SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 1999
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 or other jurisdiction of incorporation or organization)
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)
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 [ ]
The number of shares of the Registrant's Common Stock outstanding as of July
31, 1999 was 9,625,936.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to the Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DEC 31,
1999 1998
- ------------------------------------------------------------------------------------
(in thousands) (unaudited) (audited)
ASSETS
<S> <C> <C>
Current assets:
Cash and short-term investments $ 113,993 $ 43,284
Accounts receivable, net 19,788 17,452
Prepaid expenses and other 3,058 2,010
Deferred income taxes 1,900 1,900
-------------- --------------
Total current assets 138,739 64,646
-------------- --------------
Fixed assets, net 12,954 11,433
Other assets, net 16,311 11,131
-------------- --------------
Total assets $ 168,004 $ 87,210
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,184 $ 1,793
Accrued liabilities 7,048 6,270
Deferred revenues 15,379 14,511
Income taxes payable 4,279 3,924
-------------- --------------
Total current liabilities 27,890 26,498
-------------- --------------
Long-term liabilities:
Other liabilities 616 537
-------------- --------------
Total liabilities 28,506 27,035
-------------- --------------
Stockholders' equity:
Common stock 96 82
Additional paid-in-capital 121,991 48,154
Retained earnings 17,381 11,939
Cumulative other comprehensive income 30 -
-------------- --------------
Total stockholders' equity 139,498 60,175
-------------- --------------
Total liabilities and stockholders' equity $ 168,004 $ 87,210
============== ==============
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The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ----------------------------
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
(in thousands, except per share data) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
License and development fees $ 11,561 $ 8,603 $ 20,717 $ 15,537
Maintenance and other recurring 9,131 5,796 17,828 11,192
Professional services and other 3,531 2,307 5,898 4,026
------------- ------------- ------------- -------------
Net revenues 24,223 16,706 44,443 30,755
------------- ------------- ------------- -------------
Cost of revenues:
License and development fees 880 634 1,629 1,155
Maintenance and other recurring 2,445 1,527 4,729 3,032
Professional services and other 1,365 943 2,476 1,763
------------- ------------- ------------- -------------
Total cost of revenues 4,690 3,104 8,834 5,950
------------- ------------- ------------- -------------
Gross margin 19,533 13,602 35,609 24,805
------------- ------------- ------------- -------------
Operating expenses:
Sales and marketing 7,835 5,692 14,782 10,781
Product development 4,052 3,009 7,866 5,670
General and administrative 2,417 1,634 4,757 3,465
Amortization of intangibles 383 - 767 -
Purchased research and development and other - 5,422 - 5,422
------------- ------------- ------------- -------------
Total operating expenses 14,687 15,757 28,172 25,338
------------- ------------- ------------- -------------
Income (loss) from operations 4,846 (2,155) 7,437 (533)
Interest income, net 440 388 810 731
------------- ------------- ------------- -------------
Income (loss) before income taxes 5,286 (1,767) 8,247 198
Provision for (benefit from) income taxes 1,797 (185) 2,805 522
------------- ------------- ------------- -------------
Net income (loss) $ 3,489 $ (1,582) $ 5,442 $ (324)
============= ============= ============= =============
Other comprehensive income, net of tax
Foreign currency translation adjustment (5) - 30 -
------------- ------------- ------------- -------------
Comprehensive income (loss) $ 3,484 $ (1,582) $ 5,472 $ (324)
============= ============= ============= =============
NET INCOME (LOSS) PER SHARE DATA
Diluted
Net income (loss) per share $ 0.37 $ (0.20) $ 0.58 $ (0.04)
Shares used in per share calculations 9,475 8,022 9,316 7,953
Basic
Net income (loss) per share $ 0.41 $ (0.20) $ 0.65 $ (0.04)
Shares used in per share calculations 8,457 8,022 8,357 7,953
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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ADVENT SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1999 1998
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(in thousands) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 5,442 $ (324)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Purchased research and development - 4,493
Depreciation and amortization 2,091 1,729
Provision for doubtful accounts 437 105
Deferred income taxes - (1,500)
Deferred rent 79 14
Cash provided by (used in) operating assets and liabilities:
Accounts receivable (2,773) (2,210)
Prepaid and other current assets (317) 144
Accounts payable (575) 45
Accrued liabilities 740 544
Deferred revenues 861 2,361
Income taxes payable 355 899
Net liabilities assumed in pooling of interests with Microedge - (1,061)
------------- ------------
Net cash provided by operating activities 6,340 5,239
------------- ------------
Cash flows from investing activities:
Acquisition of fixed assets (2,848) (2,957)
Other assets, net (6,675) 106
------------- ------------
Net cash used in investing activities (9,523) (2,851)
------------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 73,850 1,501
------------- ------------
Net cash provided by financing activities 73,850 1,501
------------- ------------
Effect of exchange rate changes on cash and
short-term investments 42 -
------------- ------------
Net increase in cash and short-term investments 70,709 3,889
Cash and short-term investments at beginning of period 43,284 36,056
------------- ------------
Cash and short-term investments at end of period $ 113,993 $ 39,945
============= ============
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 2,061 $ 1,134
Supplemental disclosure of non-cash transactions:
Purchase of assets of the Grants Division of Blackbaud, Inc. for
issuance of common stock, net of purchased research & development $ - $ 2,021
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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ADVENT SOFTWARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Advent Software, Inc. ("Advent") and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
The condensed consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC") applicable to interim financial information. Certain
information and footnote disclosures included in financial statements prepared
in accordance with generally accepted accounting principles have been omitted in
these interim statements pursuant to such SEC rules and regulations. Management
recommends that these interim financial statements be read in conjunction with
the audited financial statements and notes thereto included in Advent's 1998
Report on Form 10-K filed with the SEC. Interim results are not necessarily
indicative of the results to be expected for the full year.
In management's opinion, the condensed consolidated financial statements
include all adjustments necessary to present fairly the financial position and
results of operations for each interim period shown.
2. SECONDARY OFFERING
In June 1999, we completed a secondary public offering of 1.3 million shares
of common stock at an offering price of $62.0625 per share. Of the 1.3 million
shares of common stock offered, 100,000 shares were sold by a selling
stockholder. The net proceeds of the offering to Advent were $70.2 million.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments, and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Management has not yet evaluated the effects of
this change on its operations. We will adopt SFAS No. 133 as required for our
first quarterly filing of fiscal year 2001.
In December 1998, the Accounting Standards Executive Committee (AcSEC)
released Statement of Position 98-9, or SOP 98-9, Modification of SOP 97-2,
"Software Revenue Recognition," with Respect to Certain Transactions. SOP 98-9
amends SOP 97-2 to require that an entity recognize revenue for multiple element
arrangements by means of the "residual method" when (1) there is vendor-specific
objective evidence (VSOE) of the fair values of all the undelivered elements
that are not accounted for by means of long-term contract accounting, (2) VSOE
of fair value does not exist for one or more of the delivered elements, and (3)
all revenue recognition criteria of SOP 97-2 (other than the requirement for
VSOE of the fair value of each delivered element) are satisfied.
The provisions of SOP 98-9 that extend the deferral of certain paragraphs of
SOP 97-2 became effective December 15, 1998. These paragraphs of SOP 97-2 and
SOP 98-9 will be effective for transactions that are entered into in fiscal
years beginning after March 15, 1999. We have evaluated the requirements of SOP
98-9 and we believe that the effects will have no significant impact on our
current revenue policies.
