 35 (287) (287)
Net loss (1,099) (1,099)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 -- -- 7,344 73 35,061 -- 1,928 37,062
Exercise of stock options 200 2 1,143 1,145
Tax benefit from exercise of stock options 704 704
Common stock issued under employee
stock purchase plan 38 1 868 869
Net income 6,713 6,713
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 -- $ -- 7,582 $ 76 $ 37,776 $ -- $ 8,641 $ 46,493
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-10-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 6,713 $ (1,099) $ 2,819
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Purchased research and development and other - 5,648 -
Depreciation and amortization 1,970 1,528 1,016
Provision for doubtful accounts 248 (15) 191
Deferred income taxes (267) 247 (179)
Deferred rent (62) 129 (10)
Cash provided by (used in) operating assets
and liabilities:
Accounts receivable (3,975) (3,625) (2,069)
Income taxes receivable - - 335
Prepaid and other current assets (789) (213) (54)
Accounts payable 168 (885) 838
Accrued liabilities 350 234 682
Deferred revenues 1,761 (2,130) 1,390
Income taxes payable 1,565 1,780 726
---------- ---------- --------
Net cash provided by operating activities 7,682 1,599 5,685
---------- ---------- --------
Cash flow from investing activities
Net cash used in acquisition of the DX Group - (3,963) -
Acquisition of fixed assets (5,290) (1,384) (1,182)
Purchases of short-term investments (10,041) (1,167) (1,011)
Maturities of short-term investments 1,183 1,160 1,218
Other - (287) -
---------- ---------- --------
Net cash used in investing activities (14,148) (5,641) (975)
---------- ---------- --------
Cash flow from financing activities
Proceeds from exercise of stock options and
warrants 1,145 706 201
Proceeds from issuance of common stock 869 983 23,423
Payment of note issued in acquisition of the
DX Group - (800) -
Payment of debt assumed in the DX Group
acquisition - (288) -
Repurchase of common stock - - (163)
Principal payments of long-term debt - - (759)
---------- ---------- --------
Net cash provided by financing activities 2,014 601 22,702
---------- ---------- --------
Net increase (decrease) in cash and short-term
investments (4,452) (3,441) 27,412
Cash and cash equivalents at beginning of year 30,477 33,918 6,506
---------- ---------- --------
Cash and cash equivalents at end of year $ 26,025 $ 30,477 $ 33,918
========== ========== ========
Supplemental disclosure of cash flow information:
Cash paid during year for:
Income taxes $ 2,515 $ 1,012 $ 1,009
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
-11-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
OPERATIONS Advent provides stand-alone and client/server software products,
data interfaces and related maintenance and services that automate, integrate
and support certain mission-critical functions of the front, middle and back
office of investment management organizations. Advent's clients vary
significantly in size and assets under management and include investment
advisors, brokerage firms, banks, hedge funds, corporations, public funds,
foundations, universities and non-profit organizations.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of Advent and its wholly-owned subsidiaries. All intercompany
transactions and amounts have been eliminated.
FINANCIAL INSTRUMENTS Cash equivalents comprise highly liquid investments
purchased with a remaining maturity of 90 days or less. These investments are
maintained with major financial institutions.
Short- term investments are comprised of various marketable securities
carried at cost. These investments are maintained with major financial
institutions. Securities are considered to be held-to-maturity. Amounts reported
for short-term investments are considered to approximate the fair value based on
comparable market information available at the respective balance sheet dates.
Realized gains and losses have not been significant.
The amounts reported for cash equivalents, receivables, accounts payable,
accrued liabilities and other financial instruments are considered to
approximate their market values based on comparable market information available
at the respective balance sheet dates, and their short-term nature.
