UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1998
|_| Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from _____ to _____
Commission File Number: 0-27468
ULTRADATA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2746681
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5000 Franklin Drive, Pleasanton, CA 94588-3031
(Address of principal executive officer) (Zip Code)
Registrant's telephone number, including area code:
925/463-8356
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 5, 1999, was approximately $17,519600 (based on the last
reported sale price of $5.00 per share on March 5, 1999 on the Nasdaq National
Market.)
As of March 5, 1999, Registrant had outstanding 7,746,132 shares of Common
Stock, $.001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
Part III Specifically identified portions of the
Registrant's proxy statement to be filed
in connection with the Registrant's
Annual Meeting to be held on May 7, 1999.
<PAGE>
ULTRADATA CORPORATION
TABLE OF CONTENTS
PAGE
----
PART 1
ITEM 1 - Business 3
ITEM 2 - Properties 7
ITEM 3 - Legal Proceedings 7
ITEM 4 - Submission of Matters to a Vote of
Security Holders 7
ITEM 4A - Executive Officers of Registrant 8
PART II
ITEM 5 - Market for Registrant's Common Equity
and Related Stockholder Matters 9
ITEM 6 - Selected Financial Data 10
ITEM 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
ITEM 7A - Quantitative and Qualitative Disclosures
About Market Risks 17
ITEM 8 - Financial Statements and Supplementary Data 17
ITEM 9 - Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 17
PART III
ITEM 10 - Directors and Executive Officers of the Registrant 18
ITEM 11 - Executive Compensation 18
ITEM 12 - Security Ownership of Certain Beneficial Owners and
Management 18
ITEM 13 - Certain Relationships and Related Transactions 18
PART IV
ITEM 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K 18
SIGNATURES 21
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PART I
Except for the historical information contained herein, the matters discussed in
this Form 10-K are forward-looking statements that involve risks and
uncertainties, including the timely availability and acceptance of new products,
the impact of competitive products and pricing, the management of growth and the
other risks detailed herein, including, without limitation, the risks discussed
in this Item 1, "Business" and in Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The actual results that the
Company achieves may differ materially from any forward-looking statements due
to such risks and uncertainties.
Item 1. Business.
ULTRADATA Corporation (the "Company") provides information management software
and solutions for relationship-oriented financial institutions. Currently these
solutions allow the Company's customers to, among other things, engage in
cross-selling, relationship pricing, data mining, and workflow control as well
as provide financial services such as checking, savings and investment accounts,
home banking, credit and debit cards, ATM access and consumer lending. The
Company's products today are primarily targeted at large and mid-sized credit
unions for use as an in-house installation and to value-added resellers ("VARs")
for distribution to small-sized credit unions that operate in service bureau
environments. Combining the in-house installations with services provided by the
Company's VARs, the approximately 430 credit unions using the Company's software
represents over 5.7 million members and $30.0 billion in assets.
A credit union is a member-owned, not-for-profit financial institution. Credit
unions compete by providing customer relationship management. Although
historically targeting credit unions, the Company envisions potentially
expanding into markets containing other relationship-oriented financial
institutions.
Products and Services
In addition to the ULTRAFIS(R) transaction processing engine, the Company offers
a family of information management modules consisting of a number of
applications that can be purchased together or separately to enhance the
services and information management, professional services and software
maintenance. In 1998 the Company substantially phased out direct sales of
hardware. The Company has also established VAR relationships with service
organizations to provide service bureaus environments for customers that wish to
utilize the ULTRAFIS system and related information management modules without
the accompanying information systems infrastructure.
The Company's information management modules include the Financial Service
Platform ("FSP") - Front Office(TM) module which provides a relationship
management environment for tellers, member services and call center operations;
the FSP - ALPS(TM) Automated Loan Processing System, which automates the
processing, cross-selling and evaluation of consumer loan applications; the FSP
- - Collections(TM) module which manages the handling and collection of delinquent
loan accounts; the Ultra-Access(R) NT-based suite of remote banking products
which give financial institutions and their members efficient, reliable and
secure remote banking capabilities via personal computers using Internet,
Intranet or private dial-up access and self-service kiosks, and the
Ultra-Voice(TM) NT-based voice response system for member inquiries, loan
applications and transaction processing.
ULTRAFIS provides a number of optional interfaces to third-party applications,
including interfaces for mortgage loan processing, student loan processing,
asset/liability management, investment portfolio accounting, marketing analysis
systems and document management. Automated Teller Machine ("ATM") processing is
supported for off-line and online processing. The Ultra-Link(TM) product
provides an online and optional terminal driving system for ATM, debit card and
Point of Sale (POS) processing and supports a wide array of ATM transactions,
including savings and checking deposits and withdrawals, transfers between
savings and checking accounts, loan payment and balance inquiry, and statement
printing, as determined by the credit union. The Ultra-Sales(TM) product
provides sales automation and relationship management capabilities allowing
credit unions to retrieve pertinent information and complete sales cycles, and
the OnBase(R) Electronic Document Management System facilitates archival,
retrieval and workflow of documents.
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Prior to 1997, the Company sold third-party products supported by the ULTRAFIS
system, including RISC/UNIX based workstations from major suppliers such as
Hewlett Packard ("HP") and IBM and resold associated peripheral equipment such
as printers, tape drives and networking devices. In the fall of 1997, the
Company established a relationship with Ex-Cel Solutions, Inc. ("ESI") under
which the Company has transferred these hardware sales to ESI. ESI configures,
sells, distributes and provides service for the Company's customers' hardware
needs so that the Company can concentrate its efforts on the core business of
software, maintenance and services. The Company also re-licenses software
products used with the system, such as the UNIX operating system, the UniData(R)
relational database from Ardent Software, Inc. ("Ardent"), Uniplex office
automation products from Uniplex(TM) Software, Inc. and a variety of networking
software.
Pricing
The price for a complete suite of software products, including the Company's
core ULTRAFIS system, information management modules, and installation and
training services ranges from $250,000 to $2,000,000, depending primarily on the
customer size and requested modules. As of December 31, 1998, all hardware sales
have been transferred to ESI.
Pricing for information management modules, such as the FSP - Front Office, FSP
- - ALPS, FSP - Collections and Ultra-Access modules, typically range from $10,000
to $125,000.
The Company also charges a recurring software maintenance fee for software
support and periodic software updates. Currently, all of the customers subscribe
to the maintenance services, for which they pay a fee equal to a percentage of
the purchase price for the selected software. The Company also charges for
related training, implementation and professional services.
Technology
The Company's technology strategy is to employ the latest open computing
standards. This approach allows the Company and its customers to take advantage
of performance improvements and cost reductions in software, operating systems,
databases and hardware.
The core ULTRAFIS software was originally released in 1981 and was significantly
reengineered in 1990 to operate on the industry-standard open architecture UNIX
operating system, enabling it to run on a wide range of platforms, including HP
and IBM. Because UNIX provides for scalability, adaptability to growth, and is
expandable and open to a variety of hardware, software and networking products,
the Company believes that products based on the UNIX operating system provide a
competitive advantage in the development of systems for financial services
providers. The Company also plans to release its core ULTRAFIS software on the
NT platform in 1999.
The ULTRAFIS system utilizes the UniData relational database management system
and data warehouse from Ardent. The data warehouse allows for enhanced customer
information management through the use of data cubes. The database is designed
for high-volume, online transaction processing. This nested, three-dimensional
database uses the industry-standard SQL (Structured Query Language) to interface
with the leading third-party management and reporting packages. This model
allows for significant improvements in system performance and in data storage
compared to a relational system. This database allows the ULTRAFIS system to
take advantage of leading-edge technology such as multi-processor hardware,
distributed processing using TCP/IP and other standard networking protocols and
client/server technology, as well as providing a seamless interface to popular
personal computer ("PC") software products, such as the Microsoft Corporation
("Microsoft") suite of products and other advanced information tools. Under the
Company's agreement with Ardent, Ardent has granted the Company a nonexclusive
license to distribute and sublicense certain of Ardent's database products in
North America.
For its client/server products, the Company uses Microsoft(R) Windows and
Windows 2000 (NT) operating systems, which provide easy-to-use graphical user
interfaces and enable the user to take advantage of the wide variety of PC
applications that operate with these operating systems. The Company is
developing its products to take advantage
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of new products and standards produced by Microsoft such as Windows 2000 (NT),
Visual Basic and Visual Voice. FSP is an architecture developed by the Company
for delivery of its client/server information management modules. This
environment provides a consistent look-and-feel to the products, a standard for
design and navigation, and a shortened development cycle for delivery of new
products and features within the architecture.
The Company's technology approach also provides for independence in local and
wide area networking. The Company's customers use a wide variety of networking
hardware and software. The Company believes that network independence is
critical for its customers with multiple branches, ATMs and other remote banking
needs such as remote electronic banking and electronic financial services.
Research and Development
The markets for the Company's products are characterized by changing technology
and improvements in database technology, network operating systems, programming
tools, programming languages, operating systems and computer hardware.
The principal focus of the Company's development activities is the enhancement
of existing product offerings and development of new information management
applications such as data mining and customer relationship management. The
Company's success will depend in part upon the development and sale of such
products to the Company's current customers and future customers outside of the
Company's traditional credit union base, including such potential customers as
banks, investment firms, brokerages, savings and loan associations, and other
financial services providers.
Customers
The Company's current installed base includes approximately 430 credit unions
using the ULTRAFIS software either in an in-house or a service bureau
environment. The Company's credit union market strategy is to target in-house
systems to credit unions with over 10,000 members and to provide the Company's
software to smaller credit unions through VARs. The Company's installed base
currently serves approximately 5.7 million members, or 8%, of the approximately
71 million total credit union members in the United States. No customer
represented 10% or more of the Company's revenues.
Customer Service
Customer service and support are key elements of the Company's business. The
services and support products offered to its customers include product
installation and training, conversion programming services, custom programming,
consulting, disaster recovery planning and training services, and telephone
customer support.
Professional Services
The Company offers a variety of product and technical professional services as
well as application training to its customers, including on-site customer
training and continuing education either at the customer site or at the
Company's offices. For financial institutions, the installation of a new data
processing or customer information management system is a complex and
time-critical undertaking. Typically, a new system must be installed and made
fully operational with data converted from the prior system over a single
weekend and without any period of parallel operation with the system it
replaces. After selecting the Company as the solution provider, the installation
process typically requires a minimum of four months of preparation and planning
to successfully install and convert from the customer's legacy system. Once
installed, the Company offers additional professional services to assist with
product utilization, training and future applicability of additional information
management modules.
The Company offers an optional service that allows customers to continue to
operate their ULTRAFIS systems in the event of a catastrophic system failure at
their own site through the Company's Disaster Recovery Center in Carrollton,
Texas.
5
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Support
The Company offers standard, extended and emergency telephone customer support
to assist customers in resolving problems. Under the Company's standard
maintenance agreements, support is provided from 3:00 a.m. to 11:00 p.m. Pacific
Standard Time, Monday through Friday, and from 9:00 a.m. to 5:00 p.m. Pacific
Standard Time on Saturday. The Company offers 24-hour and emergency customer
support for an additional extra hourly charge.
Sales and Marketing
The Company sells its products and services in the United States primarily
through a direct sales force of sales representatives located in the Company's
main offices in Pleasanton, California, and in sales offices in Michigan, Texas
and Utah. Additionally, the sales force is supported by a technical team of
system consultants. While the sales cycle varies substantially from customer to
customer, the sale to a new customer typically extends from three to twelve
months while information management module sales cycles can be considerably
shorter.
The Company also has been successful in marketing its products through VARs. The
Company anticipates that it will further develop and rely in part upon
distribution relationships to market its products. There can be no assurance
that the Company will be successful in establishing such relationships or that
any entities with which such relationships are established will be successful in
marketing or selling the Company's products.
Competition
The market for information processing services to the credit union industry is
highly competitive and somewhat fragmented. The Company competes primarily with
independent computer service firms and internal data processing departments of
potential customers. The Company's products are generally priced at the higher
end of the market because the Company believes that its products generally
provide more functionality, versatility and higher levels of integration than
its competitors' products.
The Company believes that the principal competitive factors in its target
markets are product functionality, flexibility, ease-of-use, quality,
performance, customer service and support, company reputation, price and use of
new industry standard technologies. Although the Company believes that it
competes effectively with respect to each of these factors, there can be no
assurance that the Company can maintain its competitive position against current
and potential competitors, some of which have greater financial, marketing and
other resources than the Company.
The Company's principal competitors are different across the credit union
market, as the size and complexity of financial institutions have different
functionality or pricing requirements. The Company's principal competitors
include various entities owned by FISERV, Inc., XP Systems, Users Inc., Symitar
Systems, Inc., and EDS Credit Union Services.
Proprietary Rights and Licenses
The Company seeks to protect its software, documentation and other proprietary
information under trade secret, copyright and trademark laws, which afford only
limited protection. The Company has no patents. ULTRADATA, Ultra-Access,
ULTRAFIS, and the ULTRADATA logo are registered U.S. trademarks of the Company.
FSP - Front Office, FSP - ALPS, FSP - Collections, Ultra-Link, Ultra-Sales and
Ultra-Voice are trademarks of the Company.
There are currently no pending claims that the Company's products, trademarks or
other proprietary rights infringe upon the proprietary rights of third parties.
A successful claim against the Company or the failure of the Company to develop
or license a substitute technology could have a material adverse effect on the
Company's business, financial condition and results of operations.
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Government Regulation
The Company is not directly subject to federal or state regulations applicable
to credit unions and other financial institutions. As a provider of products to
these entities, however, the Company must take into account such regulations in
order to provide products that help its customers comply with such regulations.
The credit unions that utilize the Company's products are regulated by the
National Credit Union Association ("NCUA"), a federal government agency, and
various state regulatory authorities. The use by financial institutions of the
Company's products is subject to a number of laws and regulations promulgated by
the NCUA and the Federal Reserve Board. The implementation of the Company's
products by its customers is reviewed from time to time by government regulators
in connection with compliance audits of the customers' operations and the
Company also monitors regulatory changes on its own and implements changes to
the Company's products as appropriate. Failure to reflect the terms of such
regulations in a timely or accurate manner could subject the Company to
liabilities that could have a material adverse effect on its business, financial
condition and results of operations. Furthermore, changes to these regulations
and standards or the adoption of new regulations or standards that affect the
Company's products could affect the performance of such products and have a
material adverse effect on the Company's business, financial condition and
results of operations.
Employees
The Company had approximately 175 employees as of December 31, 1998, a decrease
of 4% over the prior year. None of the Company's employees are represented by a
labor union. The Company has experienced no work stoppages and believes that its
employee relationships are good.
Item 2. Properties.
The Company's headquarters in Pleasanton, California consists of two facilities
under lease through January 1, 2007. The Company has consolidated its
headquarters operations into the larger of the two facilities, which has
approximately 60,000 square feet of office space, and has entered into a
separate sub-leasing arrangement for its smaller facility through July 2002. The
Company believes that the larger facility will meet its growth needs for the
foreseeable future.
The Company also has an office in Carrollton, Texas which houses the corporate
and customer disaster recovery center. The facility is under lease until
December 2001.