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4. NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except for per share data) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C>
Net income (loss) $ 3,489 $ (1,582) $ 5,442 $ (324)
Reconciliation of shares used in basic and diluted
per share calculations
Basic
Weighted average common shares outstanding 8,457 8,022 8,357 7,953
------------ ------------ ------------ ------------
Shares used in basic net income per share calculation 8,457 8,022 8,357 7,953
============ ============ ============ ============
Basic net income (loss) per share $ 0.41 $ (0.20) $ 0.65 $ (0.04)
============ ============ ============ ============
Diluted
Weighted average common shares outstanding 8,457 8,022 8,357 7,953
Dilutive effect of stock options and warrants 1,018 - 959 -
------------ ------------ ------------ ------------
Shares used in diluted net income per share calculation 9,475 8,022 9,316 7,953
============ ============ ============ ============
Diluted net income (loss) per share $ 0.37 $ (0.20) $ 0.58 $ (0.04)
============ ============ ============ ============
Weighted average options outstanding at June 30, 1999 and 1998
not included in computation of diluted EPS because the
exercise price was greater than the average market price 194 105 98 53
Price of options not used in diluted EPS calculation $ 64.125 $ 42.625 $ 64.125 $ 42.625
------------ ------------ ------------ ------------
</TABLE>
5. SUBSEQUENT EVENT
Our Board of Directors approved a three-for-two split of our common stock
in July 1999. The stock split will be effected as a stock dividend. Stockholders
of record as of the close of business on July 30, 1999 will be issued a
certificate representing one additional common share for every two shares of
common stock held on the record date. These certificates will be distributed on
approximately August 16, 1999. The stock split will increase the number of
shares of common stock outstanding from approximately 9.6 million shares to
approximately 14.4 million shares. Shares and per share data in this Form 10-Q
have not been adjusted to reflect the stock split.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Acquisitions
In May 1998, we issued 170,000 shares of common stock for certain assets of
the Grants Management Division of Blackbaud, Inc., a privately held company
located in Charleston, South Carolina. Through this acquisition we combined the
Grants Management product line of Blackbaud with MicroEdge. This transaction was
accounted for as a purchase and the results of operations of the business and
assets acquired are included in our financial statements from the date of
acquisition. We incurred a charge relating to in-process research and
development and other expenses of $5.4 million in connection with this
transaction.
In November 1998, we issued 15,000 shares of common stock and paid $4.1
million in exchange for all the outstanding shares of HubData, Inc., a
distributor of consolidated securities information and data to investment
management organizations. HubData delivers services to over 240 institutional
investment firms. This business combination was accounted for as a purchase. As
a result of the acquisition, we incurred a one-time in-process research and
development
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(IPR&D) charge of $3 million. In determining the IPR&D, we allocated the
estimated cash flows of the projects between the total development work as of
the date of the acquisition and the work to be accomplished subsequent to the
acquisition.
In November 1998, we paid AUS $583,000 (approximately US $370,000) in
exchange for all the outstanding shares of Portfolio Management Systems Pty.,
Ltd., a distributor of Advent products in Australia. This business combination
was accounted for as a purchase. This acquisition provides an international
channel for sale of our products and services. Subsequent to the acquisition, we
changed the name of this subsidiary to Advent Australia Pty., Ltd.
RESULTS OF OPERATIONS
Net Revenues. Our net revenues for the second quarter of 1999 increased 45%
to $24.2 million, compared with net revenues of $16.7 million for the second
quarter in 1998. Net revenues for the six months ended June 30, 1999 increased
45% to $44.4 million, compared to net revenues of $30.8 million for the six
months ended June 30, 1998, reflecting increases in each component of net
revenues. License and development fees for the second quarter of 1999 increased
34% to $11.6 million compared to $8.6 million for the second quarter of 1998.
License and development fees for the six months ended June 30, 1999 increased
33% to $20.7 million, compared to $15.5 million for the six months ended June
30, 1998. The increase in license and development fees was primarily due to
increased sales of Advent Office and multi-product transactions. Maintenance and
other recurring revenue for the second quarter of 1999 increased 58% to $9.1
million, compared with maintenance and other recurring revenue of $5.8 million
for the second quarter of 1998. Maintenance and other recurring revenue for the
six months ended June 30, 1999 increased 59% to $17.8 million, compared to $11.2
million for the six months ended June 30, 1998. The increase was due primarily
to a larger customer base, the addition of HubData, and increased demand for
implementation management services. Professional services and other revenue for
the second quarter of 1999 increased 53% to $3.5 million, compared with
professional services and other revenue of $2.3 million for the second quarter
of 1998. Professional services and other revenue for the six months ended June
30, 1999 increased 47% to $5.9 million, compared to $4 million for the six
months ended June 30, 1998. The increase was primarily due to higher product
sales activity, which increased demand for our professional services, as well as
increased consulting rates.
Cost of Revenues. Our cost of revenues for the second quarter of 1999
increased 51% to $4.7 million, compared with cost of revenues of $3.1 million
for the second quarter of 1998. Cost of revenues for the six months ended June
30, 1999 increased 48% to $8.8 million, compared with $6 million for the six
months ended June 30, 1998. Our cost of revenues as a percentage of net revenues
remained stable at 19% for the three months ended June 30, 1999 and 1998. Cost
of revenues as a percentage of net revenues increased to 20% for the six months
ended June 30, 1999 from 19% for the six months ended June 30, 1998. Cost of
license and development fees increased 39% to $880,000 in the second quarter of
1999, compared with $634,000 in the second quarter of 1998. Cost of license and
development fees for the six months ended June 30, 1999 increased 41% to $1.6
million, compared with $1.2 million for the six months ended June 30, 1998. The
increase in cost of license and development fees is directly related to the
increase in license and development fees revenue. Cost of license and
development fees as a percentage of the related revenues remained relatively
stable at 7.6% for the second quarter of 1999, compared with 7.4% for the second
quarter of 1998. Cost of license and development fees as a percentage of the
related revenues remained relatively stable at 7.9% for the six months ended
June 30, 1999 compared with 7.4% for the six months ended June 30,1998Cost of
maintenance and other recurring revenues increased 60% to $2.4 million for the
second quarter of 1999 from $1.5 million for the second quarter of 1998. Cost of
maintenance and other recurring revenues for the six months ended June 30, 1999
increased 56% to $4.7 million from $3 million for the same period in 1998. This
increase was due to increased staffing required to support a larger customer
base and more complex implementations. Cost of maintenance and other recurring
revenues as a percentage of the related revenues increased to 27% for the second
quarter of 1999 from 26% for the second quarter of 1998. Cost of maintenance and
other recurring revenues as a percentage of the related revenues remained stable
at 27% for the six months ended June 30, 1999 and 1998. Cost of professional
services and other revenue increased 45% to $1.4 million for the second quarter
of 1999, compared with $943,000 for the second quarter in 1998. Cost of
professional services and other revenues for the six months ended June 30, 1999
increased 40% to $2.5 million, compared with $1.8 million for the six months
ended June 30, 1998. The increase was primarily due to increased staffing
necessary to provide services to an expanded installed base. Cost of
professional services and other revenue as a percentage of the related revenues
decreased to 39% for the second quarter of 1999 from 41% for the second quarter
of 1998. Cost of professional services and other revenue as a percentage of the
related revenues decreased to 42% for the six months ended June 30, 1999 from
44% in the six months ended June 30, 1998. The decrease was primarily due to
professional service rates increasing at a faster rate than their associated
costs.