Financial instruments that potentially subject Advent to concentrations of
credit risks comprise, principally, cash, short-term investments, and trade
accounts receivable. Advent invests excess cash through banks, mutual funds, and
brokerage houses primarily in highly liquid investments with remaining
maturities of 90 days or less and has investment policies and procedures which
are reviewed periodically to minimize credit risk. Advent does not require
collateral from its customers but performs ongoing credit evaluations and
maintains reserves for potential credit losses which historically have been
within management's estimates.
DEPRECIATION AND AMORTIZATION Fixed assets are stated at cost. Depreciation
is computed using the straight-line method over the estimated useful life of the
related assets, generally five years. Amortization of leasehold improvements is
computed using the straight-line method over the shorter of the estimated useful
life of the assets or the remaining lease term.
CAPITALIZED SOFTWARE Costs incurred for software development prior to
technological feasibility are expensed as product development costs in the
period incurred. Once the point of technological feasibility is reached,
production costs are capitalized. Such capitalized software costs were not
material in 1997, 1996 and 1995.
-12-
<PAGE>
REVENUE RECOGNITION Advent licenses application software programs and offers
annual maintenance programs which provides for technical support and updates to
software products. Advent's development agreements generally provide for
development of technologies and products which are expected to become part of
Advent's product or product offerings in the future. Certain of these agreements
may require royalty payments based on future sales of the developed products.
Such amounts will be included in cost of goods sold as accrued. Advent also
offers customers on-site consulting services, training, custom programming, and
other services.
License revenue is recognized upon the shipment of a product to the client
if collection is probable and Advent's remaining obligations with respect to
that contract are insignificant. License revenue for licenses with remaining
significant obligations is deferred until the product has been shipped and
Advent's related obligations become insignificant. Maintenance revenues are
recognized ratably over the term of the contract. Annual payments for
maintenance contracts are generally received in advance and are nonrefundable.
Revenues for interface and other development and custom programming are
recognized using the percentage of completion method of accounting based on the
costs incurred to date compared with the estimated cost of completion. Revenues
from professional services are recognized as work is performed.
NET INCOME (LOSS) PER SHARE Advent has adopted the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128")
effective December 31, 1997. SFAS 128 requires the presentation of basic and
diluted net income (loss) per share. Basic net income (loss) per share is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding for that period. Diluted
net income (loss) per share is computed giving effect to all dilutive potential
common shares that were outstanding during the period. Dilutive potential shares
consist of incremental common shares issuable upon exercise of stock options and
warrants and conversion of preferred stock for all periods. All prior period net
income (loss) per share amounts have been restated to comply with SFAS No. 128.
RECLASSIFICATIONS Certain reclassifications have been made to the 1996 and
1995 financial statement amounts to conform to the 1997 presentation. These
reclassifications had no impact on net income (loss), working capital, or cash
flows.
NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued Statement No.
130, "Reporting Comprehensive Income", (SFAS 130) which establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. It is effective for Advent's first
quarter of fiscal year 1998.
In June 1997, the FASB issued Statement No. 131, "Disclosures About Segments
of an Enterprise and Related Information", (SFAS 131) which changes current
practice under SFAS 14 by establishing a new framework on which to base segment
reporting (referred to as the "management" approach) and also requires interim
reporting of segment information. It is effective for Advent's fiscal year-end
1998.
In October 1997, the AICPA issued Statement of Position (SOP) 97-2 on
Software Revenue Recognition which supersedes SOP 91-1. The SOP is effective for
all fiscal years beginning after December 15, 1997 and will be effective for
Advent's fiscal year 1998.
-13-
<PAGE>
Advent will be studying the implications of these standards and has not yet
determined the impact of their implementation on Advent's financial statements.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts. These estimates are based on
information available as of the date of the financial statements.
Actual results could differ from those estimates.
2. Acquisitions
In February 1996, Advent acquired Data Exchange, Inc. (the DX Group), a
private company based in New York, for $4.0 million in cash and an $800,000 note
payable. This note was paid during the third quarter of 1996 and did not bear
interest. The transaction was accounted for as a purchase. Advent incurred a
one-time charge of $5.6 million in connection with the write-off of in-process
research and development. This expense was recorded in purchased research and
development and other expenses.