Item 3. Legal Proceedings.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
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Item 4A. Executive Officers of Registrant
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Title Officer Since
---- --- ----- -------------
<S> <C> <C> <C>
Nigel P. Gallop............... 53 Chairman of the Board 1981
Robert J. Majteles............ 34 President and Chief Executive Officer 1996
Ronald H. Bissinger........... 48 Vice President, Chief Financial Officer and 1998
Secretary
David J. Robbins.............. 40 Vice President, Products and Services 1995
Cindy L. Cooper............... 41 Vice President, Product Development and Support 1997
James R. Berthelsen........... 45 Vice President, Sales and Marketing 1997
</TABLE>
Nigel P. Gallop - Mr. Gallop, a co-founder of the Company, has been a director
of the Company since its incorporation in May 1981 and has served as its
Chairman since October 1989. Mr. Gallop served as President of the Company from
October 1989 to October 1996, and served as Chief Executive Officer of the
Company from October 1989 to April 1997.
Robert J. Majteles - Mr. Majteles is a director of the Company, has served as
President and Chief Executive Officer since April 1997 and served as President
and Chief Operating Officer from October 1996 to April 1997. From January 1992
to June 1996, Mr. Majteles served in various executive positions at CAMAX
Systems, Inc., a computer software firm, including President and Chief Executive
Officer from June 1994 to June 1996. Mr. Majteles holds a Bachelor of Arts from
Columbia College and a Juris Doctor from Stanford University.
Ronald H. Bissinger - Mr. Bissinger has served as Vice President, Chief
Financial Officer and Secretary since March 1998. From June 1996 to July 1997,
Mr. Bissinger served as Chief Financial Officer at the Alta Group. From
September 1990 to March 1996, Mr. Bissinger served as Chief Financial Officer
and other senior financial and operating positions at MSI/Biosym,
CrystalGraphics, SCO, General Electric and Exxon. Mr. Bissinger holds a Master
of Business Adminstration from the University of Denver, a Master of Science in
Engineering from the University of California, Berkeley, and a Bachelor of
Science in Engineering from Clarkson University.
David J. Robbins - Mr. Robbins has served as Vice President, Products and
Services since November 1995. From January 1992 to November 1995, Mr. Robbins
served as Director, Product Development and Support at Automated Data
Processing, Inc. From March 1986 to January 1992, he served as branch manager of
Progressive Corporation. Mr. Robbins holds a Bachelor of Arts from Westminister
College.
Cindy L. Cooper - Ms. Cooper has served as Vice President, Product Development
since February 1997. Ms. Cooper served as the Company's Product Definition
Specialist from July 1987 to August 1992, as Manager, Product Development from
August 1992 to January 1997, and as Director, Product Development from January
1997 to February 1997.
James R. Berthelsen - Mr. Berthelsen has served as Vice President, Sales and
Marketing since November 1998, and Vice President, Marketing since October 1997.
Mr. Berthelsen served as the Company's Director, Corporate Communications from
February 1997 to October 1997 and had previously held positions in Strategic
Accounts and Sales since joining the Company in 1991. Mr. Berthelsen holds a
Bachelor of Science from the University of Nebraska.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol of "ULTD". The following table sets forth the quarterly high and low
closing prices for the Company's Common Stock since its initial public offering
effective February 16, 1996.
-------------------------------------------------------
HIGH LOW
-------------------------------------------------------
Fiscal 1996
First Quarter $10.13 $ 7.38
Second Quarter 11.38 6.25
Third Quarter 8.75 5.75
Fourth Quarter 6.00 2.75
Fiscal 1997
First Quarter 5.25 3.63
Second Quarter 4.00 2.13
Third Quarter 4.38 2.00
Fourth Quarter 5.50 2.88
Fiscal 1998
First Quarter 5.25 2.63
Second Quarter 7.50 4.50
Third Quarter 6.00 3.50
Fourth Quarter 5.63 3.75
The Company has not declared or paid any cash dividends on its Common Stock in
the past three years. The Company currently anticipates that it will retain all
future earnings for use in its business and does not anticipate paying any cash
dividends in the foreseeable future.
As of March 5, 1999, there were approximately 26 stockholders of record of the
Company's Common Stock.
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Item 6. Selected Financial Data
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenues
Software $11,063 $7,062 $9,452 $10,396 $6,431
Services 16,501 16,548 16,741 12,446 12,194
----------------------------------------------------------------
Subtotal 27,564 23,610 26,193 22,842 18,625
Hardware 3,197 5,493 14,251 8,292 7,066
----------------------------------------------------------------
Total revenues 30,761 29,103 40,444 31,134 25,691
----------------------------------------------------------------
Gross margin 15,049 12,184 14,409 15,865 12,473
Operating income (loss) 1,321 (3,830) (7,289) 574 1,028
Net income (loss) 1,219 (3,460) (6,960) 334 610
Basic net income (loss) per share $0.16 $(0.46) $(0.97) $0.06 $0.11
Diluted net income (loss) per share $0.15 $(0.46) $(0.97) $0.05 $0.11
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash and cash equivalents $2,418 $486 $3,003 $1,124 $881
Total assets 14,889 13,569 20,521 15,135 9,186
Long term liabilities 1,314 1,233 1,636 1,585 427
Stockholders' equity 7,830 6,298 9,496 1,518 1,664
Other Data
Cash dividends per share of
common stock (1) --- --- --- $0.07 ---
</TABLE>
(1) In June 1993, the Company purchased certain software technology from a
company that was wholly owned by three stockholders of the Company. The Company
paid $300,000 in 1993 and paid a final $80,000 in 1995 relating to a contingent
payment. As this technology had no historical cost basis, this transaction was
accounted for as a stockholder distribution.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes forward-looking statements which reflect the Company's
current views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those discussed below, that could cause results to differ materially
from historical results or those anticipated. In this report the words
"expects", "anticipates", "believes" and similar expressions identify
forward-looking statements, which speak only as of the date hereof.
Overview
The Company provides information management software and solutions for
relationship-oriented financial institutions. These solutions allow the
Company's customers to, among other things, engage in cross-selling,
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relationship pricing, data mining, and workflow control as well as provide
financial services such as checking, savings and investment accounts, home
banking, credit and debit cards, ATM access and consumer lending. The Company's
products today are primarily targeted at large and mid-sized credit unions that
want to operate their system in-house. For smaller credit unions, the Company
works through VARs to provide the Company's products. Combining the in-house
installations with services provided by the Company's VARs, the approximately
430 credit unions using the Company's software represent over 5.7 million
members and $30.0 billion in assets.
The Company derives its revenues primarily from software license fees,
professional service fees including training and installation, custom services,
disaster recovery and software maintenance fees. A significant portion of the
Company's revenues are derived from substantial contracts with organizations
that have long decision-making cycles, typically from three to twelve months.
Each new customer system generally consists of the Company's ULTRAFIS product
and selected information management modules and selected professional services.
In the fourth quarter of 1997, the Company established a relationship with
Ex-Cel Solutions Inc. ("ESI") to configure, sell, distribute, and provide
service for the HP and IBM hardware products and operating systems used in
conjunction with the Company's software products. Further, ESI will also build,
integrate, deliver, and support the Company's Ultra-Access suite of remote
banking products including Ultra-Access Browser Banking, self-serve kiosks,
voice response systems and firewalls. This relationship was formed to allow the
Company to focus on its core capabilities of providing software and related
services to the Company's customers.
In the second quarter of 1997, the Company entered into a Distributor Agreement
with Applied Communications, Inc. ("ACI") (formerly USSI, Inc.), a division of
Transaction Systems Architects, Inc. ("TSAI"), to develop and license the
Company's Ultra-Link online and optional terminal driving system. The Ultra-Link
system is used for ATM and debit card processing that supports a wide array of
ATM transactions, including savings and checking deposits and withdrawals,
transfers between savings and checking accounts, loan payment and balance
inquiry, and statement printing, as determined by the credit union. This
agreement grants the Company exclusive distribution rights of the Ultra-Link
system in the credit union marketplace and extends through 2004. Payments under
this agreement are due through December 2001. In addition, the Company entered
into a non-cancelable maintenance agreement with an annual expense of $204,000
in 1998 and $326,000 each year thereafter through 2004 related to the purchased
licenses. Any failure of the Company to successfully sell and implement this
product in its customer base could have a material adverse effect on the
Company's business, financial condition and results of operations.
In the third quarter of 1997, the Company transferred its direct service bureau
operations to Premier Systems, Incorporated ("PSI"), the Company's largest
service bureau VAR. The sale resulted in a gain of $558,000 in the third quarter
of 1997 and provides for an additional annual amount totaling $350,000 to be
paid to the Company in four quarterly installments commencing December 31, 1998,
contingent upon renewal of service bureau contracts transferred to PSI. As of
December 31, 1998, the Company had received $162,000 from PSI for such payments.
The Company expects that it will only provide service bureau services through
VARs in the future.
Results of Operations
Comparison of Years Ended December 31, 1998 and 1997
Revenues
The Company's revenues are comprised of software license fees, services
(including maintenance) and other revenues and hardware revenues. Total revenues
were $30.8 million in fiscal 1998, compared to $29.1 million in 1997. Revenues
in the Company's core business, excluding hardware sales, were $27.6 million in
1998 compared to $23.6 million in 1997.
Software revenues increased 57% or $4.0 million to $11.1 million in 1998,
compared to $7.1 million in 1997. The increase in software sales is primarily
attributable to an increase in add-on module sales. Four new system sales
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were made in 1997 and 1998; however, an additional four new systems were signed
in 1998 for which revenue was deferred into 1999.
The Company's services revenue in 1998 was comparable to 1997. Maintenance
service revenues are derived from quarterly, annual, and multi-year support
agreements with its customers. Maintenance revenue increased $0.7 million due to
the growth of system and module installations. Other services revenues include
training and installations, custom development, service bureau operation fees
and disaster recovery contracts. Other service revenues decreased by $0.6
million primarily due to the sale of the Company's service bureau business to
PSI in the third quarter of 1997.
Hardware revenues decreased 42% in 1998 to $3.2 million, from $5.5 million in
1997 due to the transfer of hardware sales to ESI. In the fall of 1997, the
Company began to transfer hardware sales to ESI so that the Company could
concentrate its efforts on the core business of software, maintenance and
services. Currently, the Company receives a portion of ESI's hardware revenues
as a referral fee. The Company expects that any future hardware sales made
directly by the Company will be immaterial.
Gross Margins
Gross margin as a percentage of total revenues increased to 49% in 1998 from 42%
in 1997. The primary cause of the increase was a result of a greater portion of
software sales which have a higher gross margin than hardware or services.
Software gross margin in 1998 and 1997 was 82% and 85%, respectively. Services
gross margin increased from 29% in 1997 to 34% in 1998 primarily as a result of
hardware referral fees included in 1998 revenue as well as improved staff
utilization.
Hardware gross margin decreased during 1998 to 11% compared to 25% in 1997.
Hardware margins fluctuate depending on the mix of items sold. With the
Company's alliance with ESI, there were fewer new system hardware sales,
resulting in a higher proportion of lower-end add-on hardware sales.
Operating Expenses
Product development expenses increased slightly to $4.7 million in 1998 from
$4.6 million in 1997. The increase in 1998 was due to increased third-party
development costs partially offset by a decrease in overall fixed staff
expenses. Product development expenses as a percent of total revenue were 15%
and 16% in 1998 and 1997, respectively.
Selling, general and administrative expenses decreased to $9.2 million in 1998
from $12.0 million in 1997. The decrease was attributable to continued emphasis
on general cost reductions.
Interest Income and Interest Expense
Interest income in 1998 and 1997 was $40,000 and $120,000, respectively.
Interest expense was $179,000 in 1998 of which $125,000 was due to interest
related to the advance purchase of third party licenses pursuant to the
Company's agreement with ACI.
Other Income
Other income in 1998 was $59,000 and was comprised of a taxes payable reversal
offset by losses from disposal of fixed assets. Other income in 1997 was
$352,000 and was primarily a gain from the sale of its 50% interest in a VAR
service bureau, unrelated to the Company's gain on the transfer of service
bureau contracts from its internal service bureau.
12
<PAGE>
Income Tax Expense
The Company recorded provisions for income taxes of $22,000 for 1998 none for
1997. The difference between the "expected" income tax expense and the actual
expense for 1998 is primarily attributable to net loss carryforwards. No tax
expense was recorded for 1997 due to the net loss incurred for that year.
Comparison of Years Ended December 31, 1997 and 1996
Revenues
Total revenues decreased $11.3 million to $29.1 million in 1997, from $40.4
million in 1996. Revenues in the Company's core business, excluding hardware
sales, decreased $2.6 million to $23.6 million in 1997, from $26.2 million in
1996.
Software revenues were $7.1 million in 1997, compared to $9.5 million in 1996.
This decline was associated with the high volume of sales in 1996 and the
emphasis the Company placed on its new client/server applications for which
demand outpaced the Company's ability to perform and which resulted in lower
system sales. The decline was partially offset by re-licensing fees on the
Company's software.
The Company's service revenue in 1997 was comparable to 1996 with an increase in
maintenance revenue of $2.0 million offset by a decline in other service revenue
of $2.1 million. The increase in maintenance revenue is primarily a result of
growth in new ULTRAFIS system customer installations and the volume of new
information management application modules introduced and installed in 1996 and
1997. The decline in other service revenue was primarily attributable to the
decline in new system sales and the sale of the Company's service bureau
business to PSI in the third quarter of 1997.
Hardware revenues decreased 61% in 1997 to $5.5 million, compared to $14.3
million in 1996. The hardware revenue decrease was primarily attributable to the
decrease in new systems sales compared to 1996. In addition, in the fourth
quarter of 1997, the Company began to transfer its hardware sales to ESI to
enable the Company to focus on its core business.
Gross Margins
Gross margin as a percentage of total revenues increased to 42% in 1997, from
36% in 1996. The primary cause of the increase was a result of a greater portion
of software sales which have a higher gross margin than hardware or services.
Installations and training for new system conversions, a large component of the
services and other segments, operated at a loss for 1996 due to cost overruns on
committed contracts and associated travel expenses.
Software gross margin as a percentage of software revenue increased in 1997 to
85% from 77% in 1996. Software margins fluctuate based on the mix of sales of
the Company's software and third-party software, which is sold at lower margins.
The increase in margins in 1997 was due to a reduction in software sales that
include a third-party software component.
Hardware gross margin as a percentage of hardware revenues decreased slightly
during 1997 to 25% compared to 28% in 1996.
Operating Expenses
Product development expenses decreased to $4.6 million in 1997 from $6.2 million
in 1996. Product development expenses as a percent of total revenue increased to
16% in 1997 compared to 15% in 1996. The decrease in total dollar spending in
1997 compared to 1996 was primarily the result of a reallocation of resources to
focus the Company on client-server product lines, product standardization and
customer support, the reduction of the number of consultants used in product
development, and a reduction in other product development overhead expenses.