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SALES AND MARKETING. Our sales and marketing expenses for the second quarter
of 1999 increased 38% to $7.8 million, compared with $5.7 million for the second
quarter of 1998. Sales and marketing expenses for the six months ended June 30,
1999 increased 37% to $14.8 million, compared with $10.8 million for the six
months ended June 30, 1998. The increase in expense for the three and six months
ended June 30, 1999 was primarily due to an increase in sales and marketing
personnel and expenses resulting from the marketing of Advent Office as well as
focused sales and marketing efforts towards our internet initiative. Sales and
marketing expenses as a percentage of net revenues decreased to 32% for the
second quarter of 1999 from 34% in the second quarter of 1998. Sales and
marketing expenses as a percentage of net revenues for the six months ended June
30, 1999 decreased to 33% from 35% for the six months ended June 30, 1998. The
decrease was primarily due to economies of scale.
PRODUCT DEVELOPMENT. Our product development expenses for the second quarter
of 1999 increased 35% to $4.1 million, compared with product development
expenses of $3 million for the second quarter of 1998. Product development
expenses for the six months ended June 30, 1999 increased 39% to $7.9 million,
compared with $5.7 million for the six months ended June 30, 1998. Product
development expenses increased primarily due to an increase in personnel as we
increased our product development efforts to accelerate the rate of product
enhancements and new product introductions. Product development expense as a
percentage of net revenues decreased to 17% for the three months ended June 30,
1999 from 18% for the three months ended June 30, 1998. Product development
expense as a percentage of net revenues remained stable at 18% for the six
months ended June 30, 1999 and 1998.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses for the
second quarter of 1999 increased 48% to $2.4 million, compared with $1.6 million
for the second quarter of 1998. General and administrative expenses for the six
months ended June 30, 1999 increased 37% to $4.8 million, compared with $3.5
million for the six months ended June 30, 1998. The increase was due to
increased staffing to support our growth. General and administrative expenses as
a percentage of net revenues remained stable at 10% for the second quarter of
1999 and 1998. General and administrative expenses as a percentage of net
revenues remained stable at 11% for the six months ended June 30, 1999 and 1998.
AMORTIZATION OF INTANGIBLES. We recorded amortization of intangibles of
$383,000 and $767,000 for the three and six months ended June 30, 1999. This was
based on recorded goodwill of $5.6 million in connection with the acquisitions
of HubData, Inc. and Advent Australia, formerly named Portfolio Management
Systems Pty., Ltd. As of this filing, we have made progress on the development
efforts associated with the HubData products. In addition, the revenue and costs
associated with the in-process technology have been materially consistent with
the assumptions we used in the valuation. Since the valuation was based on our
estimates of market potential, product introductions, and technology trends, we
will periodically assess our estimates related to the valuation model to
determine if the assets acquired have been impaired. If we determine that there
has been impairment, there could be additional charges to operations.
INTEREST INCOME, NET. Our net interest income for the second quarter of 1999
increased 13% to $440,000, compared with net interest income of $388,000 for the
second quarter of 1998. Our net interest income for the six months ended June
30, 1999 increased 11% to $810,000, compared with net interest income of
$731,000 for the six months ended June 30, 1998. The increase was due to greater
interest income generated from higher cash and short-term investment balances.
Due to the net cash proceeds from our secondary offering, we expect interest
income to be higher since we intend to invest the amount in short-term,
interest-bearing investment grade obligations.
PROVISION FOR INCOME TAXES. For the three and six months ended June 30,
1999, we recorded a tax provision of $1.8 million and $2.8 million,
respectively, based on our pretax income using an effective tax rate of 34%,
which is our anticipated effective tax rate for the fiscal year 1999. The actual
effective tax rate for the entire fiscal year could vary substantially depending
on actual results achieved. The effective tax rate in 1998 was higher than 1999
due to certain expenses from acquisitions that were not deductible, partially
offset by the implementation of a tax planning strategy in the third quarter. We
had an effective tax rate of 40% for fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1999, we have generated $6.3 million in
cash flows from operating activities. Cash flows from operating activities
resulted primarily from net income of $5.4 million and changes in operating
working capital. These changes include an increase in accrued liabilities and
accrued income taxes, which is partially offset by an increase in accounts
receivable and a decrease in accounts payable.
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Net cash used in investing activities was $9.5 million for the six months
ended June 30, 1999. Activity included prepayment of $6.5 million to new
recurring revenue partners to further bring new products and services to our
clients. Activity also included the acquisition of fixed assets for the buildout
of additional leased properties.
Net cash provided by financing activities was $73.9 million for the six
months ended June 30, 1999. In June 1999, we completed a secondary public
offering of 1.3 million shares of common stock at an offering price of $62.0625
per share. Of the 1.3 million shares of common stock offered, 100,000 shares
were sold by a selling stockholder. The net proceeds of the offering to Advent
were $70.2 million. We intend to use the net proceeds of this offering primarily
for general corporate purposes, including working capital and capital
expenditures. A portion of the proceeds could also be used to acquire or invest
in complementary businesses or products or to obtain the right to use
complementary technologies. Pending such uses, we have invested the net proceeds
of this offering in short-term, interest-bearing, investment grade obligations.
The remaining increase was due to proceeds from issuance of stock under employee
benefit plans.
We believe that our existing cash and short-term investments and cash
expected to be generated from operations will be sufficient to meet our
anticipated cash and capital requirements at least through the next twelve
months.
IMPACT OF YEAR 2000 ISSUE
To the best of our knowledge, the products we currently license have been
designed to be and continue to be Year 2000 Compliant. Year 2000 Compliant means
that our products will continue to operate substantially in accordance with
published documentation on and after January 1, 2000. However, some of the
computer programs used in our internal operations may not be Year 2000 Compliant
as these programs rely on time-sensitive software that was written using two
digits rather than four to identify the applicable year. These programs may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
We have outlined a four-stage plan to comply with Year 2000 processing
standards: assessment, renovation, validation and implementation. The assessment
phase involves identifying the problem, identifying all systems at risk,
prioritizing and developing contingency plans and identifying potential
solutions and costs. The renovation phase involves applying the fixes to the
identified problems and re-evaluating contingency plans once fixes have been
made. The validation phase requires testing the fixes either by paper study or
by a dry run of day-to-day activities. Implementation is the final phase in
which we identify training needs, establish a training plan and start training
people to properly execute the contingency plans. It is our intent to complete
this process by late 1999.
All mission-critical systems have been assessed for Year 2000 issues and
renovation has been completed or is in progress for completion in the third
quarter. All desktop systems, telecom equipment, and network equipment have been
renovated. Our next step is to re-evaluate contingency plans, validate all
remaining systems and evaluate the most reasonably likely worst case scenario.
We anticipate the validation phase of the plan to be completed by the end of the
third quarter. The necessity of any contingency plan must be evaluated on a
case-by-case basis and will vary considerably in nature depending on the Year
2000 issue it may need to address. To date, we have spent $56,000 on replacement
of phone equipment and plan to spend another $30,000 on the server replacement.
Other costs for replacing software have been insignificant as most are under
maintenance contracts or under warranty. To date, we have spent approximately
$45,000on reallocation of personnel resources for the Year 2000 issue. In
addition, we expect to reallocate additional personnel resources, at a cost of
approximately $30,000, to attend to this matter. We believe any other
modifications deemed necessary will be made on a timely basis and estimate that
the cost of such modifications will not have a material effect on our operating
results.