In November 1996, Advent issued 35,000 shares of Advent's common stock in
exchange for all of the outstanding shares of Bold Software, Inc., a private
software development company based in New York. This business combination was
accounted for as a pooling of interests. Prior year amounts have not been
restated to include Bold Software's results of operations as such operations
were immaterial. As a result of this business combination, Advent introduced
Advent Partner, a tax layering and partnership allocation solution which
integrates with Axys.
3. Balance Sheet Detail
The following is a summary of fixed assets:
December 31,
------------------
1997 1996
---------------------------------------------- -------- ---------
(in thousands)
Fixed Assets
Computer equipment $6,997 $4,455
Leasehold improvements 4,676 2,273
Furniture and fixtures 837 726
Telephone systems 672 461
--- ---
13,182 7,915
Less accumulated depreciation and
amortization (5,758) (4,053)
------- -------
Total fixed assets, net $7,424 $3,862
====== ======
---------------------------------------------- -------- ---------
Depreciation expense was $1,728, $1,352, and $1,016 for the years ended December
31, 1997, 1996 and 1995 respectively.
-14-
<PAGE>
The following is a summary of accrued liabilities:
December 31,
------------------
1997 1996
----------------------------------------------- --------- --------
(in thousands)
Accrued Liabilities
Salaries and benefits payable $1,577 $1,365
Commissions payable 752 583
Sales taxes payable 300 307
Other 348 372
--- ---
Total accrued liabilities $2,977 $2,627
====== ======
----------------------------------------------- --------- --------
4. Income Taxes
The provision for income taxes includes:
Year Ended December 31,
1997 1996 1995
------------------------ ---------- ---------- -----------
(in thousands)
Current
Federal $3,089 $1,994 $1,578
State 815 577 403
Deferred
Federal 26 227 (168)
State (9) 57 (27)
--- -- ----
Total $3,921 $2,855 $1,786
====== ====== ======
------------------------ ---------- ---------- -----------
Advent's effective tax rate, as a percent of pre-tax income, differs from
the statutory federal rate as follows:
Year Ended December 31,
----------------------------------
1997 1996 1995
---------------------------------- ----------- ---------- -----------
Statutory federal rate 35.0% 34.0% 34.0%
State taxes 7.6 23.8 6.9
Purchased research and
development -- 109.4 --
Research and development tax
credits (3.0) (5.1) (5.0)
Other (2.7) 0.5 2.9
----- --- ---
Total 36.9% 162.6% 38.8%
===== ====== =====
---------------------------------- ----------- ---------- -----------
The effective tax rate increased in 1996 due to the $5.6 million write-off
of in-process research and development which was not deductible for tax
purposes.
-15-
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the basis of assets and liabilities for financial reporting and income
tax purposes. The approximate tax effects of temporary differences which give
rise to net deferred tax assets are:
December 31,
-------------------------
1997 1996
--------------------------------------- ------------ ------------
(in thousands)
Current:
Deferred revenue $ 610 $ 718
Accrued liabilities 519 201
Reserves 211 145
State taxes 78 --
------ ------
1,418 1,064
------ ------
Noncurrent:
Depreciation and amortization 74 99
Deferred rent 218 262
------ ------
292 361
------ ------
Total deferred tax assets $1,710 $1,425
====== ======
--------------------------------------- ------------ ------------
5. Commitments
Advent leases office space and equipment under noncancelable operating lease
agreements, which expire at various dates through February 2004. Some operating
leases contain escalation provisions for adjustments in the consumer price
index. Advent is responsible for maintenance, insurance, and property taxes and
has five year extension options on its primary facilities leases. Future minimum
payments under the noncancelable operating leases consist of the following at
December 31, 1997 (in thousands):
1998 $2,184
1999 1,699
2000 1,563
2001 1,152
2002 914
2003 and thereafter 1,238
-----
Total minimum lease
payments $8,750
======
Rent expense for 1997, 1996, and 1995 was approximately $1,484,000,
$1,159,000, and $894,000, respectively.