13
<PAGE>
Selling, general and administrative expenses decreased to $12.0 million in 1997
from $15.5 million in 1996. The decrease in 1997 from 1996 was primarily
attributable to significant cost reductions in overhead expenses in 1997,
including consolidating its headquarters from two facilities to one in the first
quarter of 1997 as well as other general cost reductions. Additionally, the
Company made significant reductions in staffing levels to support lower new
account sales volumes in 1997.
Interest Income and Interest Expense
Interest income in 1997 and 1996 was $120,000 and $365,000, respectively.
Interest expense was $102,000 in 1997 compared to interest expense of $36,000 in
1996. Higher earnings in 1996 resulted from the investment of the funds
generated by the Company's initial public offering.
Other Income
Other income in 1997 was $352,000 and was primarily a gain from the sale of the
Company's direct service bureau operations.
Income Tax Expense
The Company recorded no provisions for income taxes in 1997 or 1996 due to
losses incurred during those years.
Certain Factors Affecting Future Operating Results
The Company's future operating results will depend upon conditions in its market
that may affect demand for its products and its ability to enhance its existing
products and introduce new products on a timely basis.
Significant Fluctuations in Operating Results. The Company's quarterly and
annual revenues and operating results have varied significantly in the past, and
may do so in the future. Operating results may fluctuate due to factors such as
the demand for the Company's products, the introduction and acceptance of new
products and product enhancements by the Company or its competitors, changes in
the levels of operating expenses, customer order deferrals in anticipation of
new products, competitive conditions in the credit union and financial services
markets and economic conditions generally or in various industry segments. In
addition, a significant portion of the Company's business has been derived from
substantial contracts with large organizations with long decision-making cycles,
and the timing of such orders has caused material fluctuations in the Company's
operating results. The Company's expense levels are based in part on its
expectations regarding future revenues and in the short term are fixed to a
large extent. Therefore, the Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. As a result,
if anticipated revenues do not occur or are delayed, the Company's operating
results would be disproportionately affected. The Company expects quarterly and
annual fluctuations to continue for the foreseeable future. Accordingly, the
Company believes that period-to-period comparisons of its financial results
should not be relied upon as an indication of future performance.
Installation. Installation of the Company's ULTRAFIS system is a complex process
that must typically be done without any disruption of the customer's service.
Failure by the Company to successfully install an ULTRAFIS system could result
in significant loss of revenue in a particular quarter and fluctuation in the
Company's results of operations. Although the Company schedules the
installations of its products several months in advance, its ability to achieve
its revenue plans, both in the near term and in the long term, depends on the
Company's continued ability to sign new customer contracts and to complete such
contracts on schedule. Failure to close new customer contracts as a result of
lost sales or deferrals of customer decisions could have a material adverse
impact on the future operating results. There can be no assurance that sales or
installations will continue to occur at historical rates or in accordance with
the Company's expectations. Because the Company's operating expenses are based
on anticipated revenue levels and a high percentage of the Company's expenses
are relatively fixed, a small variation in the timing of the recognition of
specific revenues could cause significant variations in operating results from
quarter to quarter.
14
<PAGE>
Technological Change and Obsolescence; Risks Associated with Development and
Introduction of New Products. The Company has previously experienced delays in
the development and introduction of new products and product enhancements,
including certain of its client/server products. The length of these delays has
varied depending upon the size and scope of the project and the nature of the
problems encountered. In addition, software products as complex as those offered
by the Company often contain undetected errors or failures when first introduced
or as new versions are released. There can be no assurance that, despite testing
by the Company and by current and potential customers, errors will not be found
in new products after commencement of commercial shipments. The occurrence of
such errors could result in loss of, or delay in, market acceptance of the
Company's products, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Management of Growth. The Company must manage growth and change effectively as
failure to do so could materially and adversely affect its business and
operating results. In connection with the audit of the Company's 1996 financial
statements, the Company's independent accountants identified certain "reportable
conditions" relating to material weaknesses in the Company's internal controls.
With respect to the Company's process for new product releases, the Company's
independent accountants noted material weaknesses in its field testing
procedures and customer communication, resulting in installation delays and
aging of receivables and unbilled revenues and the shipment of products in
advance of the Company's capacity to install on a timely basis resulting in a
significant increase in unbilled revenues. Material weaknesses were also
identified in the Company's procedures for timely analyzing customer balances,
estimating the overall cost of training and installation obligations and the
cost to complete at any particular time. These material weaknesses were
exacerbated by inefficiencies in the Company's accounting system. As a result of
these material weaknesses in the Company's accounting system, the auditors
expressed significant concerns about the Company's ability to report timely,
accurate financial information in the future. The Company believes it has
addressed all of these issues and corrected, in all material respects,
weaknesses noted.
Dependence on ULTRAFIS. A substantial portion of the Company's revenues
historically have been related to the Company's ULTRAFIS system. The Company's
success will depend in large part on its ability to sell, install, maintain and
enhance the ULTRAFIS system and information management modules and to develop,
on a timely and cost-effective basis utilizing new technologies, information
management modules that meet evolving customer needs.
Dependence on Ex-Cel Solutions. In the fourth quarter of 1997, the Company
established a relationship ESI to configure, sell, distribute, and provide
service for the HP and IBM hardware products and operating systems used in
conjunction with the Company's software products. Additionally, ESI will also
build, integrate, deliver, and support the Company's Ultra-Access suite of
remote banking products including Ultra-Access Browser Banking, self-serve
kiosks, voice response systems and firewalls. As a result of this strategic
alliance, any deterioration of the Company's relationship with ESI could have a
material adverse effect of the Company's business and results of operations.
Possible Adverse Impact of Recent Accounting Pronouncements. Statement of
Position (SOP) 97-2 "Software Revenue Recognition," which was issued October 27,
1997, supersedes SOP 91-1 and became effective for the Company in 1998.
Competition. The market for the Company's products is highly competitive. Any
failure by the Company to anticipate or to respond adequately to new and
changing market conditions, enhance the ULTRAFIS system and client server
products, develop application modules, compete with new product offerings by
third parties, complete new standalone product offerings, respond to emerging
industry standards, adapt to changing technologies, maintain sales of the
Company's products, or continue to sign and complete new customer contracts
would have a material adverse effect on the Company's results of operations.
Year 2000 Compliance. Many software computer programs in the industry rely on an
internal date format using two-digit data programs to perform computation and
decision-making functions that may cause computer systems generally to
malfunction with respect to dates beginning with the Year 2000. The Company's
products use an internal date format that has never relied on two-digit data
programs. The Company believes that date entry will not
15
<PAGE>
be a material issue either with the Company's information management software
products or the Company's own information management applications.
The costs for Year 2000 compliance have been immaterial. The Company estimates
that costs the Company has incurred through December 31, 1998 have been
substantially less than $100,000. Such costs have primarily resulted from the
Company's investment of staff time understanding Year 2000 compliance issues as
well as understanding obligations of the Company's customers to undergo
extensive Year 2000 compliance testing of their critical systems.
The Company has conducted its own Year 2000 compliance testing of its currently
marketed products, including third-party products, and has found no significant
Year 2000 related issues.
In addition, on April 15, 1998, the Information Technology Association of
America ("ITAA") announced that the Company had achieved Year 2000
certification. ITAA is a trade association dealing with Year 2000 software
compliance in the information technology industry. ITAA *2000 is the ITAA's
century date change certification program. The ITAA*2000 Certification Program
provides information technology companies with the opportunity to have a
neutral, objective third-party evaluation of their Year 2000 processes and
methods.
The Company has not evaluated its customers' Year 2000 compliance status. The
Company's customers are, however, required by the National Credit Union
Association ("NCUA") to test their critical systems for Year 2000 compliance
prior to December 31, 1998. Due to this extensive testing process, the Company's
products have been undergoing Year 2000 compliance testing since June 1998 at
many customer sites. To date, no significant issues have been reported.
The Company has considered obtaining Year 2000 compliance insurance as well as
developing various contingency plans. Given that both internal and customer
testing has indicated the Company's current products are Year 2000 compliant,
the Company has concluded that neither Year 2000 compliance insurance nor
contingency plans are necessary. For these same reasons, the Company has also
concluded that any future Year 2000 compliance costs, if any, will not be
material.
The Company has assessed all of its major internal systems, which include the
Company's finance, sales and payroll systems for Year 2000 compliance. The
Company has received written confirmation from its vendor that its finance
system is Year 2000 compliant; the sales and payroll systems will be upgraded to
a Year 2000 compliant system during the second quarter of 1999. The Company
plans to continue to evaluate its key suppliers but expects that any Year 2000
issues of key supplier and other vendors will not have a material impact on its
business, financial condition and results of operations.
Although the Company believes that its Year 2000 plans will be successful, there
can be no assurance that there will be no unforeseen problems which could have a
material adverse effect on the Company.
Liquidity and Capital Resources
The Company's management believes current cash and cash equivalents and expected
cash generated from operations will satisfy its expected working capital and
capital expenditure requirements for the foreseeable future.
The Company has a factoring agreement and a capital equipment facility. The
factoring agreement provides for a 0.5% administrative fee for each receivable
purchased and a 1.75% monthly finance charge for as long as each purchased
receivable remains outstanding. The factoring agreement renews, unless
terminated by the Company or the bank, in April 1999. As of December 31, 1998,
the Company has not utilized the factoring agreement. As of December 31, 1998,
the outstanding balance on the capital equipment facility was $321,000. The
capital equipment facility bears interest at prime plus 0.25%. No further draws
are available and the Company established cash collateral for the capital
equipment facility balance. Borrowings under the factoring agreement and capital
equipment facility are secured by all tangible and intangible assets of the
Company. In January 1999, the Company
16
<PAGE>
paid off the balance of the capital equipment facility in full and retired the
factoring agreement and capital equipment facility.
The Company's operating activities provided $1.8 million in 1998, and used $0.4
and $11.9 million in 1997 and 1996, respectively. The cash provided by operating
activities during 1998 was primarily the result of the net income of $1.2
million adjusted for depreciation of $1.5 million, and decreases in accounts
payable and deferred revenue of $0.7 and $0.8 million, respectively, offset by
decreases in inventories and other assets. The cash used in 1997 by operating
activities was primarily a result of the net loss as adjusted by decreases in
accounts payable, deferred revenue and accrued expenses offset by decreases in
accounts receivable and income tax receivable. The net cash used in 1996 by
operating activities was primarily a result of the net loss as adjusted by
increases in accounts payable offset by depreciation.
Net cash used by investing activities was $0.1, $0.8 and $1.7 million in 1998,
1997 and 1996, respectively. Cash used to purchase capital equipment of $0.4
million in 1998 was primarily for computer equipment partially offset by the
sale of short term investments. Cash used to purchase capital equipment in 1997
primarily consisted of furniture and fixtures for the Company's new headquarters
facility and purchased software of $3.0 million offset by the sale of short term
investments of $1.1 million. Cash used for investing activities in 1996
primarily consisted of capital expenditures of $1.7 million and purchases of
short term investments of $4.3 million offset by sales of short term investments
$2.9 million and the repayment of stockholder notes receivable of $1.5 million.
Net cash provided by financing activities for 1998, 1997 and 1996 was $0.2, $0.1
and $14.1 million, respectively. Cash provided by financing activities is due to
the sale of common stock with the proceeds from the Company's initial public
offering being the primary source of cash in 1996.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company has fixed rate long-term debt of approximately $0.6 million as of
December 31, 1998 and a hypothetical 10% decrease in interest rates would not
have a material impact on the fair market value of this debt. The Company does
not hedge any interest rate exposures.
Item 8. Financial Statements and Supplementary Data.
The information required by Item 8 is incorporated by reference herein from Part
IV, Item 14(a)(1) and (2).
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
17
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information about directors that is required by this Item is incorporated by
reference to the Company's Proxy Statement for its May 1999 Annual Meeting of
Stockholders. Information about executive officers that is required by this Item
can be found in Item 4A on page 8.
Item 11. Executive Compensation
This information is incorporated by reference to the Company's Proxy Statement
for its May 1999 Annual Meeting.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information is incorporated by reference to the Company's Proxy Statement
for its May 1999 Annual Meeting.
Item 13. Certain Relationships and Related Transactions
This information is incorporated by reference to the Company's Proxy Statement
for its May 1999 Annual Meeting.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
The following financial statements and schedules are filed as part of this
report.
(a)(1) Financial Statements.
The following financial statements of ULTRADATA Corporation are filed as part of
this Report:
Index to Financial Statements
Page
----
Independent Auditors' Report - Deloitte & Touche LLP F-2
Independent Auditor's Report - KPMG LLP F-3
Balance Sheets as of December 31, 1998 and 1997 F-4
Statements of Operations for the years ended December 31, 1998,
1997 and 1996 F-5
Statements of Stockholders' Equity for the years ended December 31,
1998, 1997 and 1996 F-6
Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996 F-7
Notes to Financial Statements F-8
(a)(2) Financial Statement Schedule.
The following financial statement schedule of ULTRADATA Corporation is filed as
part of this Report and should be read in conjunction with the financial
statements of ULTRADATA Corporation.
18
<PAGE>
(a)(3) and (c) Exhibits.
The following exhibits are filed herewith or incorporated by reference.
Exhibit
Number Exhibit Title
- ------ -------------
2.01 Form of Agreement and Plan of Merger by and between the Company
and ULTRADATA Corporation, a California corporation.(1)
3.01 Certificate of Incorporation.(1)
3.02 Bylaws.(1)
4.01 Form of Specimen Certificate for the Company's Common Stock.(1)
10.01 1994 Equity Incentive Plan and related documents.(1)
10.02 1995 Directors Stock Option Plan and related documents.(1)
10.03 1995 Employee Stock Purchase Plan and related documents.(1)
10.04 Form of Indemnity Agreement entered into by the Company with each
of its directors and executive officers. (1)
10.05 Value Added Reseller Agreement dated as of September 3, 1992
between the Company and UniData, Inc. and related documents.(1)*
10.06 Form of International Exclusive Distributor Agreement dated as of
July 31, 1995 between the Company and ULTRADATA Australia.(1)
10.07 Memorandum of Assignment and Termination of Agreement among the
Company and its founders dated as of January 1, 1993.(1)
10.08 Standard industrial/commercial single-tenant lease dated as of
June 22, 1996 between the Company and UNUM Life Insurance Company
of America and related documents.[prior facility](2)
10.09 Standard industrial/commercial single-tenant lease dated as of
June 22, 1996 between the Company and UNUM Life Insurance Company
of America and related documents.[current facility](2)
10.10 Corporate Loan Agreement (Unsecured) between the Company and
Silicon Valley Bank dated as of September 23, 1996.(3)
10.11 Corporate Resolution To Borrow between the Company and Silicon
Valley Bank dated as of September 23, 1996.(3)
10.12 Libor Supplement To Agreement between the Company and Silicon
Valley Bank dated as of September 23, 1996.(3)
10.13 Loan Agreements between the Company and Silicon Valley Bank dated
as of September 28, 1996.(3)
10.14 Employment Agreement dated as of October 17, 1996 between the
Company and Robert Majteles.(4)
10.15 Nonqualified Stock Option Agreement between the Company and Robert
Majteles and related documents.(4)
10.16 Distributor Agreement dated June 30, 1997 between the Company and
USSI, Inc. and related documents.(5)*
10.17 Employment Agreement dated November 6, 1998 between the Company
and Cindy L. Cooper and related documents.(8)
10.18 Employment Agreement dated November 6, 1998 between the Company
and David J. Robbins and related documents.(8)
10.19 Employment Agreement dated November 6, 1998 between the Company
and James R. Berthelsen and related documents.(8)
10.20 Employment Agreement dated November 6, 1998 between the Company
and Ronald H. Bissinger and related documents.(8)
10.21 Severance Agreement dated April 30, 1997 between the Company and
Nigel P. Gallop and related documents.(5)
10.22 Sublease and Consent to Sublease dated June 22, 1997 between the
Company and 24 Hour Fitness and related documents.(5)
19
<PAGE>
10.23 Purchase Agreement dated September 30, 1997 between Company and
Premier Systems, Incorporated, and schedules thereto.(6)*
10.24 Letter of Understanding dated February 26, 1998 between the
Company and Ex-Cel Solutions, Inc.(7)*
21.01 Subsidiaries of the Company.(8)
23.01 Consent of Deloitte & Touche LLP. (8)
23.02 Consent of KPMG LLP.(8)
24.01 Power of Attorney (see page 20 of this Form 10-K).
27.01 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and is not
filed.