Our expectation as to the extent and timeliness of modifications required
in order to achieve Year 2000 compliance is a forward-looking statement subject
to risks and uncertainties. Actual results may vary materially as a result of a
number of factors, including, among others, those described in this paragraph.
There can be no assurance that we will be able to successfully modify on a
timely basis such products, services and systems to comply with Year 2000
requirements, nor that our contingency plans will prove effective in the event
that we fail to achieve Year 2000 Compliance, nor that the cost of such
procedures will not exceed original estimates, any of which could have a
material adverse effect on our operating results. Additionally, we have
initiated communications with third party suppliers of the major computers,
software, and other equipment used, operated, or maintained by us to identify
and, to the extent possible, to resolve issues involving the
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Year 2000 problem. However, we have limited or no control over the actions of
these third party suppliers. Thus, while we expect that they will be able to
resolve any significant Year 2000 problems with these systems, there can be no
assurance that these suppliers will resolve any or all Year 2000 problems with
these systems before the occurrence of a material disruption to the business of
ours or any of their customers. Any failure of these third parties to resolve
Year 2000 problems with their systems in a timely manner could have a material
adverse effect on our business, financial condition, and results of operations.
Additionally, throughout the remainder of the year there is likely to be an
increased customer focus on addressing Year 2000 issues, creating the risk that
customers may reallocate capital expenditures to fix year 2000 problems of
existing systems and may also delay implementation of any new software until
sometime after January 1, 2000. Although we have not experienced the effects of
such a trend to date, if customers defer purchases of our software because of
such a reallocation, it could adversely effect our operating results.
FORWARD-LOOKING STATEMENTS
OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND WE MAY NOT BE ABLE TO MAINTAIN
OUR EXISTING GROWTH RATES.
Licenses into multi-user networked environments have increased both in
individual size and number, and the timing and size of individual license
transactions are becoming increasingly important factors in quarterly operating
results. The sales cycles for transactions of this size are often lengthy and
unpredictable. We may not be successful in closing large license transactions
such as these on a timely basis or at all. Accordingly, if future revenues from
large site licenses constitute a material portion of our net revenues, the
timing of such licenses could cause additional variability in our quarterly
operating results. We typically ship our software products 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. Our expense levels are based
in significant part on our 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 us on
products and services, an unanticipated decline in net revenues in any
particular quarter is likely to disproportionately adversely affect operating
results.
We have generally realized lower revenues from license fees in the first
quarter of the year than in the last quarter of the prior year. We believe 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. We believe our annual
incentive compensation plans, which tend to produce increased year-end sales
activity, compound this factor. Furthermore, we have often recognized a
substantial portion of each quarter's license revenues in the last month of that
quarter.
Because of the above factors, we believe that period to period comparisons
of our operating results are not necessarily meaningful and that these
comparisons cannot be relied upon as indicators of future performance.
Our stock price has fluctuated significantly since our initial public
offering in November 1995. Like many companies in the technology and emerging
growth sector, our stock price may be subject to wide fluctuations, particularly
during times of high market volatility. If net revenues or earnings in any
quarter fail to meet the investment community's expectations, our stock price is
likely to decline. In addition, our stock price may be affected by broader
market trends unrelated to our performance.
OUR SALES CYCLE IS LONG AND WE HAVE LIMITED ABILITY TO FORECAST THE TIMING AND
AMOUNT OF SPECIFIC SALES.
Because the purchase of our software products often requires significant,
executive-level investment and systems architecture decisions by prospective
customers, we must generally engage in a relatively lengthy sales effort. These
transactions may be delayed during the customer acceptance process because we
must provide a significant level of education to prospective customers regarding
the use and benefit of our products. As a result, the sales cycle associated
with the purchase of our software products is typically between two and nine
months depending upon the size of the client, though it can be considerably
longer, and is subject to a number of significant risks over which we have
little or no control, including customers' budgeting constraints and internal
acceptance procedures. Further, to the extent those potential customers divert
resources and attention, or delay purchasing decisions, as a result of the Year
2000 issue, our sales cycle could be still longer. As a result of the length of
our sales cycle, we have limited ability to forecast the timing and amount of
specific sales. The timing of large individual sales is especially difficult to
forecast. Because our expenses are generally
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<PAGE>
relatively fixed in the near term, any shortfall from anticipated revenues could
result in significant variations in our operating results from quarter to
quarter.
The implementation of our solutions involves a significant commitment of
resources by customers and by us over an extended period of time. Also, the size
and complexity of any particular implementation projects can cause delays in the
sales cycle that precedes it. Any such delays could seriously harm our business.
WE DEPEND HEAVILY ON OUR PRODUCT, AXYS.
In 1996, 1997 and 1998, we derived a substantial majority of our net
revenues from the licensing of Axys and related products and services. In
addition, many of our other products, such as Moxy, Qube and various data
interfaces were designed to operate with Axys to provide an integrated solution.
As a result, we believe that a majority of our net revenues, at least through
1999, will be dependent upon continued market acceptance of Axys, enhancements
or upgrades to Axys and related products and services.
WE ARE CONTINUING TO EXPAND OUR INTERNET INITIATIVE.
To take advantage of the internet, we are continuing to expand an internet
initiative under which we are 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. The
second service, Advent Browser Reporting, was launched in the third quarter of
1998. As we develop new products and services under our internet initiative, we
have 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. We may not be successful in marketing our internet
services or in developing other internet services. Our failure to do so could
seriously harm our business.
WE MUST CONTINUE TO INTRODUCE NEW PRODUCTS AND PRODUCT ENHANCEMENTS.
The market for our products is characterized by rapid technological change,
changes in customer demands and evolving industry standards. As a result, our
future success will continue to depend upon our ability to develop new products
that address the future needs of our target markets and to respond to these
changing 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, our ability to develop new
products and product enhancements is dependent upon the products of other
software vendors, including system software vendors, such as Microsoft
Corporation, database vendors and development tool vendors. If the products of
these vendors have design defects or flaws, or if these products are
unexpectedly delayed in their introduction, our business could be seriously
harmed.
WE DEPEND UPON FINANCIAL MARKETS.
The target clients for our products include a range of organizations that
manage investment portfolios, including investment advisors, brokerage firms,
banks and hedge funds. In addition, we target 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 our clients
is intrinsically linked to the health of the financial markets. We believe that
demand for our 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.
-12-
<PAGE>
GENERAL ECONOMIC CONDITIONS AND YEAR 2000 ISSUES MAY REDUCE OUR LICENSE
REVENUES.
We believe that the market for large management software systems may be
negatively impacted by a number of factors, including:
- reductions in capital expenditures by large customers;
- increasing competition; and
- increased customer focus on addressing Year 2000 problems.
The above factors may, in turn, give rise to a number of market trends that
may slow license revenue growth across the industry, including:
- longer sales cycles;
- deferral or delay of information technology projects and generally reduced
expenditures for software;
- reallocation of reduced capital expenditures to fix Year 2000 problems of
existing systems; and
- increased priced competition.
Although we do not believe these factors have impacted our revenues to date,
the continued presence of these factors in the market for large management
software systems could adversely affect our business and results of operations.
IF OUR RELATIONSHIP WITH INTERACTIVE DATA IS TERMINATED, OUR BUSINESS MAY BE
HARMED.