-16-
<PAGE>
6. Employee Benefit Plans
401(k) Plan
Advent has a 401(k) deferred savings plan covering substantially all
employees. Employee contributions, limited to 15% of compensation, are matched
50% by Advent, up to a maximum of $500 per employee per year. Matching
contributions by Advent in 1997, 1996 and 1995 were $103,000, $73,000, and
$61,000, respectively. In addition to the employer matching contribution, Advent
may make a profit sharing contribution at the discretion of the Board of
Directors. Advent made profit sharing contributions of $121,000, $87,000, and
$92,000 in 1997, 1996 and 1995, respectively.
1995 Employee Stock Purchase Plan
All individuals employed by Advent are eligible to participate in the
Employee Stock Purchase Plan (Purchase Plan) if they are employed by Advent for
at least 20 hours per week and at least five months per year. The Purchase Plan
permits eligible employees to purchase Advent's common stock through payroll
deductions at a price equal to 85% of the lower of the closing sale price for
Advent's common stock reported on the Nasdaq National Market at the beginning
and the end of each six-month offering period. In any calendar year, eligible
employees can withhold up to 10% of their salary and certain variable
compensation. A total of 100,000 shares of common stock have been reserved for
issuance under the Purchase Plan. In 1997, 38,000 shares were sold through the
Purchase Plan.
7. Net Income (Loss) Per Share
Year Ended December 31,
1997 1996 1995
---- ---- ----
Net income (loss) $6,713 $(1,099) $2,819
Reconciliation of shares used in basic
and diluted per share calculations
Basic
Weighted average common shares outstanding 7,521 7,070 3,445
----- ----- -----
Shares used in basic net income (loss) per
share calculation 7,521 7,070 3,445
===== ===== =====
Basic net income (loss) per share $0.89 $(0.16) $0.82
===== ======= =====
Dilutive
Weighted average common shares outstanding 7,521 7,070 3,455
Dilutive effect of convertible preferred stock -- -- 1,955
Dilutive effect of stock options and warrants 496 -- 750
------ ------- ------
Shares used in diluted net income (loss)
per share calculation 8,017 7,070 6,160
===== ===== =====
Diluted net income (loss) per share $0.84 $(0.16) $0.46
===== ======= =====
-17-
<PAGE>
8. Stockholders' Equity
Common Stock
On November 15, 1995, Advent completed an IPO in which it sold 1,450,000
shares of its common stock at $18.00 per share which generated net proceeds to
Advent of $23.4 million. Prior to the effective date of Advent's IPO, Advent
reincorporated in the state of Delaware and exchanged each outstanding share of
no par common stock for one share of $0.01 par value common stock.
Stock Options
Under Advent's 1992 Stock Plan (the Plan) Advent may grant options to
purchase common stock to employees and consultants. Options granted may be
incentive stock options or nonstatutory stock options and shall be granted at a
price not less than fair market value on the date of grant. Fair market value
(as defined in the Plan) and the vesting of these options shall be determined by
the Board of Directors. The options expire no later than 10 years from the date
of grant. Unvested options on termination of employment are canceled and
returned to the Plan.