(1) Incorporated by reference to the Company's Form S-1 Registration Statement
declared effective February 14, 1996 (File No. 33-80807).
(2) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended June 30, 1996.
(3) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended September 30, 1996.
(4) Incorporated by reference to the Company's Form 10-K for the fiscal year
ended December 31, 1996.
(5) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended June 30, 1997.
(6) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended September 30, 1997.
(7) Incorporated by reference to the Company's Form 10-K for the fiscal year
ended December 31, 1997.
(8) Filed herewith.
* Confidential treatment was received with respect to certain portions of
these exhibits. Such portions have been filed separately with the
Securities and Exchange Commission.
(b) There have been no reports filed on Form 8-K during the quarter ended
December 31, 1998.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, this 31st day of March,
1999.
ULTRADATA Corporation
/s/ Robert J. Majteles
By: Robert J. Majteles
------------------------------------------------
President, Chief Executive Officer, and Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert J.
Majteles and Ronald H. Bissinger, jointly and severally, his true and lawful
attorneys-in-fact, each with the power of substitution, for him in any and all
capacities, to sign amendments to this Report on Form 10-K, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and conforming all
that said attorneys-in-fact, or his or her substitute or substitutes, may do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
Principal Executive Officer:
/s/ Robert J. Majteles President, Chief Executive March 31, 1999
- ------------------------------- Officer and Director
Robert J. Majteles
Principal Financial and
Principal Accounting Officer:
/s/ Ronald H. Bissinger Chief Financial Officer March 31, 1999
- ------------------------------- and Secretary
Ronald H. Bissinger
Additional Directors:
/s/ Nigel P. Gallop Director March 31, 1999
- -------------------------------
Nigel P. Gallop
/s/ John F. Carlson Director March 31, 1999
- -------------------------------
John F. Carlson
/s/ Lawrence M. Howell Director March 31, 1999
- -------------------------------
Lawrence M. Howell
/s/ M. M. Stuckey Director March 31, 1999
- -------------------------------
M. M. Stuckey
21
<PAGE>
ULTRADATA Corporation
Index to Financial Statements and Financial Statement Schedule
Page
----
Independent Auditors' Report - Deloitte & Touche LLP F-2
Independent Auditors' Report - KPMG LLP F-3
Balance Sheets as of December 31, 1998 and 1997 F-4
Statements of Operations for the years ended December 31, 1998,
1997 and 1996 F-5
Statements of Stockholders' Equity for the years ended December 31,
1998, 1997 and 1996 F-6
Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996 F-7
Notes to Financial Statements F-8
Schedule II - Valuation and Qualifying Accounts for each of
the three years ended December 31, 1998, 1997 and 1996 F-18
F-1
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of
ULTRADATA Corporation:
We have audited the accompanying balance sheet of ULTRADATA Corporation
("Company") as of December 31, 1998, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended. Our audit also
included the financial statement schedule related to the year ended December 31,
1998 listed in the index at Item 14(a)(2). These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule related to the year ended December 31, 1998,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
February 5, 1999
F-2
<PAGE>
Independent Auditors' Report
Board of Directors
ULTRADATA Corporation:
We have audited the accompanying balance sheet of ULTRADATA Corporation as of
December 31, 1997, and the related statements of operations, stockholders'
equity and cash flows for each of the years in the two year period ended
December 31, 1997. In connection with our audits of the financial statements, we
have also audited the accompanying financial statement schedule for the years
ended December 31, 1997 and 1996. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ULTRADATA Corporation as of
December 31, 1997, and the results of its operations and its cash flows for each
of the years in the two year period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Mountain View, California
February 12, 1998
F-3
<PAGE>
ULTRADATA CORPORATION
Balance Sheets
(In thousands, except share data and par value amounts)
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,418 $ 486
Short term investments -- 303
Restricted cash 321 536
Trade accounts receivable, net 6,523 6,387
Inventories, including third-party product licenses 1,932 815
Prepaid expenses and other current assets 383 456
Income tax receivable -- 53
-------- --------
Total current assets 11,577 9,036
Property and equipment, net 3,312 4,533
-------- --------
Total assets $ 14,889 $ 13,569
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of capital lease and debt obligations $ 481 $ 663
Current portion, third-party product licenses 594 --
Accounts payable 1,545 2,284
Accrued expenses 1,646 1,239
Deferred revenue and customer advances 1,479 1,852
-------- --------
Total current liabilities 5,745 6,038
Deferred revenue and customer advances 682 1,113
Capital lease and debt obligations 7 120
Long-term portion, third-party product licenses 625 --
-------- --------
Total liabilities 7,059 7,271
-------- --------
Commitments and contingencies (Notes 4 and 8)
Stockholders' equity:
Preferred stock; par value $.001; 2,000,000 shares authorized; none
outstanding -- --
Common stock; par value $.001; 23,000,000 shares authorized; 7,725,674
and 7,607,133 shares outstanding in 1998 and 1997, respectively 8 8
Additional paid in capital 15,515 15,202
Accumulated deficit (7,693) (8,912)
-------- --------
Total stockholders' equity 7,830 6,298
-------- --------
Total liabilities and stockholders' equity $ 14,889 $ 13,569
======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ULTRADATA CORPORATION
Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue
Software $ 11,063 $ 7,062 $ 9,452
Services 16,501 16,548 16,741
-------- -------- --------
Subtotal 27,564 23,610 26,193
Hardware 3,197 5,493 14,251
-------- -------- --------
Total revenue 30,761 29,103 40,444
-------- -------- --------
Cost of goods sold
Software 1,979 1,034 2,202
Services 10,889 11,770 13,502
-------- -------- --------
Subtotal 12,868 12,804 15,704
Hardware 2,844 4,115 10,331
-------- -------- --------
Total cost of goods sold 15,712 16,919 26,035
-------- -------- --------
Gross margin 15,049 12,184 14,409
-------- -------- --------
Product development 4,689 4,608 6,180
Selling, general and administrative 9,201 11,964 15,518
Gain on transfer of service bureau contracts (162) (558) --
-------- -------- --------
Total operating expenses 13,728 16,014 21,698
-------- -------- --------
Operating income (loss) 1,321 (3,830) (7,289)
Interest income 40 120 365
Interest expense (179) (102) (36)
Other income 59 352 --
-------- -------- --------
Income (loss) before income taxes 1,241 (3,460) (6,960)
Income tax expense 22 -- --
-------- -------- --------
Net income (loss) $ 1,219 $ (3,460) $ (6,960)
======== ======== ========
Net income (loss) per share information:
Basic net income (loss) per share $ 0.16 $ (0.46) $ (0.97)
Diluted net income (loss) per share 0.15 (0.46) (0.97)
Shares used to compute basic net income
(loss) per share 7,687 7,585 7,195
Shares used to compute dilutive net income
(loss) per share 7,924 7,585 7,195
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ULTRADATA CORPORATION
Statements of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Common Stock
------------ Retained
Additional Earnings Total
Shares Paid-In (Accumulated Stockholders'
Outstanding Amount Capital Deficit) Equity
----------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balances as of January 1, 1996 5,742,000 $ 6 $ 4 $ 1,508 $ 1,518
Net proceeds from initial public offering 1,650,000 1 14,241 -- 14,242
Net proceeds from issuance of common
stock 133,864 -- 696 -- 696
Net loss -- -- -- (6,960) (6,960)
--------- --------- --------- --------- ---------
Balances as of December 31, 1996 7,525,864 7 14,941 (5,452) 9,496
Net proceeds from issuance of common
stock 81,269 1 261 -- 262
Net loss -- -- -- (3,460) (3,460)
--------- --------- --------- --------- ---------
Balances as of December 31, 1997 7,607,133 8 15,202 (8,912) 6,298
Net proceeds from issuance of common
stock 118,541 -- 313 -- 313
Net income -- -- -- 1,219 1,219
--------- --------- --------- --------- ---------
Balances as of December 31, 1998 7,725,674 $ 8 $ 15,515 $ (7,693) $ 7,830
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ULTRADATA CORPORATION
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,219 $ (3,460) $ (6,960)
Adjustments to reconcile net income (loss) to net cash provided
by (used for) operating activities:
Depreciation and amortization 1,528 1,436 864
Deferred income taxes -- -- 907
Gain on sale of joint venture -- (238) --
Equity in earnings of unconsolidated subsidiary -- (16) (62)
Loss on disposition of property and equipment 67 -- 250
Changes in operating assets and liabilities:
Trade accounts receivable, net (136) 4,069 (3,962)
Inventories 365 358 78
Prepaid expenses and other assets 73 579 (253)
Income taxes receivable 53 1,023 (958)
Accounts payable (739) (1,375) (1,560)
Accrued expenses 158 (887) 166
Deferred revenue and customer advances (804) (1,856) (458)
-------- -------- --------
Net cash provided by (used for) operating activities 1,784 (367) (11,948)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (353) (2,997) (1,706)
Proceeds from disposition of service bureau assets -- 192 --
Proceeds from disposition of other assets -- 368 --
Sale of joint venture -- 500 --
Purchases of short-term investments -- -- (4,276)
Sale of short-term investments 303 1,117 2,856
Repayment of stockholder notes receivable -- -- 1,453
-------- -------- --------
Net cash used for investing activities (50) (820) (1,673)
-------- -------- --------
Cash flows from financing activities:
Bank borrowings and long term obligations, net -- 474 (1,000)
Proceeds from debt -- 250 388
Decrease (increase) in restricted cash 215 (536) --
Repayment of debt (330) (360) (246)
Net proceeds from initial public offering -- -- 14,242
Net proceeds from issuance of common stock 313 262 696
-------- -------- --------
Net cash provided by financing activities 198 90 14,080
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,932 (1,097) 459
Cash and cash equivalents at beginning of year 486 1,583 1,124
-------- -------- --------
Cash and cash equivalents at end of year $ 2,418 $ 486 $ 1,583
======== ======== ========
Non cash operating, investing and financing activities:
Property and equipment acquired under capital leases $ 21 $ -- $ --
======== ======== ========
Remaining obligation on third party product licenses $ 1,482 $ -- $ --
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for taxes $ 22 $ 1 $ 87
Cash paid for interest $ 179 $ 102 $ 36
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
Note 1 Summary of Significant Accounting Policies
The Company
ULTRADATA Corporation (the "Company") provides information management software
and solutions for relationship-oriented financial institutions. These solutions
allow the Company's customers to provide, among other things, financial services
such as checking, savings and investment accounts, home banking, credit and
debit cards, ATM access and consumer lending. The Company's products are
primarily targeted at large and mid-sized credit unions for use as an in-house
installation and to value-added resellers ("VARs") for distribution to
small-sized credit unions that operate in service bureau environments.
Revenue Recognition
The Company recognizes revenues from licenses of computer software provided that
a noncancelable license agreement has been signed, the software and related
documentation have been shipped, there are no material uncertainties regarding
customer acceptance, and collection of the resulting receivable is deemed
probable. Maintenance revenues are deferred and recognized over the related
contract period, generally three months to five years. Services and other
revenues generated from professional consulting and training services and
software customization services are recognized as the services are performed.
Hardware revenues are recognized upon shipment.
Software cost of revenues includes direct costs of software purchased from third
parties and royalties. Services and other cost of revenues include maintenance,
the direct and indirect costs of providing training and installation, and
consulting services relating to customer contracts. Hardware cost of revenues
includes the costs of the hardware and freight.
Statement of Position (SOP) 97-2 "Software Revenue Recognition," which was
issued October 27, 1997, supersedes SOP 91-1 and became effective for the
Company in 1998.
Concentration of Credit Risk and Fair Value of Financial Instruments
Financial instruments that potentially expose the Company to a concentration of
credit risk principally consist of cash and cash equivalents, restricted cash,
trade accounts receivable and short term investments. The carrying value of the
Company's financial instruments approximates fair market value.
The Company's current customers are primarily comprised of credit unions
throughout the United States. Although the Company is directly affected by the
financial cycles of the credit union industry, management does not believe that
significant credit risks existed as of December 31, 1998. The Company maintains
a reserve for potential bad debts aggregating $521,000 and $1,094,000 as of
December 31, 1998 and 1997, respectively.
No customer accounted for more than 10% of the Company's total revenues in 1998,
1997 or 1996. No customer accounted for more than 10% of the Company's accounts
receivables in 1998. One customer accounted for 13% of total trade accounts
receivable at December 31, 1997.
Financial Statement Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Such
estimates include allowances for potentially uncollectible accounts receivable,
sales returns and a valuation allowance for deferred tax assets. Actual results
could differ from those estimates.
F-8
<PAGE>
Cash and Cash Equivalents
Cash equivalents consist of short-term financial instruments with original
maturities of three months or less that are carried at cost, which approximates
market.
Short-Term Investments
Short-term investments as of December 31, 1997 consisted of municipal
obligations with amortized cost approximating fair market value.
Inventories
Inventories consist of hardware and software purchased from third parties
pending shipment to customers recorded at the lower of cost or market, on a
first in, first out basis.
Software Development Costs
Capitalization of computer software costs, when material, begins upon the
establishment of technological feasibility. Such costs are amortized over
periods not exceeding three years. To date, software development costs incurred
subsequent to the establishment of technological feasibility have not been
material.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the shorter of the estimated useful life (three to
five years for computer equipment and software and five to ten years for
furniture and fixtures) or the lease term.
Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are established to recognize the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. The measurement of deferred tax assets is reduced, if
necessary, by a valuation allowance for any tax benefits of which future
realization is uncertain.
Net Income (Loss) Per Share
Basic income (loss) per share excludes dilution and is computed by dividing net
income (loss) by the weighted-average number of common shares outstanding, less
shares subject to repurchase by the Company, for the period. Diluted income
(loss) per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock. Common share equivalents are excluded from the computation in loss
periods as their effect would be antidilutive.
Stock-Based Compensation
The Company accounts for its stock-based compensation plans in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations.