Many of our clients use our proprietary interface to electronically retrieve
pricing and other data from Interactive Data. Interactive Data pays us a
commission based on their revenues from providing this data to our clients. Our
software products have been customized to be compatible with their system and
this software would need to be redesigned if their services were unavailable for
any reason. Termination of our agreement with Interactive Data would require at
least two years notice by either us or them, or 90 days in the case of material
breach. If our relationship with Interactive Data were terminated or their
services were unavailable to our clients for any reason, replacing these
services could be costly and time consuming.
WE FACE INTENSE COMPETITION.
The market for investment management software is intensely competitive and
highly fragmented, subject to rapid change and highly sensitive to new product
introductions and marketing efforts by industry participants. Our competitors
include providers of software and related services as well as providers of
timeshare services.
Our competitors vary in size, scope of services offered and platforms
supported. In addition, we compete 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 like us. Many of our competitors have longer operating histories and
greater financial, technical, sales and marketing resources than we do. We
cannot guarantee that we 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 seriously harm our business.
WE FACE CHALLENGES IN EXPANDING OUR INTERNATIONAL OPERATIONS.
We market and sell our products in the United States and, to a lesser
extent, internationally. We have established a subsidiary located in Australia
to market and sell our products in Australia. In order to expand our
international operations, we would need to establish additional facilities,
acquire other business, or enter into distribution relationships in other parts
of the world. The expansion of our existing international operations and entry
into additional international markets will require significant management
attention and financial resources. We cannot be certain that our investments in
establishing facilities in other countries will produce desired levels of
revenue. We currently have limited experience in developing localized versions
of our products and marketing and distributing our products internationally. In
addition, international operations are subject to other inherent risks,
including:
-13-
<PAGE>
- The impact of recessions in economies outside the United States;
- Greater difficulty in accounts receivable collection and longer collection
periods;
- Unexpected changes in regulatory requirements;
- Difficulties in successfully adapting our products to the language and
technology standards of other countries;
- Difficulties and costs of staffing and managing foreign operations;
- Reduced protection for intellectual property rights in some countries;
- Potentially adverse tax consequences; and
- Political and economic instability.
Our international revenues are generally denominated in local currencies. We
do not currently engage in currency hedging activities. Although exposure to
currency fluctuations to date has been insignificant, future fluctuations in
currency exchange rates may adversely affect revenues from international sales.
UNDETECTED SOFTWARE ERRORS OR FAILURES FOUND IN NEW PRODUCTS MAY RESULT IN LOSS
OF OR DELAY IN MARKET ACCEPTANCE OF OUR PRODUCTS THAT COULD SERIOUSLY HARM OUR
BUSINESS.
Our products may contain undetected software errors or failures when first
introduced or as new versions are released. Despite testing by us and by current
and potential customers, errors may not be found in new products until after
commencement of commercial shipments, resulting in loss of or a delay in market
acceptance, which could seriously harm our business.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY WE MAY BE SUBJECT TO
INCREASED COMPETITION THAT COULD SERIOUSLY HARM OUR BUSINESS.
Our success depends significantly upon our proprietary technology. We
currently rely on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect our proprietary
rights. We seek to protect our software, documentation and other written
materials under trade secret and copyright and patent laws, which afford only
limited protection. We cannot assure you that we will develop proprietary
products or technologies that are patentable, that any patent, if issued, would
provide us with any competitive advantages or would not be challenged by third
parties, or that the patents of others will not adversely affect our ability to
do business.
Litigation may be necessary to protect our proprietary technology. This
litigation may be time-consuming and expensive. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary. In
addition, the laws of some foreign countries do not protect proprietary rights
to as great an extent as do the laws of the United States. We cannot assure you
that our means of protecting our proprietary rights will be adequate or that our
competitors will not independently develop similar technology, duplicate our
products or design around patents issued to us or other intellectual property
rights of ours.
WE FACE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS.
We may acquire or make investments in complementary companies, products or
technologies. If we buy a company, we could have difficulty in integrating that
company's personnel and operations. In addition, the key personnel of the
acquired company may decide not to work for us. If we make other types of
acquisitions, we could have difficulty in assimilating the acquired technology
or products into our operations. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses.
Furthermore, we may have to incur debt or issue equity securities to pay for any
future acquisitions, the issuance of which could be dilutive to our existing
stockholders.
WE MUST ATTRACT AND RETAIN QUALIFIED TECHNICAL AND SALES PERSONNEL.
Our continued success depends, in part, on our ability to identify, attract,
motivate and retain qualified technical and sales personnel. Because our future
success is dependent on our ability to continue to enhance and introduce new
products, we are particularly dependent on our ability to identify, attract,
motivate and retain qualified engineers with the requisite education,
-14-
<PAGE>
backgrounds and industry experience. Competition for qualified engineers,
particularly in Northern California and the San Francisco Bay Area, is intense.
The loss of the services of a significant number of our engineers or sales
people could be disruptive to our development efforts or business relationships
and could seriously harm our business.
YEAR 2000 COMPLIANCE ISSUES COULD SERIOUSLY HARM OUR BUSINESS.
We are in the process of assessing and remediating any Year 2000 issues
associated with our computer systems and software and other property and
equipment. Despite our testing and remediation efforts, our systems and those of
third parties, including content providers, advertisers, affiliates, and end
users may contain errors or faults with respect to the Year 2000. Our efforts to
address this issue are described in more detail in "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Impact of Year 2000
Issue." Known or unknown errors or defects that affect the operation of our
software and systems and those of third parties and end users, could result in
delay or loss of revenue, cancellation of customer contracts, diversion of
development resources, damage to our reputation, increased service and warranty
costs, and litigation costs, any of which could harm our business.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may, " "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue" or the negative
of such terms or other comparable terminology. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks outlined under "Forward Looking Statements," that
may cause our or our industry's actual results, levels of activity, performance
or achievements to be materially different from any future results, levels or
activity, performance or achievements expressed or implied by such
forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this Form 10-Q to conform such statements to actual results.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments". We had no
holdings of derivative financial or commodity instruments at June 30, 1999.
However, we are exposed to financial market risks, including changes in foreign
currency exchange rates and interest rates. Much of our revenue and capital
spending is transacted in U.S. dollars, however, with the acquisition of Advent
Australia, these subsidiary revenues and capital spending are transacted in
Australian dollars. Results of operations from Advent Australia are not material
to the results of operations of Advent. Therefore, we believe that foreign
currency exchange rates should not materially adversely affect our overall
financial position, results of operations or cash flows. We believe that the
fair value of our investment portfolio or related income would not be
significantly impacted by increases or decreases in interest rates due mainly to
the short-term nature of our investment portfolio. However, a sharp increase in
interest rates could have a material adverse affect on the fair value of our
investment portfolio. Conversely, sharp declines in interest rates could
seriously harm interest earnings of our investment portfolio.
The table below presents principal amounts by expected maturity (in U.S.
dollars) and related weighted average interest rates by year of maturity for our
investment portfolio.