The activity under the Plan was as follows:
<TABLE>
<CAPTION>
Outstanding Options
-----------------------------------------------------
Weighted
Aggregate Average
Available Number of Price Per Exercise Price Per
for Grant Options Share Price Share
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1994 298,000 682,000 $0.63 - $5.00 $1,432,000 $2.10
Authorized 300,000 -- -- -- --
Options granted (466,000) 466,000 5.00 - 12.00 2,940,000 6.31
Options exercised -- (101,000) 0.63 - 5.00 (115,000) 1.14
Options canceled 21,000 (21,000) 1.00 - 6.50 (97,000) 4.62
------ -------- ----------- -------- ----
Balances, December 31, 1995 153,000 1,026,000 0.63-12.00 4,160,000 4.05
Authorized 400,000 -- -- -- --
Options granted (412,000) 412,000 19.50-32.00 10,376,000 25.18
Options exercised -- (283,000) 0.63-12.00 (642,000) 2.27
Options canceled 58,000 (58,000) 1.00-19.50 (754,000) 13.00
------ -------- ---------- --------- -----
Balances, December 31, 1996 199,000 1,097,000 0.63-32.00 13,140,000 11.98
------- --------- ---------- ---------- -----
Authorized 600,000 -- -- -- --
Options granted (836,000) 836,000 25.00-28.75 21,737,000 26.00
Options exercised -- (198,000) 0.63-19.50 (853,000) 4.31
Options canceled 145,000 (145,000) 1.00-32.00 (2,902,000) 20.01
------- --------- ---------- ----------- -----
Balances, December 31, 1997 108,000 1,590,000 $0.63-$32.00 $31,122,000 $19.57
======= ========= ============ =========== ======
</TABLE>
-18-
<PAGE>
Of the 1,590,000 options under the Plan outstanding at December 31, 1997,
331,000 options were exercisable with an aggregate exercise price of $3,190,000.
In addition to the Plan, Advent had granted options to purchase common stock
to employees or consultants under special arrangements. These options have an
exercise price of $1.00 per share. There were 10,000, 12,000 and 16,000 of these
options outstanding at December 31, 1997, 1996 and 1995, respectively. The
change in each period was a result of the exercise of 2,000 and 4,000 options
during 1997 and 1996, respectively. The shares outstanding at December 31, 1997
are fully vested.
Advent's 1995 Director Option Plan (the Director Plan) provides for the
grant of nonstatutory stock options to nonemployee directors of Advent (Outside
Directors). Under the Director Plan, each Outside Director is granted a
non-qualified option to purchase 10,000 shares on the last to occur of the date
of effectiveness of the Director Plan or the date upon which such person first
becomes a director with an exercise price equal to the fair market value of
Advent's common stock as of the date of the grant. In subsequent years, each
Outside Director is automatically granted an option to purchase 2,000 shares on
December 1 with an exercise price equal to the fair value of the Advent's common
stock on that date. Options granted under the Director Plan vest over a five
year period and have a ten year term.
The activity under the Director Plan was as follows:
<TABLE>
<CAPTION>
Outstanding Options
---------------------------------------------------
Weighted
Aggregate Average
Available Number of Price Per Exercise Price Per
for Grant Options Share Price Share
--------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1994 -- -- $-- $-- $--
Authorized 75,000 -- -- -- --
Options granted (30,000) 30,000 18.00 540,000 18.00
-------- ------ ----- ------- -----
Balances, December 31, 1995 45,000 30,000 18.00 540,000 18.00
Options granted (6,000) 6,000 32.75 196,500 32.75
------- ----- ----- ------- -----
Balances, December 31, 1996 39,000 36,000 18.00-32.75 736,500 20.45
------ ------ ----------- ------- -----
Options exercised -- (2,800) 18.00 (50,400) 18.00
Options granted (24,000) 24,000 24.88-25.00 599,500 24.98
Options cancelled 9,200 (9,200) 18.00-32.75 (194,500) 21.14
----- ------- ----------- --------- -----
Balances, December 31, 1997 24,200 48,000 $18.00-$32.75 $1,091,100 $22.73
====== ====== ============= ========== ======
</TABLE>
-19-
<PAGE>
Of the 48,000 options under the Director Plan outstanding at December 31,
1997, 8,300 options were exercisable with an aggregate exercise price of
$150,000.
In addition to the Director Plan, Advent granted options prior to 1994 to an
Outside Director for the purchase of 96,000 shares of common stock with an
exercise price of $0.63 per share. These options were exercised during 1996.