F-9
<PAGE>
Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of
The Company evaluates its long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to the future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
carrying amount or fair value less costs to sell.
Reclassifications
Certain amounts in the accompanying 1997 and 1996 financial statements have been
reclassified to conform with the 1998 presentation.
Recently Issued Accounting Standards
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," which requires an enterprise
to report, by major components and as a single total, the change in net assets
during the period from nonowner sources. Adoption of this standard did not have
an impact on the Company's financial position, results of operations or cash
flows. During 1998, 1997 and 1996 the Company's sole source of comprehensive
income is its net income (loss).
The Financial Accounting Standards Board issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
annual and interim reporting standards for an enterprise's business segments and
related disclosures about its products, services, geographic areas and major
customers. The Company has determined that it operates in three segments:
software, services and hardware. Management reviews the operating results of
these segments only at the gross margin level and assets are not allocated by
operating segment.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133 will be effective for the Company's
year ending December 31, 2000. Management believes that this statement will not
have a significant impact on the Company's financial position, results of
operations or cash flows.
Note 2 Accounts Receivable
Accounts receivable consists of (in thousands):
December 31,
-------------------------
1998 1997
------- -------
Trade accounts receivable $ 3,998 $ 4,520
Unbilled revenues 3,046 2,961
------- -------
Accounts receivable, gross 7,044 7,481
Allowance for bad debts (521) (1,094)
------- -------
Accounts receivable, net $ 6,523 $ 6,387
======= =======
F-10
<PAGE>
Note 3 Property and Equipment
Property and equipment consists of (in thousands):
December 31,
------------------------
1998 1997
------- -------
Computer equipment $ 4,073 $ 3,958
Furniture and fixtures 2,841 2,687
Software 1,432 1,424
Property and equipment, gross 8,346 8,069
Accumulated depreciation and amortization (5,034) (3,536)
------- -------
Property and equipment, net $ 3,312 $ 4,533
======= =======
Note 4 Accrued Expenses
Accrued expenses consists of (in thousands):
December 31,
--------------------
1998 1997
------ ------
Accrued royalties and loss contract accrual $ 314 $ 305
Accrued vacation 613 598
Other 719 336
------ ------
Total accrued expenses $1,646 $1,239
====== ======
Note 5 Bank Borrowings and Debt
Bank Borrowings
In 1997 the Company entered into a factoring agreement which provides for
borrowing by the Company of up to $1.5 million, to be effected by the bank's
purchase of eligible accounts receivable and payment to the Company of an amount
equal to 80% of the purchased accounts receivable. Purchases of receivables and
corresponding advances to the Company are at the discretion of the bank. There
is a 0.5% administrative fee for each receivable purchased and a 1.75% monthly
finance charge for as long as each purchased receivable remains outstanding. The
agreement also provides that the borrowings under the factoring agreement are
secured by all tangible and intangible assets of the Company. To date, no
amounts have been borrowed under the factoring agreement. In addition, as of
December 31, 1998 and 1997, the outstanding balance on a capital equipment
facility was $321,000 and $539,000, respectively. The capital equipment facility
bears interest at a rate equal to 0.25% above the prime rate and will be due in
June of 2000. This facility was secured by cash collateral, and was retired in
January 1999.
F-11
<PAGE>
Other Debt
In the second quarter of 1997, the Company entered into an agreement to
distribute certain products developed by a third party. As a part of this
agreement, the Company purchased certain products with payments due through 2001
with interest imputed at 12.5%. Future principal payments under this agreement
as of December 31, 1998 are as follows:
Year Ending Principal
December 31, Payments
------------ --------
(in thousands)
1999 $ 741
2000 323
2001 302
------
Total Payments $1,366
======
In addition, the Company entered into a non-cancelable maintenance agreement
related to the purchased licenses with an annual expense of $204,000 in 1998 and
$326,000 each year thereafter through 2004.
Interest expense incurred during the years ended December 31, 1998, 1997, and
1996 was $179,000, $102,000 and $36,000, respectively.
Note 6 Income Taxes
The components of income tax expense (benefit) for the years ended December 31,
1998, 1997, and 1996 consisted of the following (in thousands):
Current Deferred Total
------- -------- -----
1998:
Federal $ 15 $ -- $ 15
State 7 -- 7
----- ----- -----
Total income tax expense $ 22 $ -- $ 22
===== ===== =====
1997:
Federal $ (25) $ -- $ (25)
State 25 -- 25
----- ----- -----
Total income tax expense $ -- $ -- $ --
===== ===== =====
1996:
Federal $(932) $ 621 $(311)
State
25 286 311
----- ----- -----
Total income tax expense $(907) $ 907 $ --
===== ===== =====
F-12
<PAGE>
The difference between the "expected" income tax expense (benefit) computed at
the 35% statutory federal income tax rate and the Company's actual income tax
expense for the years ended December 31, 1998, 1997 and 1996 was as follows (in
thousands):
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $ 434 $(1,176) $(2,366)
State income taxes, before valuation allowance adjustment,
net of federal income tax effect 72 25 25
Change in the beginning of the year valuation allowance
on deferred tax assets (672) -- 907
Current year losses and temporary differences for
which no benefit was recognized 185 1,134 1,329
Nondeductible expenses 3 39 37
Other, net -- (22) 68
------- ------- -------
Actual income tax expense $ 22 $ 0 $ 0
======= ======= =======
</TABLE>
The tax effects of significant temporary differences that comprise deferred tax
assets are as follows (in thousands):
December 31,
1998 1997
------- -------
Deferred tax assets:
Accounts receivable reserves $ 223 $ 628
Vacation accrual 208 244
Deferred revenue 915 787
Net operating loss carryforwards 1,199 1,867
Tax credit carryforwards 922 894
Other 242 12
------- -------
Gross deferred tax assets 3,709 4,432
Less valuation allowance (3,609) (4,281)
------- -------
Deferred tax assets, net of valuation
allowance 100 151
------- -------
Deferred tax liabilities - accumulated (100) (151)
depreciation
------- -------
Net deferred tax assets $ -- $ --
======= =======
The net change in the valuation allowance for the year ended December 31, 1998
and 1997 was a decrease of approximately $672,000 and an increase of
approximately $1,277,000. Management believes that sufficient uncertainty exists
as to whether the deferred tax assets will be realized, and accordingly, a
valuation allowance is required.
The Company has net operating loss carryforwards for federal and California
income tax purposes of approximately $3,200,000 and $1,000,000, respectively.
The federal net operating loss carryforward will expire if it is not utilized by
the year 2011 through 2012. The California net operating loss carryforward will
expire if it is not utilized by the year 2001 through 2002. The Company has
research credit carryforwards for federal and California income tax purposes of
approximately $540,000 and $320,000, respectively. The federal research credit
carryforward will expire if not utilized beginning in the year 2008 through
2011. The California research credit carries forward indefinitely until
utilized. The Company also has minimum tax credit carryforwards for federal
income tax purposes of approximately $62,000, which will carry forward
indefinitely until utilized.
F-13
<PAGE>
The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose
restrictions on the utilization of net operating loss and tax credit
carryforwards in the event of an "ownership change" as defined by the Internal
Revenue Code. If an "ownership change," as defined by the Internal Revenue Code,
has occurred, the Company's ability to utilize its net operating loss and tax
credit carryforwards may be subject to restriction pursuant to these provisions.
Note 7 Stockholders' Equity
The following is a reconciliation of the denominators used in computing diluted
net income (loss) per share (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Shares used to compute basic net income (loss) per
share- weighted average number of common shares
outstanding 7,687 7,585 7,195
Effect of dilutive common equivalent shares - stock
options outstanding 237 -- --
----- ----- -----
Shares used to compute diluted net income (loss) per
share 7,924 7,585 7,195
===== ===== =====
</TABLE>
For the above mentioned periods, the Company had options outstanding of
1,910,587, 1,911,740 and 1,820,149 as of the end of 1998, 1997 and 1996,
respectively which could potentially dilute basic and diluted net income (loss)
per share in the future but were excluded in the computation of diluted net
income (loss) per share in the periods presented as their effect would have been
antidilutive.
Employee Stock Option and Purchase Plans
1994 Equity Incentive Plan
The 1994 Equity Incentive Plan (the "1994 Plan") was adopted in March 1994. The
1994 Plan provides for the grant of incentive stock options and stock bonuses
and the issuance of restricted stock by the Company to its employees, officers,
directors, consultants, independent contractors and advisors. There are
1,300,000 shares of the Company's common stock reserved for issuance under the
1994 plan, of which 318,243 are available for grant as of December 31, 1998.
These options vest 25% after one year and ratably over thirty-six months
thereafter, and expire ten years from the date of grant.
1995 Directors Stock Option Plan
The 1995 Directors Stock Option Plan (the "Directors Plan") was adopted in July
1996. The Directors Plan provides non-qualified stock options to non-employee
directors of the Company. There are 150,000 shares of the Company's common stock
reserved for issuance, of which 55,000 are available for grant as of December
31, 1998. Members of the Board of Directors who are not employees, consultants
or independent contractors of the Company, or any parent, subsidiary or
affiliate of the Company are eligible to participate in the Directors Plan.
These options vest 25% in each of four consecutive years. As of December 31,
1998, 95,000 options have been granted under the Directors Plan.
F-14
<PAGE>
Nonqualified Stock Option Grants
On July 31, 1995, the Company granted to the Company's then Chief Executive
Officer, who is currently a director of the Company, outside of the 1994 Plan,
nonqualified options to purchase 600,000 shares of common stock at $6.00 per
share all of which were vested by December 31, 1998. On October 17, 1996, the
Company granted to the Company's current President, outside of the 1994 Plan,
nonqualified options to purchase 600,000 shares of common stock at $3.50 per
share. Options for 25% of this grant vested on October 17, 1997 and the
remaining shares vest in equal monthly increments over the following 36 months.
1995 Employee Stock Purchase Plan
In September 1995, the Board of Directors adopted the 1995 Employee Purchase
Plan (the "Purchase Plan") and reserved 250,000 shares of the Company's common
stock for issuance thereunder. The Purchase Plan permits eligible employees to
acquire shares of the Company's common stock through payroll deductions. Each
offering under the Purchase Plan will be for a period of six months commencing
on February 1 and August 1 of each year. Eligible employees may select a rate of
payroll deduction between 2% and 10% of their compensation, up to an aggregate
total payroll deduction not to exceed $21,250 in any calendar year.
The purchase price for the Company's common stock purchased under the Purchase
Plan is 85% of the lesser of the fair market value of the Company's common stock
on the first day of the applicable offering period or the last day of that
offering period.
Accounting for Stock-Based Compensation
A summary of the status of the Company's fixed option plans and nonplan grants
is presented below:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 1,911,740 $ 4.71 1,820,149 $ 5.16 1,209,663 $ 5.64
Granted 334,050 $ 4.87 475,600 $ 3.91 918,600 $ 4.76
Exercised (25,609) $ 4.12 -- $ -- (103,747) $ 5.00
Canceled (72,331) $ 4.54 (384,009) $ 5.83 (204,367) $ 6.27
--------- ------ --------- ------ --------- ------
Outstanding at end of year 2,147,850 $ 4.75 1,911,740 $ 4.71 1,820,149 $ 5.16
========= ====== ========= ====== ========= ======
Exercisable at end of year 1,255,490 $ 5.13 952,142 $ 5.47 561,119 $ 5.67
========= ====== ========= ====== ========= ======
Weighted-average fair value
of options granted during the
year at exercise price equal
to fair value at grant date $1.94 $1.97 $2.39
</TABLE>
The Company has elected to use the intrinsic value-based method to account for
all of its employee stock-based compensation plans. Under APB Opinion No. 25,
Accounting for Stock Issued to Employees, the Company has recorded no
compensation costs related to its stock options granted to employees for the
years ended December 31, 1998, 1997, and 1996 because the exercise price of each
option equaled or exceeded the fair value of the underlying common stock as of
its grant date.
F-15
<PAGE>
Pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, the Company
is required to disclose the pro forma effects on net income (loss) and net
income (loss) per basic and diluted share as if the Company had elected to use
the fair value approach to account for all of its employee stock-based
compensation plans. Had compensation cost for the Company's plans been
determined consistent with the fair value approach described in SFAS No. 123,
the Company's net income (loss) and net income (loss) per basic and diluted
share for the years ended December 31, 1998, 1997 and 1996 would have been as
indicated below (in thousands, except per share data):
Years Ended
December 31,
1998 1997 1996
---- ---- ----
Net income (loss):
As reported $1,219 $(3,460) $(6,960)
Pro forma $ 502 $(4,261) $(7,623)
Basic net income (loss) per share:
As reported $ 0.16 $(0.46) $(0.97)
Pro forma $ 0.07 $(0.56) $(1.06)
Diluted net income (loss) per share:
As reported $ 0.15 $(0.46) $(0.97)
Pro forma $ 0.06 $(0.56) $(1.06)
The Company's fair value calculations on stock-based awards were made using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected life, 3.5 years from the date of grant in 1996 and 1997,
and 4.25 years in 1998; stock volatility, 63% in 1996 and 1997 and 51% in 1998;
risk-free interest rate, 6.08% in 1996 and 1997 and 5% in 1998; and no dividends
during the expected term. The Company's calculations are based on a single
option award valuation approach, and forfeitures are recognized as they occur.
The Company's fair value calculations on stock-based awards under the Purchase
Plan for all years presented were also made using the Black-Scholes option
pricing model with the following weighted average assumptions: expected life, 6
months; stock volatility, 51%; risk-free interest rate, 5%; and no dividends
during the expected term.
The following table summarizes information about fixed stock options outstanding
as of December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Vested
-----------------------------------------------------------------------------------------
Weighted Options Weighted
Options Average Weighted Vested Average
Range of Outstanding at Remaining Average at December Exercise
Exercise Prices December 31, 1998 Contractual Life Exercise Price 31, 1998 Price
---------------- ------------------ ---------------- -------------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
$2.63 - 3.50 785,550 7.7 $3.46 368,341 $3.48
$4.00 - 6.00 1,254,900 7.1 $5.32 817,268 $5.65
$6.25 - 11.00 107,400 7.1 $7.52 69,881 $7.69
------------------- ----------------
$2.63 - 11.00 2,147,850 7.4 $4.75 1,255,490 $5.13
=================== ================
</TABLE>
Note 7 Employee Benefit Plan
In 1987, the Company adopted a defined contribution retirement plan (the
"Retirement Plan"), which has been determined by the Internal Revenue Service to
be qualified under Section 401(k) of the Internal Revenue Code of 1986. The
Retirement Plan covers essentially all full-time employees. Eligible employees
may make voluntary contributions to the Retirement Plan up to 15% of their
annual compensation. The Company contributed $187,000, $177,000 and $0 to the
plan during the years ended December 31, 1998, 1997 and 1996, respectively.