<TABLE>
<CAPTION>
Estimated Fair Value
at December 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 2000 2001 2002 2003 Thereafter Total
Federal Instruments 27,000,000 1,000,000 28,000,000
Weighted Average Interest Rate 5.05 5.09 5.05
Commercial Paper & Short-term obligations 47,490,000 47,490,000
Weighted Average Interest Rate 4.78 4.78
Corporate Notes & Bonds 905,000 905,000
Weighted Average Interest Rate 7.72 7.72
Municipal Notes & Bonds 15,300,000 3,250,000 18,550,000
Weighted Average Interest Rate 5.25 4.77 5.17
---------------------------------------------------------------------------------
Total Portfolio, excluding equity securities 90,695,000 4,250,000 - - - - 94,945,000
</TABLE>
At June 30, 1999, the cash and short-term investments totaled $114 million,
which is comprised of the $95 million in our investment portfolio presented
above, $10 million of cash and cash equivalents and $9 million in other
investments.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In June 1999, we completed a secondary public offering of 1.3 million shares
of common stock at an offering price of $62.0625 per share. Of the 1.3 million
shares of common stock offered, 100,000 shares were sold by a selling
stockholder. The net proceeds of the offering to Advent were $70.2 million.
We intend to use the net proceeds of this offering primarily for general
corporate purposes, including working capital and capital expenditures. A
portion of the proceeds may also be used to acquire or invest in complementary
businesses or products or to obtain the right to use complementary technologies.
Pending such uses, we intend to invest the net proceeds of this offering in
short-term, interest-bearing, investment grade obligations.
On July 13, 1999, our board of directors approved a 3-for-2 stock split. The
stock split, to be made in the form of a stock dividend, is payable August 16,
1999 to stockholders of record on July 30, 1999. The split will increase the
number of shares of common stock outstanding from about 9.6 million to about
14.4 million. It will not effect the proportionate holdings of any stockholder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our Annual Meeting of Stockholders, held May 4, 1999, the following
matters were voted upon by stockholders pursuant to proxies solicited pursuant
to Regulation 14A of the Securities Exchange Act of 1934:
The following individuals were elected to the Board of Directors:
NOMINEE FOR AGAINST
- ------------------------------ ------------------- -----------------------
Ms. Stephanie G. DiMarco 6,979,448 82,025
Mr. Frank H. Robinson 6,978,948 82,525
Mr. Wendell G. Van Auken 6,978,948 82,525
Mr. William F. Zuendt 6,978,948 82,525
Mr. Monte Zweben 6,977,548 83,925
The vote for approval of the Amendments to the 1992 Stock Plan was as
follows:
FOR AGAINST ABSTAIN
- ----------------------- --------------------- ---------------------
4,500,344 1,683,340 695
The vote for ratification of the appointment of PricewaterhouseCoopers LLP
was as follows:
FOR AGAINST ABSTAIN
- ----------------------- --------------------- ---------------------
7,054,049 6,969 455
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<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.2 1992 Stock Plan, as amended,
27 Financial Data Schedule,
(b) Reports on Form 8-K
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVENT SOFTWARE, INC.
Dated: August 12, 1999 By: /s/ STEPHANIE G. DIMARCO
--------------------------------
Stephanie G. DiMarco
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Dated: August 12, 1999 By: /s/ IRV H. LICHTENWALD
---------------------------------
Irv H. Lichtenwald
Senior Vice President of Finance,
Chief Financial Officer
and Secretary
(Principal Financial Officer)
Dated: August 12, 1999 By: /s/ PATRICIA VOLL
---------------------------------
Patricia Voll
Vice President of Finance
(Principal Accounting Officer)
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ADVENT SOFTWARE, INC.
1992 STOCK PLAN
(amended effective May 4, 1999)
1. Purposes of the Plan. The purposes of this 1992 Stock Plan are to attract and
retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Employees and Consultants of the Company and
its Subsidiaries and to promote the success of the Company's business. Options
granted under the Plan may be incentive stock options (as defined under Section
422 of the Code) or non-statutory stock options, as determined by the
Administrator at the time of grant of an option and subject to the applicable
provisions of Section 422 of the Code, as amended, and the regulations
promulgated thereunder. Stock purchase rights may also be granted under the
Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees appointed
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board of Directors
in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Advent Software, Inc., a Delaware corporation.
(g) "Consultant" means any person, who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services
and is compensated for such services. The term Consultant shall not
include directors who are not compensated for their services or who
are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any
Parent or Subsidiary is not interrupted or terminated. Continuous
Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) sick leave;(ii) military leave;
(iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than ninety
(90) days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) in the
case of
<PAGE>
transfers between locations of the Company or between the
Company, its Subsidiaries or its successor.
(i) "Disability" shall have the meaning set forth in Section 22(e)(3)
of the Code.
(j) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company shall not be
sufficient to constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(l) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the
Nasdaq National Market of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, its Fair
Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the
time of determination, as reported in The Wall Street Journal
or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on
the Nasdaq National Market)or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low
asked pricesfor the Common Stock; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith
by the Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(n) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(o) "Option" means a stock option granted pursuant to the Plan.
(p) "Optioned Stock" means the Common Stock subject to an Option or a
Stock Purchase Right.
(q) "Optionee" means an Employee or Consultant who receives an Option or
Stock Purchase Right.
(r) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
-2-
<PAGE>
(s) "Plan" means this 1992 Stock Plan.
(t) "Restricted Stock" means shares of Common Stock acquired pursuant to
a grant of a Stock Purchase Right under Section 11 below.
(u) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 12 below.
(v) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 below.
(w) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the
Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 2,888,000 shares of Common Stock, plus an annual increase
to be added on December 31 of the years 1999, 2000 and 2001 equal to the lesser
of (i) 500,000 shares, (ii) 3% of the outstanding shares as of December 31 of
each year, or (iii) an amount determined by the Board. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires, becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an option
exchange program approved by the Administrator, the unpurchased Shares that were
subject thereto shall become available for future grant or sale under the Plan
(unless the Plan has terminated). Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
Plan may be administered by different bodies with respect to
Directors, Officers who are not Directors, and Employees who are
neither Directors nor Officers.
(ii) Administration With Respect to Directors and Officers Subject to
Section 16(b). With respect to Option or Stock Purchase Right
grants made to Employees who are also Officers or Directors
subject to Section 16(b) of the Exchange Act, the Plan shall be
administered by (A) the Board, if the Board may administer the
Plan in a manner complying with the rules under Rule 16b-3
relating to the disinterested administration of employee
benefit plans under
-3-
<PAGE>
which Section 16(b) exempt discretionary grants and awards of
equity securities are to be made, or (B) a committee designated
by the Board to administer the Plan, which committee shall be
constituted to comply with the rules under Rule 16b-3 relating to
the disinterested administration of employee benefit plans under
which Section 16(b) exempt discretionary grants and awards of
equity securities are to be made. Once appointed, such
Committee shall continue to serve in its designated capacity
until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint
additional members, remove members (with or without cause)
and substitute new members, fill vacancies (however caused), and
remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the rules
under Rule 16b-3 relating to the disinterested
administration of employee benefit plans under which Section
16(b) exempt discretionary grants and awards of equity
securities are to be made.