At December 31, 1997, Advent had reserved 2,363,000 shares of common stock
for the exercise of stock options.
Advent has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for Advent's stock option
plans. Had compensation cost been determined based on the fair value at the
grant date for awards in 1997, 1996 and 1995 consistent with the provisions of
SFAS No. 123, Advent's net income (loss) and net income (loss) per share for the
year ended December 31, 1997, 1996 and 1995, respectively, would have been as
follows:
1997 1996 1995
---- ---- ----
Net income (loss) - as reported $6,713 $(1,099) $2,819
Net income (loss) - pro forma $5,233 $(1,528) $2,717
PER SHARE DATA
Diluted
Net income (loss) per share - as reported $0.84 $(0.16) $0.46
Net income (loss) per share - pro forma $0.65 $(0.22) $0.44
Basic
Net income (loss) per share - as reported $0.89 $(0.16) $0.82
Net income (loss) per share - pro forma $0.70 $(0.22) $0.79
Such pro forma disclosures may not be representative of future compensation
cost because options vest over several years and additional grants are made each
year.
The weighted-average grant-date fair value of options granted were $14.50,
$14.50, and $3.82 per option for the years ended December 31, 1997, 1996 and
1995, respectively.
-20-
<PAGE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes valuation model with the following weighted average
assumptions:
1997 1996 1995
---- ---- ----
Risk-free interest rate 5.99% 6.03% 6.40%
Volatility 56.91 55.04 55.04
Expected life 5 years 5 years 5 years
Expected dividends None None None
The risk-free interest rate was calculated in accordance with the grant date
and expected life. Volatility was calculated using an analysis of an Advent peer
group of publicly traded companies. The weighted average expected life was
calculated based on the vesting period and the exercise behavior of the
participants.
The options outstanding and currently exercisable by exercise price at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ -----------------------------------
Weighted
Average
Remaining Weighted average Weighted Average
Exercise Prices Number Contractual Exercise Price Number Exercise Price
Outstanding Life Exercisable
- ------------------ -------------- -------------- ------------------ -------------- -----------------
<S> <C> <C> <C> <C> <C>
$0.63-$6.50 510,000 6.61 $4.70 261,000 $4.32
$18.00-$19.50 109,000 8.15 19.22 36,000 19.15
$24.88-$32.75 1,029,000 9.53 27.21 52,000 30.68
--------- ---- ----- ------ -----
1,648,000 8.54 $19.74 349,000 $9.65
========= ==== ====== ======= =====
</TABLE>
9. Subsequent Event (unaudited)
In February 1998, Advent issued 250,000 shares of Advent's common stock in
exchange for all of the outstanding shares of MicroEdge, Inc., a private
software development company based in New York. MicroEdge is the leading
provider of software products to foundations, corporations and other
organizations to manage their grant-making activities. This business combination
was accounted for as a pooling of interests. The results of operations as well
as the assets and liabilities of MicroEdge in 1997 and 1996 were not material to
the consolidated results of operations or financial position of Advent.