F-16
<PAGE>
Note 8 Commitments
Leases
The Company leases its principal facility under a noncancelable operating lease
through January 2007. The Company is also party to a lease for its prior office
space which has been subleased through July 2002. The Company has an office in
Carrollton, Texas, which houses the corporate and customer disaster recovery
center. The Company signed a new lease for this facility for 36 months beginning
January 1, 1999. Rental expense for operating leases for the years ended
December 31, 1998, 1997 and 1996 amounted to $746,000, $1,070,000 and
$1,060,000, respectively, net of 1998 and 1997 rental income of $310,000 and
$124,000, respectively, under the sublease.
The Company leases its facilities and certain equipment under noncancelable
capital and operating leases. Future minimum lease payments under the Company's
capital and operating leases and the present value of minimum lease payments
under capital leases as of December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending Capital Operating
December 31, Leases Leases
------------ ------ ------
<S> <C> <C>
1999 $16 $739
2000 9 739
2001 -- 783
2002 -- 902
2003 -- 1,116
Thereafter -- 3,784
------- ----------
Future minimum lease payments $25 $8,063
==========
Amounts representing interest (5)
-------
Present value of future minimum lease payments $20
=======
</TABLE>
Future payments under operating leases are net of sub-lease payments totaling
approximately $276,000 for each of the years 1999 through 2001 and approximately
$161,000 for 2002.
F-17
<PAGE>
SCHEDULE II
ULTRADATA Corporation
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning of Costs, Expenses, End of
Account Description Period or Revenues Write-offs Period
------ ----------- ---------- ------
<S> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for doubtful accounts $ 1,094 $ (58) $ (515) $ 521
Year ended December 31, 1997
Allowance for doubtful accounts $ 2,059 $ 1,425 $(2,390) $ 1,094
Year ended December 31, 1996
Allowance for doubtful accounts $ 55 $ 2,304 $ (300) $ 2,059
</TABLE>
F-18
November 6, 1998
Cindy Cooper
648 Vivian Drive
Livermore, CA 94550
Re: Your Employment With ULTRADATA Corporation
Dear Cindy:
This letter will set forth the binding agreement of employment (the
"Agreement"), effective as of November 6, 1998 (the "Effective Date"), between
you and ULTRADATA Corporation, a Delaware corporation ("ULTRADATA").
1. Employment and Duties. During the Employment Term, as defined in
Section 3 below, you will serve as Vice President, Product Development of
ULTRADATA. You will have such duties and authority as are customary for, and
commensurate with such position, and such other reasonable duties and authority
as the Board of Directors of ULTRADATA (the "Board") or the President of
ULTRADATA prescribes from time to time.
2. COMPENSATION.
(a) Salary. For your services hereunder, ULTRADATA will pay as
salary to you the amount of $11,250.00 per month during the Employment Term, as
defined in Section 3 below. Such salary will be paid in conformity with
ULTRADATA's normal payroll period. Your salary will be reviewed by the Board
from time to time at its discretion, and you will receive such salary increases,
if any, as the Board in its sole discretion determines. For purposes of this
Agreement, your salary shall include any increases approved by the Board.
(b) Bonus. In addition to the salary set forth in Section 2(a)
hereof, you will be eligible for an annual bonus pursuant to a formula, and
determined in accordance with criteria, in each case to be established by the
Board of Directors and/or its Compensation Committee, which formula and criteria
will be communicated to you in writing reasonably in advance of the commencement
of the performance period to which such bonus will relate.
(c) Other Benefits. You will be entitled to participate in and
receive benefits under ULTRADATA's standard ULTRADATA benefits plans as in
effect from time to time, including medical insurance, sick leave, and vacation
time, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and ULTRADATA policies.
<PAGE>
Cooper, Cindy
November 6, 1998
(d) Expenses. During the term of your employment hereunder, you will
be entitled to receive prompt reimbursement from the ULTRADATA for all
reasonable business-related expenses incurred by you, in accordance with
ULTRADATA's policies and procedures as in effect from time to time, provided
that you will properly account for such business expenses in accordance with
ULTRADATA's policy.
(e) Deductions and Withholding. All amounts payable or which become
payable under any provision of this Agreement will be subject to any deductions
authorized in writing by you and any deductions and withholdings required by
law.
3. TERM OF EMPLOYMENT.
(a) Term. This Agreement will continue in full force and effect from
and including the Effective Date unless sooner terminated as hereinafter
provided (the "Employment Term") or replaced by another such agreement as may be
mutually agreed upon in writing by all parties.
(b) Early Termination. Your employment with ULTRADATA under this
Agreement may be terminated by ULTRADATA at any time during the Employment Term
by the President or the Board, for any reason and with or without cause, upon
delivery of written notice by ULTRADATA. ULTRADATA is not required to give you
any advance notice of termination which, in the sole discretion of ULTRADATA,
may be effective immediately upon delivery of written notice to you. You may
terminate this Agreement at any time by giving ULTRADATA written notice of your
resignation at least 30 days in advance; provided, however, that the Board may
determine upon receipt of such notice that the effective date of such
resignation will be immediate or some time prior to the expiration of the notice
period stated in your written notice to ULTRADATA.
(c) Termination for Cause. Prior to the expiration of the Employment
Term, your employment may be terminated for Cause by the Board, immediately upon
delivery of termination notice thereof to you. For these purposes, termination
for "Cause" will include, without limitation, termination because of your (a)
failure or a refusal to comply in any material respect with the reasonable
policies, standards or regulations of the Company; (b) failure or a refusal in
any material respect, faithfully or diligently, to perform your duties
determined by the Company in accordance with this Agreement or the customary
duties of Employee's employment (whether due to ill health, disability or
otherwise); (c) unprofessional, unethical or fraudulent conduct or conduct that
materially discredits the Company or is materially detrimental to the
reputation, character or standing of the Company; (d) dishonest conduct or a
deliberate attempt to do an injury to the Company; (e) material breach of a term
of this Agreement or the Employee Invention Assignment and Confidentiality
Agreement, including, without limitation, Employee's
2
<PAGE>
Cooper, Cindy
November 6, 1998
theft of the Company's proprietary information; or (f) an unlawful or criminal
act which would reflect badly on the Company in the Company's reasonable
judgment.
(d) Termination Due to Death or Disability. Your employment
hereunder will terminate immediately upon your death. In the event that by
reason of injury, illness or other physical or mental impairment you are (i)
completely unable to perform your services hereunder for more than two
consecutive months, or (ii) unable in the good faith judgment of the Board to
perform your services hereunder for 50% or more of the normal working day
throughout six consecutive months, then ULTRADATA may terminate your employment
hereunder at the end of such two-month or six-month period, as applicable, by
delivery to you of written notice of such termination.
4. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT IN
THE ABSENCE OF A CORPORATE TRANSACTION
(a) Termination For Cause, Death or Disability, or Voluntary
Termination. Upon termination of your employment by ULTRADATA under Section 3(c)
or Section 3(d) above, but subject to the provisions of Section 5 below, or upon
your voluntary termination of employment pursuant to Section 3(b) above, all
salary and benefits hereunder will cease immediately.
(b) Involuntary Termination except for Cause, Death or Disability.
Except as provided in Section 5 below, following involuntary termination of your
employment by ULTRADATA under Section 3(b) above, you will receive:
(i) Your salary (including any increases approved by the
Board) continued at the rate specified in Section 2(a) above for six (6) months;
(ii) Medical insurance and life insurance at the levels in
effect at the time of termination for six (6) months;
(iii) When otherwise payable, your bonus prorated up to the
date of termination for the period during which you were eligible for any such
bonus;
(iv) Continued vesting of any stock options granted to you by
ULTRADATA for six (6) months, followed by a 90 day period during which such
options may be exercised.
(v) No further continuance of other benefits such as vacation,
sick leave, and employee stock purchase plan participation, unless specified
herein.
3
<PAGE>
Cooper, Cindy
November 6, 1998
(vi) Any cellular phone and notebook computer as then
currently provided by Company. Additionally, placement services will be provided
as the Company customarily provides to other Executives leaving the Company.
5. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT FOLLOWING A
CORPORATE TRANSACTION
(a) Definitions. For purposes of this Section 5:
(i) A "Corporate Transaction" is defined as (A) a merger or
acquisition in which the Company is not the surviving entity (except for a
merger of the Company into a wholly-owned subsidiary, and except for a
transaction the purpose of which is to change the State in which the Company is
incorporated), (B) the sale, transfer or other disposition of all or
substantially all of the assets of the Company or (C) any other corporate
reorganization or business combination, and in which the beneficial ownership of
50% or more of the Company's outstanding voting stock is transferred.
(ii) The "Post-Transaction Period" is defined as the period
commencing on the date of the closing or effectiveness of a Corporate
Transaction.
(iii) A "Constructive Termination Event" will be deemed to
have occurred at ULTRADATA's close of business on the fourteenth (14th) day
after any of the following action(s) are taken by ULTRADATA and such action(s)
is not reversed in full by ULTRADATA within such fourteen-day period unless
prior to the expiration of such fourteen-day period you have otherwise agreed to
the specific relevant event in writing: (A) your aggregate benefits are
materially reduced (as such reduction and materiality are determined by
customary practice within the software industry within the State of California)
below those in effect immediately prior to the effective date of such
Constructive Termination Event, and/or (B) your duties and/or authority are
materially decreased or increased from those in effect immediately prior to such
Constructive Termination Event, in a way that is adverse to you, as determined
by customary practice within the software industry within the State of
California and/or (C) you are required to perform your employment obligations
(other than routine travel consistent with that prior to the effective date of
such Constructive Termination Event) at a location more than twenty-five (25)
miles away from your principal place of work for ULTRADATA as such place of work
was in effect immediately prior to the effective date of such Constructive
Termination Event.
(b) Severance Pay For Termination After Commencement of the Post
Transaction Period. If at any time after the commencement of the Post
Transaction Period your employment is terminated by ULTRADATA except for Cause,
Death or Disability as stated in
4
<PAGE>
Cooper, Cindy
November 6, 1998
Sections 3(c) and 3(d) above, or if a Constructive Termination Event as defined
above occurs and you voluntarily terminate your employment, then you will
receive:
(i) Your salary (including any increases approved by the
Board) continued at the rate specified in Section 2(a) above for twelve (12)
months;
(ii) Medical insurance and life insurance at the levels in
effect at the time of termination for twelve (12) months;
(iii) When otherwise payable, your bonus prorated up to the
date of termination for the period during which you were eligible for any such
bonus;
(iv) In addition to the accelerated vesting of existing stock
options as provided in Section 6 below, continued vesting of any stock options
granted to you after the commencement of the Post Transaction Period for twelve
(12) months, followed by a 90 day period during which such options may be
exercised.
(v) No further continuance of other benefits such as vacation,
sick leave, and employee stock purchase plan participation, unless specified
herein.
(vi) Any cellular phone and notebook computer as then
currently provided by Company. Additionally, placement services will be provided
as the Company customarily provides to other Executives leaving the Company.
(c) Cooperation. After any such termination of your employment,
except to the extent you are not able to do so by reason of your death or
disability, you will cooperate with ULTRADATA in providing for the orderly
transition of your duties and responsibilities to other individuals, as is
reasonably requested by ULTRADATA.
6. ACCELERATION OF STOCK OPTIONS FOLLOWING A CORPORATE TRANSACTION.
Immediately upon the occurrence of a Corporate Transaction as defined above, all
stock options which have been granted to you as of the date of such occurrence
shall become 100% vested and shall be exercisable pursuant to the terms of your
stock option agreement.
7. PROPRIETARY RIGHTS. You hereby acknowledge and confirm that you have
executed the Company's standard Employee Invention Assignment and
Confidentiality Agreement with the Company, which agreement is in full force and
effect. The provisions of such agreement will survive any termination or
expiration of this Agreement.
5
<PAGE>
Cooper, Cindy
November 6, 1998
8. MISCELLANEOUS. This Agreement contains the entire understanding and sole and
entire agreement between the parties with respect to the subject matter hereof,
and supersedes any and all prior agreements, negotiations and discussions
between the parties hereto with respect to the subject matter covered hereby and
may only be modified by an agreement in writing signed by ULTRADATA and you, and
which states the intent of the parties to amend this Agreement. If any provision
of this Agreement is held to be invalid or otherwise unenforceable, in whole or
in part, the remainder of such provision and the remainder of this Agreement
will not be affected thereby and will be enforced to the fullest extent
permitted by law. Neither this Agreement nor the rights or obligations hereunder
will be assignable by you. ULTRADATA may assign this Agreement to any successor
of ULTRADATA, and upon such assignment any such successor will be deemed
substituted for ULTRADATA upon the terms and subject to the conditions hereof.
This Agreement will be binding upon the successors and assigns of the parties
hereof and upon your heirs, executors and administrators. This Agreement has
been negotiated and executed in, and will be governed by and construed with the
laws of, the State of California. Any notice, request, demand or other
communication required or permitted hereunder will be deemed to be properly
given when personally served in writing, or when deposited in the United States
mail, postage pre-paid, addressed to ULTRADATA at the address shown at the
beginning of this letter, or to you at the address shown below, or by facsimile
upon confirmation of receipt. Each party hereto may change its address by
written notice in accordance with this Section 8.
Sincerely,
______________________________________
Robert J. Majteles
President and Chief Executive Officer
ACCEPTED AND AGREED:
______________________________________
Cindy Cooper
Date signed:___________________, 1998
6
November 6, 1998
David J. Robbins
204 Chestnut Court
San Ramon, CA 94583
Re: Your Employment With ULTRADATA Corporation
Dear Dave:
This letter will set forth the binding agreement of employment (the
"Agreement"), effective as of November 6, 1998 (the "Effective Date"), between
you and ULTRADATA Corporation, a Delaware corporation ("ULTRADATA").
1. Employment and Duties. During the Employment Term, as defined in
Section 3 below, you will serve as Vice President, Customer Services of
ULTRADATA. You will have such duties and authority as are customary for, and
commensurate with such position, and such other reasonable duties and authority
as the Board of Directors of ULTRADATA (the "Board") or the President of
ULTRADATA prescribes from time to time.
2. COMPENSATION.
(a) Salary. For your services hereunder, ULTRADATA will pay as
salary to you the amount of $11,250.00 per month during the Employment Term, as
defined in Section 3 below. Such salary will be paid in conformity with
ULTRADATA's normal payroll period. Your salary will be reviewed by the Board
from time to time at its discretion, and you will receive such salary increases,
if any, as the Board in its sole discretion determines. For purposes of this
Agreement, your salary shall include any increases approved by the Board.
(b) Bonus. In addition to the salary set forth in Section 2(a)
hereof, you will be eligible for an annual bonus pursuant to a formula, and
determined in accordance with criteria, in each case to be established by the
Board of Directors and/or its Compensation Committee, which formula and criteria
will be communicated to you in writing reasonably in advance of the commencement
of the performance period to which such bonus will relate.
(c) Other Benefits. You will be entitled to participate in and
receive benefits under ULTRADATA's standard ULTRADATA benefits plans as in
effect from time to time, including medical insurance, sick leave, and vacation
time, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and ULTRADATA policies.
<PAGE>
Robbins, David
November 6, 1998
(d) Expenses. During the term of your employment hereunder, you will
be entitled to receive prompt reimbursement from the ULTRADATA for all
reasonable business-related expenses incurred by you, in accordance with
ULTRADATA's policies and procedures as in effect from time to time, provided
that you will properly account for such business expenses in accordance with
ULTRADATA's policy.