(iii) Administration With Respect to Other Persons. With respect to
Option or Stock Purchase Right grants made to Employees or
Consultants who are neither Directors nor Officers of the Company,
the Plan shall be administered by (A) the Board or (B) a committee
designated by the Board, which committee shall be constituted to
satisfy Applicable Laws. Once appointed, such Committee shall
serve in its designated capacity until otherwise directed by
the Board. The Board may increase the size of the Committee
and appoint additional members, remove members (with or
without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee
and thereafter directly administer the Plan, all to the extent
permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall
have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine whether and to what extent Options and Stock Purchase
Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be covered by
each Option and Stock Purchase Right granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price,
the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any
vesting acceleration or waiver of forfeiture restrictions,
and any restriction or limitation regarding any Option or Stock
Purchase Right or the
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<PAGE>
shares of Common Stock relating thereto,
based in each case on such factors as the Administrator, in its
sole discretion, shall determine;
(vii) to reduce the exercise price of any Option or Stock Purchase
Right to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option or Stock Purchase
Right shall have declined since the date the Option or Stock
Purchase Right was granted;
(viii) to construe and interpret the terms of the Plan and awards granted
pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations relating
to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred
tax treatment under foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right (subject to
Section 14(b) of the Plan), including the discretionary authority
to extend the post-termination exercisability period of Options
longer than is otherwise provided for in the Plan;
(xi) to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xii) to determine the terms and restrictions applicable to Options
and Stock Purchase Rights and any Restricted Stock; and
(xiii) to make all other determinations deemed necessary or advisable
for administering the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations and
interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options or Stock Purchase
Rights.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may
be granted only to Employees. An Employee or Consultant who has
been granted an Option or Stock Purchase Right may, if he or she is
otherwise eligible, be granted additional Options or Stock Purchase
Rights.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value of the Shares with respect to which
Options designated as Incentive Stock Options are exercisable for the
first time by any Optionee
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<PAGE>
during any calendar year (under all plans of the Company or any Parent
or Subsidiary) exceeds $100,000, such excess Options shall be
treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be taken
into account in the order in which they were granted, and the Fair
Market Value of the Shares shall be determined as of the time the
Option with respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with respect to
continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
(e) The following limitations shall apply to grants of Options and
Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of the Company,
Options and Stock Purchase Rights to purchase more than 150,000
Shares.
(ii) In connection with his or her initial employment, an Employee
may be granted Options and Stock Purchase Rights to purchase up
to an additional 150,000 Shares which shall not count against the
limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as
described in Section 12.
(iv) If an Option or Stock Purchase Right is cancelled in the same
fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 12), the
cancelled Option or Stock Purchase Right will be counted against
the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option or Stock Purchase
Right is reduced, the transaction will be treated as a
cancellation of the Option or Stock Purchase Right and the grant
of a new Option or Stock Purchase Right.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the stockholders of
the Company as described in Section 18 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 14 of the
Plan.
7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of such
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
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<PAGE>
8. Option Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued pursuant to
the exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(1) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing
more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less
than 110% of the Fair Market Value per Share on the date of
grant.
(2) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value
per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator.
(b) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including
the method of payment. In the case of an Incentive Stock Option,
the Administrator shall determine the acceptable form of
consideration at the time of grant. Such consideration may consist
entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A)in the case of Shares acquired upon exercise
of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised;
(v) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option
and delivery to the Company of the sale or loan proceeds required
to pay the exercise price;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation
program or arrangement;
(vii) any combination of the foregoing methods of payment; or
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<PAGE>
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance
criteria with respect to the Company and/or the Optionee, and as shall
be permissible under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. Upon termination
of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may
exercise his or her Option, but only within such period of time as is
specified in the Notice of Grant, and only to the extent that the
Optionee was entitled to exercise it at the date of termination
(but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). In the absence of a
specified time in the Notice of Grant, the Option shall remain
exercisable for three (3) months following the Optionee's termination.
In the case of an Incentive Stock Option, such period of time for
exercise shall not exceed three (3) months from the date of
termination. If, on the date of termination, the Optionee is not
entitled to exercise the Optionee's entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified by the Administrator, the
Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
Notwithstanding the above, in the event of an Optionee's change in
status from Consultant to Employee or Employee to Consultant, the Optionee's
Continuous Status as an Employee or
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<PAGE>
Consultant shall not automatically terminate solely as a result of such change
in status. However, in such event, an Incentive Stock Option held by the
Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option three months and one
day following such change of status.
(c) Disability of Optionee. In the event that an Optionee's Continuous
Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option
at any time within twelve (12)months from the date of such termination,
but only to the extent that the Optionee was entitled to exercise it at
the date of such termination (but in no event later than the
expiration of the term of such Option as set forth in the Notice of
Grant). If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following
the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the
Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent that the
Optionee was entitled to exercise the Option at the date of death. If,
at the time of death, the Optionee was not entitled to exercise
his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after
death, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance does not exercise the
Option within the time specified herein, the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted,
based on such terms and conditions as the Administrator shall establish
and communicate to the Optionee at the time that such offer is made.
(f) Rule 16b-3. Options granted to individuals subject to Section 16 of
the Exchange Act ("Insiders") must comply with the applicable
provisions of Rule 16b-3 and shall contain such additional conditions
or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with espect
to Plan transactions.
10. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under
the Plan and/or cash awards made outside of the Plan. After the
Administrator determines that it will offer Stock Purchase Rights
under the Plan, it shall advise the offeree in writing of the terms,
conditions and restrictions related to the offer,
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<PAGE>
including the number of Shares that such person shall be entitled to
purchase, the price to be paid and the time within which such person
must accept such offer, which shall in no event exceed ninety (90)
days from the date upon which the Administrator made the determination
to grant the Stock Purchase Right. The offer shall be accepted by
execution of a purchase agreement (the "Restricted Stock Purchase
Agreement") in the form determined by the Administrator. Shares
purchased pursuant to the grant of a Stock Purchase Right shall be
referred to herein as "Restricted Stock".
(b) Repurchase Option. Unless the Administrator determines otherwise, the
Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment with the Company for any
reason (including death or Disability). The purchase price for Shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall
be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The
repurchase option shall lapse at such rate as the Administrator may
determine.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall contain
such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole
discretion. In addition, the provisions of Restricted Stock purchase
agreements need not be the same with respect to each purchaser.
(d) Rights as a Stockholder. Once the Stock Purchase Right is exercised,
the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is
entered upon the records of the duly authorized transfer agent of
the Company. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the Stock
Purchase Right is exercised, except as provided in Section 12 of
the Plan.
(e) Rule 16b-3. Stock Purchase Rights granted to Insiders, and Shares
purchased by Insiders in connection with Stock Purchase Rights,
shall be subject to any restrictions applicable thereto in compliance
with Rule 16b-3. An Insider may only purchase Shares pursuant to the
grant of a Stock Purchase Right, and may only sell Shares purchased
pursuant to the grant of a Stock Purchase Right, during such time or
times as are permitted by Rule 16b-3.
12. Adjustments Upon Changes in Capitalization, Dissolution or Merger.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Option or Stock Purchase Right, and the
number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options or Stock Purchase
Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Stock Purchase Right,
as well as the price per share of Common Stock covered by each such
outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of
Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or
any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible
securities of the Company shall not
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<PAGE>
be deemed to have been "effected without receipt of consideration".
Such adjustment shall be made by the Administrator, whose determination
in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Common Stock
subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, to the extent that an Option or Stock
Purchase Right has not been previously exercised, it will terminate
immediately prior to the consummation of such proposed action. The
Board may, in the exercise of its sole discretion in such instances,
declare that any Option or Stock Purchase Right shall terminate as of
a date fixed by the Board and give each Optionee the right to
exercise his or her Option or Stock Purchase Right as to all or any
part of the Optioned Stock, including Shares as to which the Option
or Stock Purchase Right would not otherwise be exercisable.