-21-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Advent Software, Inc.:
We have audited the accompanying consolidated balance sheets of Advent
Software, Inc. as of December 31, 1997 and 1996 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of Advent Software, Inc.'s management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Advent
Software, Inc. as of December 31, 1997 and 1996 and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
January 20, 1998
-22-
<PAGE>
<TABLE>
<CAPTION>
SELECTED
FINANCIAL DATA
SELECTED ANNUAL DATA
YEAR ENDED DECEMBER 31, 1997 1996* 1995 1994* 1993
- ------------------------------------------ ----------- ---------- ----------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net revenues $48,613 $36,744 $25,957 $20,101 $16,240
Income from operations 9,398 591 4,158 1,648 2,061
Net income (loss) 6,713 (1,099) 2,819 1,064 1,259
Net income (loss) per share data
Diluted:
Net income (loss) per share 0.84 (0.16) 0.46 0.18 0.26
Shares used in per share calculation** 8,017 7,070 6,160 5,844 4,892
Basic:
Net income (loss) per share 0.89 (0.16) 0.82 0.36 0.40
Shares used in per share calculation** 7,521 7,070 3,455 2,925 3,159
BALANCE SHEET
Working capital $38,836 $32,775 $31,008 $5,093 $5,987
Total assets 59,285 46,691 44,750 15,594 18,066
Long-term liabilities 537 599 470 708 801
Stockholders' equity 46,493 37,062 34,584 8,291 8,157
</TABLE>
SELECTED QUARTERLY DATA
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------- --------- ---------
(in thousands, except per share data)
(unaudited)
1997
Net revenues $9,553 $11,699 $12,958 $14,403
Income from operations 1,121 2,169 2,817 3,291
Net income 851 1,522 2,007 2,333
Net income per share - Diluted 0.11 0.19 0.25 0.29
Net income per share - Basic 0.12 0.20 0.27 0.31
1996*
Net revenues $6,975 $9,022 $10,146 $10,601
Income (loss) from operations (5,087) 1,376 1,920 2,383
Net income (loss) (5,102) 1,015 1,349 1,640
Net income (loss) per share - Diluted (0.74) 0.13 0.17 0.21
Net income (loss) per share - Basic (0.74) 0.15 0.19 0.23
<PAGE>
PRICE RANGE OF COMMON STOCK
NASDAQ NATIONAL MARKET SYMBOL "ADVS"
HIGH LOW
- ------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
First Quarter $30 3/4 $20 1/4
Second Quarter 33 18 5/8
Third Quarter 33 25 1/4
Fourth Quarter 31 3/4 22 1/2
YEAR ENDED DECEMBER 31, 1996
First Quarter $21 3/4 $14
Second Quarter 32 1/8 19
Third Quarter 32 3/4 20 1/4
Fourth Quarter 36 1/2 25 5/8
* In 1996 and 1994, Advent recognized non-recurring charges of $5.6 million and
$1.0 million, respectively, in connection with the write-off of purchased
research and development. Excluding these non-recurring charges, net income per
share - diluted would have been $0.58 and $0.27 in 1996 and 1994, respectively.
For further explanation, see "Purchased Research and Development and Other" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations on page 5.
** For an explanation of shares used in per share calculations, see Note 1 of
the Notes to Consolidated Financial Statements.
<PAGE>
Stock Information
Advent's common stock has traded on the Nasdaq National Market under the symbol
ADVS since it's initial public offering on November 15, 1995.
Advent has not paid cash dividends on its common stock and presently intends to
continue this policy in order to retain its earnings for the development of its
business.
Transfer Agent & Registrar
First National Bank of Boston is the Transfer Agent and Registrar of Advent's
common stock and maintains stockholder accounting records. Inquires regarding
lost certificates, consolidation of accounts, and changes in address, name or
ownership should be addressed to:
BankBoston, N.A.
c/o Boston EquiServe, LP
PO Box 8040
Boston, MA 02266-8040
Telephone: (781) 575-3120
Internet: www.equiserve.com
EXHIBIT 21.1
SUBSIDIARIES OF ADVENT SOFTWARE, INC.
Name State of Incorporation
- ---- ----------------------
Data Exchange, Inc. Pennsylvania
Second Street Securities Delaware
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Advent Software, Inc. on Form S-8 (File No.'s 333 - 918 and 333-28725) of our
report dated January 20, 1998, on our audit of the consolidated financial
statements of Advent Software, Inc. as of December 31, 1997 and 1996, and for
the years ended December 31, 1997, 1996 and 1995, which report is incorporated
by reference in this report on Form 10-K, and our report dated January 20, 1998,
on our audit of the financial statement schedule, which report is included in
this Form 10-K.
COOPERS & LYBRAND L.L.P.
San Francisco, California
March 27, 1998
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