(e) Deductions and Withholding. All amounts payable or which become
payable under any provision of this Agreement will be subject to any deductions
authorized in writing by you and any deductions and withholdings required by
law.
3. TERM OF EMPLOYMENT.
(a) Term. This Agreement will continue in full force and effect from
and including the Effective Date unless sooner terminated as hereinafter
provided (the "Employment Term") or replaced by another such agreement as may be
mutually agreed upon in writing by all parties.
(b) Early Termination. Your employment with ULTRADATA under this
Agreement may be terminated by ULTRADATA at any time during the Employment Term
by the President or the Board, for any reason and with or without cause, upon
delivery of written notice by ULTRADATA. ULTRADATA is not required to give you
any advance notice of termination which, in the sole discretion of ULTRADATA,
may be effective immediately upon delivery of written notice to you. You may
terminate this Agreement at any time by giving ULTRADATA written notice of your
resignation at least 30 days in advance; provided, however, that the Board may
determine upon receipt of such notice that the effective date of such
resignation will be immediate or some time prior to the expiration of the notice
period stated in your written notice to ULTRADATA.
(c) Termination for Cause. Prior to the expiration of the Employment
Term, your employment may be terminated for Cause by the Board, immediately upon
delivery of termination notice thereof to you. For these purposes, termination
for "Cause" will include, without limitation, termination because of your (a)
failure or a refusal to comply in any material respect with the reasonable
policies, standards or regulations of the Company; (b) failure or a refusal in
any material respect, faithfully or diligently, to perform your duties
determined by the Company in accordance with this Agreement or the customary
duties of Employee's employment (whether due to ill health, disability or
otherwise); (c) unprofessional, unethical or fraudulent conduct or conduct that
materially discredits the Company or is materially detrimental to the
reputation, character or standing of the Company; (d) dishonest conduct or a
deliberate attempt to do an injury to the Company; (e) material breach of a term
of this Agreement or the Employee Invention Assignment and Confidentiality
Agreement, including, without limitation, Employee's
2
<PAGE>
Robbins, David
November 6, 1998
theft of the Company's proprietary information; or (f) an unlawful or criminal
act which would reflect badly on the Company in the Company's reasonable
judgment.
(d) Termination Due to Death or Disability. Your employment
hereunder will terminate immediately upon your death. In the event that by
reason of injury, illness or other physical or mental impairment you are (i)
completely unable to perform your services hereunder for more than two
consecutive months, or (ii) unable in the good faith judgment of the Board to
perform your services hereunder for 50% or more of the normal working day
throughout six consecutive months, then ULTRADATA may terminate your employment
hereunder at the end of such two-month or six-month period, as applicable, by
delivery to you of written notice of such termination.
4. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT IN
THE ABSENCE OF A CORPORATE TRANSACTION
(a) Termination For Cause, Death or Disability, or Voluntary
Termination. Upon termination of your employment by ULTRADATA under Section 3(c)
or Section 3(d) above, but subject to the provisions of Section 5 below, or upon
your voluntary termination of employment pursuant to Section 3(b) above, all
salary and benefits hereunder will cease immediately.
(b) Involuntary Termination except for Cause, Death or Disability.
Except as provided in Section 5 below, following involuntary termination of your
employment by ULTRADATA under Section 3(b) above, you will receive:
(i) Your salary (including any increases approved by the
Board) continued at the rate specified in Section 2(a) above for six (6) months;
(ii) Medical insurance and life insurance at the levels in
effect at the time of termination for six (6) months;
(iii) When otherwise payable, your bonus prorated up to the
date of termination for the period during which you were eligible for any such
bonus;
(iv) Continued vesting of any stock options granted to you by
ULTRADATA for six (6) months, followed by a 90 day period during which such
options may be exercised.
(v) No further continuance of other benefits such as vacation,
sick leave, and employee stock purchase plan participation, unless specified
herein.
3
<PAGE>
Robbins, David
November 6, 1998
(vi) Any cellular phone and notebook computer as then
currently provided by Company. Additionally, placement services will be provided
as the Company customarily provides to other Executives leaving the Company.
5. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT FOLLOWING A
CORPORATE TRANSACTION
(a) Definitions. For purposes of this Section 5:
(i) A "Corporate Transaction" is defined as (A) a merger or
acquisition in which the Company is not the surviving entity (except for a
merger of the Company into a wholly-owned subsidiary, and except for a
transaction the purpose of which is to change the State in which the Company is
incorporated), (B) the sale, transfer or other disposition of all or
substantially all of the assets of the Company or (C) any other corporate
reorganization or business combination, and in which the beneficial ownership of
50% or more of the Company's outstanding voting stock is transferred.
(ii) The "Post-Transaction Period" is defined as the period
commencing on the date of the closing or effectiveness of a Corporate
Transaction.
(iii) A "Constructive Termination Event" will be deemed to
have occurred at ULTRADATA's close of business on the fourteenth (14th) day
after any of the following action(s) are taken by ULTRADATA and such action(s)
is not reversed in full by ULTRADATA within such fourteen-day period unless
prior to the expiration of such fourteen-day period you have otherwise agreed to
the specific relevant event in writing: (A) your aggregate benefits are
materially reduced (as such reduction and materiality are determined by
customary practice within the software industry within the State of California)
below those in effect immediately prior to the effective date of such
Constructive Termination Event, and/or (B) your duties and/or authority are
materially decreased or increased from those in effect immediately prior to such
Constructive Termination Event, in a way that is adverse to you, as determined
by customary practice within the software industry within the State of
California and/or (C) you are required to perform your employment obligations
(other than routine travel consistent with that prior to the effective date of
such Constructive Termination Event) at a location more than twenty-five (25)
miles away from your principal place of work for ULTRADATA as such place of work
was in effect immediately prior to the effective date of such Constructive
Termination Event.
(b) Severance Pay For Termination After Commencement of the Post
Transaction Period. If at any time after the commencement of the Post
Transaction Period your employment is terminated by ULTRADATA except for Cause,
Death or Disability as stated in
4
<PAGE>
Robbins, David
November 6, 1998
Sections 3(c) and 3(d) above, or if a Constructive Termination Event as defined
above occurs and you voluntarily terminate your employment, then you will
receive:
(i) Your salary (including any increases approved by the
Board) continued at the rate specified in Section 2(a) above for twelve (12)
months;
(ii) Medical insurance and life insurance at the levels in
effect at the time of termination for twelve (12) months;
(iii) When otherwise payable, your bonus prorated up to the
date of termination for the period during which you were eligible for any such
bonus;
(iv) In addition to the accelerated vesting of existing stock
options as provided in Section 6 below, continued vesting of any stock options
granted to you after the commencement of the Post Transaction Period for twelve
(12) months, followed by a 90 day period during which such options may be
exercised.
(v) No further continuance of other benefits such as vacation,
sick leave, and employee stock purchase plan participation, unless specified
herein.
(vi) Any cellular phone and notebook computer as then
currently provided by Company. Additionally, placement services will be provided
as the Company customarily provides to other Executives leaving the Company.
(c) Cooperation. After any such termination of your employment,
except to the extent you are not able to do so by reason of your death or
disability, you will cooperate with ULTRADATA in providing for the orderly
transition of your duties and responsibilities to other individuals, as is
reasonably requested by ULTRADATA.
6. ACCELERATION OF STOCK OPTIONS FOLLOWING A CORPORATE TRANSACTION.
Immediately upon the occurrence of a Corporate Transaction as defined above, all
stock options which have been granted to you as of the date of such occurrence
shall become 100% vested and shall be exercisable pursuant to the terms of your
stock option agreement.
7. PROPRIETARY RIGHTS. You hereby acknowledge and confirm that you have
executed the Company's standard Employee Invention Assignment and
Confidentiality Agreement with the Company, which agreement is in full force and
effect. The provisions of such agreement will survive any termination or
expiration of this Agreement.
5
<PAGE>
Robbins, David
November 6, 1998
8. MISCELLANEOUS. This Agreement contains the entire understanding and sole and
entire agreement between the parties with respect to the subject matter hereof,
and supersedes any and all prior agreements, negotiations and discussions
between the parties hereto with respect to the subject matter covered hereby and
may only be modified by an agreement in writing signed by ULTRADATA and you, and
which states the intent of the parties to amend this Agreement. If any provision
of this Agreement is held to be invalid or otherwise unenforceable, in whole or
in part, the remainder of such provision and the remainder of this Agreement
will not be affected thereby and will be enforced to the fullest extent
permitted by law. Neither this Agreement nor the rights or obligations hereunder
will be assignable by you. ULTRADATA may assign this Agreement to any successor
of ULTRADATA, and upon such assignment any such successor will be deemed
substituted for ULTRADATA upon the terms and subject to the conditions hereof.
This Agreement will be binding upon the successors and assigns of the parties
hereof and upon your heirs, executors and administrators. This Agreement has
been negotiated and executed in, and will be governed by and construed with the
laws of, the State of California. Any notice, request, demand or other
communication required or permitted hereunder will be deemed to be properly
given when personally served in writing, or when deposited in the United States
mail, postage pre-paid, addressed to ULTRADATA at the address shown at the
beginning of this letter, or to you at the address shown below, or by facsimile
upon confirmation of receipt. Each party hereto may change its address by
written notice in accordance with this Section 8.
Sincerely,
______________________________________
Robert J. Majteles
President and Chief Executive Officer
ACCEPTED AND AGREED:
______________________________________
David J. Robbins
Date signed:___________________, 1998
6
November 6, 1998
James R. Berthelsen
30 De Sabla Road
San Mateo, CA 94402
Re: Your Employment With ULTRADATA Corporation
Dear Jim:
This letter will set forth the binding agreement of employment (the
"Agreement"), effective as of November 6, 1998 (the "Effective Date"), between
you and ULTRADATA Corporation, a Delaware corporation ("ULTRADATA").
1. Employment and Duties. During the Employment Term, as defined in
Section 3 below, you will serve as Vice President, Business Development of
ULTRADATA. You will have such duties and authority as are customary for, and
commensurate with such position, and such other reasonable duties and authority
as the Board of Directors of ULTRADATA (the "Board") or the President of
ULTRADATA prescribes from time to time.
2. COMPENSATION.
(a) Salary. For your services hereunder, ULTRADATA will pay as
salary to you the amount of $11,250.00 per month during the Employment Term, as
defined in Section 3 below. Such salary will be paid in conformity with
ULTRADATA's normal payroll period. Your salary will be reviewed by the Board
from time to time at its discretion, and you will receive such salary increases,
if any, as the Board in its sole discretion determines. For purposes of this
Agreement, your salary shall include any increases approved by the Board.
(b) Bonus. In addition to the salary set forth in Section 2(a)
hereof, you will be eligible for an annual bonus pursuant to a formula, and
determined in accordance with criteria, in each case to be established by the
Board of Directors and/or its Compensation Committee, which formula and criteria
will be communicated to you in writing reasonably in advance of the commencement
of the performance period to which such bonus will relate.
(c) Other Benefits. You will be entitled to participate in and
receive benefits under ULTRADATA's standard ULTRADATA benefits plans as in
effect from time to time, including medical insurance, sick leave, and vacation
time, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and ULTRADATA policies.
<PAGE>
Berthelsen, James
November 6, 1998
(d) Expenses. During the term of your employment hereunder, you will
be entitled to receive prompt reimbursement from the ULTRADATA for all
reasonable business-related expenses incurred by you, in accordance with
ULTRADATA's policies and procedures as in effect from time to time, provided
that you will properly account for such business expenses in accordance with
ULTRADATA's policy.
(e) Deductions and Withholding. All amounts payable or which become
payable under any provision of this Agreement will be subject to any deductions
authorized in writing by you and any deductions and withholdings required by
law.
3. TERM OF EMPLOYMENT.
(a) Term. This Agreement will continue in full force and effect from
and including the Effective Date unless sooner terminated as hereinafter
provided (the "Employment Term") or replaced by another such agreement as may be
mutually agreed upon in writing by all parties.
(b) Early Termination. Your employment with ULTRADATA under this
Agreement may be terminated by ULTRADATA at any time during the Employment Term
by the President or the Board, for any reason and with or without cause, upon
delivery of written notice by ULTRADATA. ULTRADATA is not required to give you
any advance notice of termination which, in the sole discretion of ULTRADATA,
may be effective immediately upon delivery of written notice to you. You may
terminate this Agreement at any time by giving ULTRADATA written notice of your
resignation at least 30 days in advance; provided, however, that the Board may
determine upon receipt of such notice that the effective date of such
resignation will be immediate or some time prior to the expiration of the notice
period stated in your written notice to ULTRADATA.
(c) Termination for Cause. Prior to the expiration of the Employment
Term, your employment may be terminated for Cause by the Board, immediately upon
delivery of termination notice thereof to you. For these purposes, termination
for "Cause" will include, without limitation, termination because of your (a)
failure or a refusal to comply in any material respect with the reasonable
policies, standards or regulations of the Company; (b) failure or a refusal in
any material respect, faithfully or diligently, to perform your duties
determined by the Company in accordance with this Agreement or the customary
duties of Employee's employment (whether due to ill health, disability or
otherwise); (c) unprofessional, unethical or fraudulent conduct or conduct that
materially discredits the Company or is materially detrimental to the
reputation, character or standing of the Company; (d) dishonest conduct or a
deliberate attempt to do an injury to the Company; (e) material breach of a term
of this Agreement or the Employee Invention Assignment and Confidentiality
Agreement, including, without limitation, Employee's
2
<PAGE>
Berthelsen, James
November 6, 1998
theft of the Company's proprietary information; or (f) an unlawful or criminal
act which would reflect badly on the Company in the Company's reasonable
judgment.
(d) Termination Due to Death or Disability. Your employment
hereunder will terminate immediately upon your death. In the event that by
reason of injury, illness or other physical or mental impairment you are (i)
completely unable to perform your services hereunder for more than two
consecutive months, or (ii) unable in the good faith judgment of the Board to
perform your services hereunder for 50% or more of the normal working day
throughout six consecutive months, then ULTRADATA may terminate your employment
hereunder at the end of such two-month or six-month period, as applicable, by
delivery to you of written notice of such termination.
4. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT IN
THE ABSENCE OF A CORPORATE TRANSACTION
(a) Termination For Cause, Death or Disability, or Voluntary
Termination. Upon termination of your employment by ULTRADATA under Section 3(c)
or Section 3(d) above, but subject to the provisions of Section 5 below, or upon
your voluntary termination of employment pursuant to Section 3(b) above, all
salary and benefits hereunder will cease immediately.
(b) Involuntary Termination except for Cause, Death or Disability.
Except as provided in Section 5 below, following involuntary termination of your
employment by ULTRADATA under Section 3(b) above, you will receive:
(i) Your salary (including any increases approved by the
Board) continued at the rate specified in Section 2(a) above for six (6) months;
(ii) Medical insurance and life insurance at the levels in
effect at the time of termination for six (6) months;
(iii) When otherwise payable, your bonus prorated up to the
date of termination for the period during which you were eligible for any such
bonus;
(iv) Continued vesting of any stock options granted to you by
ULTRADATA for six (6) months, followed by a 90 day period during which such
options may be exercised.