(c) Merger or Asset Sale. In the event of a merger of the Company with or
into another corporation, or the sale of substantially all of the
assets of the Company, each outstanding Option and Stock Purchase
Right shall be assumed or an equivalent option or right
substituted by the successor corporation or a Parent or Subsidiary
of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option or Stock
Purchase Right, Administrator shall have the discretion to allow
the Optionee to exercise the Option or Stock Purchase Right as
to all of the Optioned Stock, including Shares as to which it
would not otherwise be exercisable. If an Option or Stock Purchase
Right is exercisable in lieu of assumption or substitution in the
event of a merger or sale of assets, the Administrator shall notify
the Optionee that the Option or Stock Purchase Right shall be fully
exercisable for a period of fifteen (15) days from the date of such
notice, and the Option or Stock Purchase Right shall terminate upon
the expiration of such period. For the purposes of this paragraph,
the Option or Stock Purchase Right shall be considered assumed if,
following the merger or sale of assets, the option or right confers
the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the
merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets was not solely
common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of
the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common
stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.
13. Date of Grant. The date of grant of an Option or Stock Purchase Right shall,
for all purposes, be the date on which the Administrator makes the determination
granting such Option or
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<PAGE>
Stock Purchase Right, or such other date as is determined by the
Administrator. Notice of the determination shall be given to each Employee or
Consultant to whom an Option or Stock Purchase Right is so granted within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the
rights of any Optionee under any grant theretofore made without his or
her consent. In addition, to the extent necessary and desirable to
comply with Section 422 of the Code (or any other applicable law or
regulation), the Company shall obtain stockholder approval of any
Plan amendment in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted
and such Options shall remain in full force and effect as if this
Plan had not been amended or terminated, unless mutually agreed
otherwise between the Optionee and the Administrator, which agreement
must be in writing and signed by the Optionee and properly on behalf of
the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933,
as amended, the Exchange Act, the rules and regulations promulgated thereunder,
and the requirements of any stock exchange upon which the Shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
16. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
17. Agreements. Options and Stock Purchase Rights shall be evidenced by written
agreements in such form as the Administrator shall approve from time to time.
Such agreements
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may contain such other terms and conditions, including rights of repurchase and
rights of first refusal, as the Administrator may in its sole discretion
deem appropriate.
18. Stockholder Approval. Continuance of the Plan shall be subject to approval
by the stockholders of the Company within twelve (12) months before or after
the date the Plan is adopted. Such stockholder approval shall be obtained in
the degree and manner required under applicable state and federal law.
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<PAGE>
ADVENT SOFTWARE, INC.
1992 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number_________________________
Date of Grant_________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted_________________________
Total Exercise Price $_________________________
Type of Option:___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date:_________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
20% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/60th of the Shares subject to the Option
shall vest each month thereafter.
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<PAGE>
Termination Period.
This Option may be exercised for _____ [days/months] after termination
of the Optionee's employment or consulting relationship with the Company. Upon
the death or Disability of the Optionee, this Option may be exercised for such
longer period as provided in the Plan. In the event of the Optionee's change in
status from Employee to Consultant or Consultant to Employee, this Option
Agreement shall remain in effect. In no event shall this Option be exercised
later than the Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants to
the Optionee named in the Notice of Grant attached as Part I of this Agreement
(the "Optionee") an option (the "Option") to purchase the number of Shares, as
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the "Exercise Price"), subject to the terms and conditions
of the Plan, which is incorporated herein by reference. Subject to Section 14(b)
of the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option under Section
422 of the Code. However, if this Option is intended to be an Incentive Stock
Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d)
it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement. In the event of
Optionee's death, Disability or other termination of Optionee's employment
or consulting relationship, the exercisability of the Option is governed by
the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment of
the aggregate Exercise Price as to all Exercised Shares. This Option shall be
deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option unless
such issuance and exercise complies with all relevant provisions of law and the
requirements of any stock exchange or quotation service upon which the Shares
are then listed. Assuming such compliance, for income tax
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<PAGE>
purposes the Exercised Shares shall be considered transferred to the Optionee on
the date the Option is exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for
more than six (6)months on the date of surrender, and (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
4. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by the Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal and state tax consequences
relating to this Option, as of the date of this Option, are set forth below.
THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE
SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur regular
federal income tax and state income tax liability upon exercise of a NSO. The
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates)equal to the excess, if any, of the Fair Market Value
of the Exercised Shares on the date of exercise over their aggregate Exercise
Price. If the Optionee is an Employee or a former Employee, the Company will be
required to withhold from his or her compensation or collect from Optionee and
pay to the applicable taxing authorities an amount in cash equal to a percentage
of this compensation income at the time of
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<PAGE>
exercise, and may refuse to honor the exercise and refuse to deliver Shares
if such withholding amounts are not delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as an ISO,
the Optionee will have no regular federal income tax or state income tax
liability upon its exercise, although the excess, if any, of the Fair Market
Value of the Exercised Shares on the date of exercise over their aggregate
Exercise Price will be treated as an adjustment to alternative minimum taxable
income for federal tax purposes and may subject the Optionee to alternative
minimum tax in the year of exercise. In the event that the Optionee
undergoes a change of status from Employee to Consultant, any Incentive Stock
Option of the Optionee that remains unexercised shall cease to qualify as an
Incentive Stock Option and will be treated for tax purposes as a
Nonstatutory Stock Option on the ninety-first (91st) day following such
change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least one year,
any gain realized on disposition of the Shares will be treated as long-term
capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the
Company in writing of such disposition. The Optionee agrees that he or
she may be subject to income tax withholding by the Company on the compensation
income recognized from such early disposition of ISO Shares by payment in cash
or out of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by California law except for that body of
law pertaining to conflict of laws.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the
-4-
<PAGE>
Plan and this Option Agreement. Optionee has reviewed the Plan and this
Option Agreement in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Option Agreement and fully
understands all provisions of the Plan and Option Agreement. Optionee hereby
agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: ADVENT SOFTWARE, INC.
____________________________________ By:_________________________________
Signature
____________________________________ Title:______________________________
Print Name
- ------------------------------------
Residence Address
- ------------------------------------
-5-
<PAGE>
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
____________________________
Spouse of Optionee
-6-
<PAGE>
EXHIBIT A
1992 STOCK PLAN
EXERCISE NOTICE
Advent Software, Inc.
301 Brannan Street
San Francisco, CA 94107
Attention: Secretary
1. Exercise of Option. Effective as of today, ________________, 199__, the
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of Advent Software, Inc. (the "Company") under and
pursuant to the 1992 Stock Plan (the "Plan") and the Stock Option Agreement
dated, 19___ (the "Option Agreement"). The purchase price for the Shares shall
be $__________, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Stockholder. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a stockholder shall exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. A share
certificate for the number of Shares so acquired shall be issued to the Optionee
as soon as practicable after exercise of the Option. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 12 of the Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted with any tax consultants
Purchaser deems advisable in connection with the purchase or disposition of the
Shares and that Purchaser is not relying on the Company for any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
-1-
<PAGE>
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. This agreement is
governed by California law except for that body of law pertaining to conflict of
laws.
Submitted by: Accepted by:
OPTIONEE: ADVENT SOFTWARE, INC.
_________________________________ By:_________________________________
Signature
_________________________________ Its:________________________________
Print Name
Address: Address:
_________________________________ 301 Brannan Street
_________________________________ San Francisco, CA 94107
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