(v) No further continuance of other benefits such as vacation,
sick leave, and employee stock purchase plan participation, unless specified
herein.
3
<PAGE>
Berthelsen, James
November 6, 1998
(vi) Any cellular phone and notebook computer as then
currently provided by Company. Additionally, placement services will be provided
as the Company customarily provides to other Executives leaving the Company.
5. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT FOLLOWING A
CORPORATE TRANSACTION
(a) Definitions. For purposes of this Section 5:
(i) A "Corporate Transaction" is defined as (A) a merger or
acquisition in which the Company is not the surviving entity (except for a
merger of the Company into a wholly-owned subsidiary, and except for a
transaction the purpose of which is to change the State in which the Company is
incorporated), (B) the sale, transfer or other disposition of all or
substantially all of the assets of the Company or (C) any other corporate
reorganization or business combination, and in which the beneficial ownership of
50% or more of the Company's outstanding voting stock is transferred.
(ii) The "Post-Transaction Period" is defined as the period
commencing on the date of the closing or effectiveness of a Corporate
Transaction.
(iii) A "Constructive Termination Event" will be deemed to
have occurred at ULTRADATA's close of business on the fourteenth (14th) day
after any of the following action(s) are taken by ULTRADATA and such action(s)
is not reversed in full by ULTRADATA within such fourteen-day period unless
prior to the expiration of such fourteen-day period you have otherwise agreed to
the specific relevant event in writing: (A) your aggregate benefits are
materially reduced (as such reduction and materiality are determined by
customary practice within the software industry within the State of California)
below those in effect immediately prior to the effective date of such
Constructive Termination Event, and/or (B) your duties and/or authority are
materially decreased or increased from those in effect immediately prior to such
Constructive Termination Event, in a way that is adverse to you, as determined
by customary practice within the software industry within the State of
California and/or (C) you are required to perform your employment obligations
(other than routine travel consistent with that prior to the effective date of
such Constructive Termination Event) at a location more than twenty-five (25)
miles away from your principal place of work for ULTRADATA as such place of work
was in effect immediately prior to the effective date of such Constructive
Termination Event.
(b) Severance Pay For Termination After Commencement of the Post
Transaction Period. If at any time after the commencement of the Post
Transaction Period your employment is terminated by ULTRADATA except for Cause,
Death or Disability as stated in
4
<PAGE>
Berthelsen, James
November 6, 1998
Sections 3(c) and 3(d) above, or if a Constructive Termination Event as defined
above occurs and you voluntarily terminate your employment, then you will
receive:
(i) Your salary (including any increases approved by the
Board) continued at the rate specified in Section 2(a) above for twelve (12)
months;
(ii) Medical insurance and life insurance at the levels in
effect at the time of termination for twelve (12) months;
(iii) When otherwise payable, your bonus prorated up to the
date of termination for the period during which you were eligible for any such
bonus;
(iv) In addition to the accelerated vesting of existing stock
options as provided in Section 6 below, continued vesting of any stock options
granted to you after the commencement of the Post Transaction Period for twelve
(12) months, followed by a 90 day period during which such options may be
exercised.
(v) No further continuance of other benefits such as vacation,
sick leave, and employee stock purchase plan participation, unless specified
herein.
(vi) Any cellular phone and notebook computer as then
currently provided by Company. Additionally, placement services will be provided
as the Company customarily provides to other Executives leaving the Company.
(c) Cooperation. After any such termination of your employment,
except to the extent you are not able to do so by reason of your death or
disability, you will cooperate with ULTRADATA in providing for the orderly
transition of your duties and responsibilities to other individuals, as is
reasonably requested by ULTRADATA.
6. ACCELERATION OF STOCK OPTIONS FOLLOWING A CORPORATE TRANSACTION.
Immediately upon the occurrence of a Corporate Transaction as defined above, all
stock options which have been granted to you as of the date of such occurrence
shall become 100% vested and shall be exercisable pursuant to the terms of your
stock option agreement.
7. PROPRIETARY RIGHTS. You hereby acknowledge and confirm that you have
executed the Company's standard Employee Invention Assignment and
Confidentiality Agreement with the Company, which agreement is in full force and
effect. The provisions of such agreement will survive any termination or
expiration of this Agreement.
5
<PAGE>
Berthelsen, James
November 6, 1998
8. MISCELLANEOUS. This Agreement contains the entire understanding and sole and
entire agreement between the parties with respect to the subject matter hereof,
and supersedes any and all prior agreements, negotiations and discussions
between the parties hereto with respect to the subject matter covered hereby and
may only be modified by an agreement in writing signed by ULTRADATA and you, and
which states the intent of the parties to amend this Agreement. If any provision
of this Agreement is held to be invalid or otherwise unenforceable, in whole or
in part, the remainder of such provision and the remainder of this Agreement
will not be affected thereby and will be enforced to the fullest extent
permitted by law. Neither this Agreement nor the rights or obligations hereunder
will be assignable by you. ULTRADATA may assign this Agreement to any successor
of ULTRADATA, and upon such assignment any such successor will be deemed
substituted for ULTRADATA upon the terms and subject to the conditions hereof.
This Agreement will be binding upon the successors and assigns of the parties
hereof and upon your heirs, executors and administrators. This Agreement has
been negotiated and executed in, and will be governed by and construed with the
laws of, the State of California. Any notice, request, demand or other
communication required or permitted hereunder will be deemed to be properly
given when personally served in writing, or when deposited in the United States
mail, postage pre-paid, addressed to ULTRADATA at the address shown at the
beginning of this letter, or to you at the address shown below, or by facsimile
upon confirmation of receipt. Each party hereto may change its address by
written notice in accordance with this Section 8.
Sincerely,
______________________________________
Robert J. Majteles
President and Chief Executive Officer
ACCEPTED AND AGREED:
______________________________________
James R. Berthelsen
Date signed:___________________, 1998
6
November 6, 1998
Ronald H. Bissinger
1142 Mataro Court
Pleasanton, CA 94566
Re: Your Employment With ULTRADATA Corporation
Dear Ron:
This letter will set forth the binding agreement of employment (the
"Agreement"), effective as of November 6, 1998 (the "Effective Date"), between
you and ULTRADATA Corporation, a Delaware corporation ("ULTRADATA").
1. Employment and Duties. During the Employment Term, as defined in
Section 3 below, you will serve as Vice President, Chief Financial Officer of
ULTRADATA. You will have such duties and authority as are customary for, and
commensurate with such position, and such other reasonable duties and authority
as the Board of Directors of ULTRADATA (the "Board") or the President of
ULTRADATA prescribes from time to time.
2. COMPENSATION.
(a) Salary. For your services hereunder, ULTRADATA will pay as
salary to you the amount of $11,250.00 per month during the Employment Term, as
defined in Section 3 below. Such salary will be paid in conformity with
ULTRADATA's normal payroll period. Your salary will be reviewed by the Board
from time to time at its discretion, and you will receive such salary increases,
if any, as the Board in its sole discretion determines. For purposes of this
Agreement, your salary shall include any increases approved by the Board.
(b) Bonus. In addition to the salary set forth in Section 2(a)
hereof, you will be eligible for an annual bonus pursuant to a formula, and
determined in accordance with criteria, in each case to be established by the
Board of Directors and/or its Compensation Committee, which formula and criteria
will be communicated to you in writing reasonably in advance of the commencement
of the performance period to which such bonus will relate.
(c) Other Benefits. You will be entitled to participate in and
receive benefits under ULTRADATA's standard ULTRADATA benefits plans as in
effect from time to time, including medical insurance, sick leave, and vacation
time, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and ULTRADATA policies.
<PAGE>
Bissinger, Ronald
November 6, 1998
(d) Expenses. During the term of your employment hereunder, you will
be entitled to receive prompt reimbursement from the ULTRADATA for all
reasonable business-related expenses incurred by you, in accordance with
ULTRADATA's policies and procedures as in effect from time to time, provided
that you will properly account for such business expenses in accordance with
ULTRADATA's policy.
(e) Deductions and Withholding. All amounts payable or which become
payable under any provision of this Agreement will be subject to any deductions
authorized in writing by you and any deductions and withholdings required by
law.
3. TERM OF EMPLOYMENT.
(a) Term. This Agreement will continue in full force and effect from
and including the Effective Date unless sooner terminated as hereinafter
provided (the "Employment Term") or replaced by another such agreement as may be
mutually agreed upon in writing by all parties.
(b) Early Termination. Your employment with ULTRADATA under this
Agreement may be terminated by ULTRADATA at any time during the Employment Term
by the President or the Board, for any reason and with or without cause, upon
delivery of written notice by ULTRADATA. ULTRADATA is not required to give you
any advance notice of termination which, in the sole discretion of ULTRADATA,
may be effective immediately upon delivery of written notice to you. You may
terminate this Agreement at any time by giving ULTRADATA written notice of your
resignation at least 30 days in advance; provided, however, that the Board may
determine upon receipt of such notice that the effective date of such
resignation will be immediate or some time prior to the expiration of the notice
period stated in your written notice to ULTRADATA.
(c) Termination for Cause. Prior to the expiration of the Employment
Term, your employment may be terminated for Cause by the Board, immediately upon
delivery of termination notice thereof to you. For these purposes, termination
for "Cause" will include, without limitation, termination because of your (a)
failure or a refusal to comply in any material respect with the reasonable
policies, standards or regulations of the Company; (b) failure or a refusal in
any material respect, faithfully or diligently, to perform your duties
determined by the Company in accordance with this Agreement or the customary
duties of Employee's employment (whether due to ill health, disability or
otherwise); (c) unprofessional, unethical or fraudulent conduct or conduct that
materially discredits the Company or is materially detrimental to the
reputation, character or standing of the Company; (d) dishonest conduct or a
deliberate attempt to do an injury to the Company; (e) material breach of a term
of this Agreement or the Employee Invention Assignment and Confidentiality
Agreement, including, without limitation, Employee's
2
<PAGE>
Bissinger, Ronald
November 6, 1998
theft of the Company's proprietary information; or (f) an unlawful or criminal
act which would reflect badly on the Company in the Company's reasonable
judgment.
(d) Termination Due to Death or Disability. Your employment
hereunder will terminate immediately upon your death. In the event that by
reason of injury, illness or other physical or mental impairment you are (i)
completely unable to perform your services hereunder for more than two
consecutive months, or (ii) unable in the good faith judgment of the Board to
perform your services hereunder for 50% or more of the normal working day
throughout six consecutive months, then ULTRADATA may terminate your employment
hereunder at the end of such two-month or six-month period, as applicable, by
delivery to you of written notice of such termination.
4. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT IN
THE ABSENCE OF A CORPORATE TRANSACTION
(a) Termination For Cause, Death or Disability, or Voluntary
Termination. Upon termination of your employment by ULTRADATA under Section 3(c)
or Section 3(d) above, but subject to the provisions of Section 5 below, or upon
your voluntary termination of employment pursuant to Section 3(b) above, all
salary and benefits hereunder will cease immediately.
(b) Involuntary Termination except for Cause, Death or Disability.
Except as provided in Section 5 below, following involuntary termination of your
employment by ULTRADATA under Section 3(b) above, you will receive:
(i) Your salary (including any increases approved by the
Board) continued at the rate specified in Section 2(a) above for six (6) months;
(ii) Medical insurance and life insurance at the levels in
effect at the time of termination for six (6) months;
(iii) When otherwise payable, your bonus prorated up to the
date of termination for the period during which you were eligible for any such
bonus;
(iv) Continued vesting of any stock options granted to you by
ULTRADATA for six (6) months, followed by a 90 day period during which such
options may be exercised.
(v) No further continuance of other benefits such as vacation,
sick leave, and employee stock purchase plan participation, unless specified
herein.
3
<PAGE>
Bissinger, Ronald
November 6, 1998
(vi) Any cellular phone and notebook computer as then
currently provided by Company. Additionally, placement services will be provided
as the Company customarily provides to other Executives leaving the Company.
5. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT FOLLOWING A
CORPORATE TRANSACTION
(a) Definitions. For purposes of this Section 5:
(i) A "Corporate Transaction" is defined as (A) a merger or
acquisition in which the Company is not the surviving entity (except for a
merger of the Company into a wholly-owned subsidiary, and except for a
transaction the purpose of which is to change the State in which the Company is
incorporated), (B) the sale, transfer or other disposition of all or
substantially all of the assets of the Company or (C) any other corporate
reorganization or business combination, and in which the beneficial ownership of
50% or more of the Company's outstanding voting stock is transferred.
(ii) The "Post-Transaction Period" is defined as the period
commencing on the date of the closing or effectiveness of a Corporate
Transaction.
(iii) A "Constructive Termination Event" will be deemed to
have occurred at ULTRADATA's close of business on the fourteenth (14th) day
after any of the following action(s) are taken by ULTRADATA and such action(s)
is not reversed in full by ULTRADATA within such fourteen-day period unless
prior to the expiration of such fourteen-day period you have otherwise agreed to
the specific relevant event in writing: (A) your aggregate benefits are
materially reduced (as such reduction and materiality are determined by
customary practice within the software industry within the State of California)
below those in effect immediately prior to the effective date of such
Constructive Termination Event, and/or (B) your duties and/or authority are
materially decreased or increased from those in effect immediately prior to such
Constructive Termination Event, in a way that is adverse to you, as determined
by customary practice within the software industry within the State of
California and/or (C) you are required to perform your employment obligations
(other than routine travel consistent with that prior to the effective date of
such Constructive Termination Event) at a location more than twenty-five (25)
miles away from your principal place of work for ULTRADATA as such place of work
was in effect immediately prior to the effective date of such Constructive
Termination Event.
(b) Severance Pay For Termination After Commencement of the Post
Transaction Period. If at any time after the commencement of the Post
Transaction Period your employment is terminated by ULTRADATA except for Cause,
Death or Disability as stated in
4
<PAGE>
Bissinger, Ronald
November 6, 1998
Sections 3(c) and 3(d) above, or if a Constructive Termination Event as defined
above occurs and you voluntarily terminate your employment, then you will
receive:
(i) Your salary (including any increases approved by the
Board) continued at the rate specified in Section 2(a) above for twelve (12)
months;
(ii) Medical insurance and life insurance at the levels in
effect at the time of termination for twelve (12) months;
(iii) When otherwise payable, your bonus prorated up to the
date of termination for the period during which you were eligible for any such
bonus;
(iv) In addition to the accelerated vesting of existing stock
options as provided in Section 6 below, continued vesting of any stock options
granted to you after the commencement of the Post Transaction Period for twelve
(12) months, followed by a 90 day period during which such options may be
exercised.
(v) No further continuance of other benefits such as vacation,
sick leave, and employee stock purchase plan participation, unless specified
herein.
(vi) Any cellular phone and notebook computer as then
currently provided by Company. Additionally, placement services will be provided
as the Company customarily provides to other Executives leaving the Company.
(c) Cooperation. After any such termination of your employment,
except to the extent you are not able to do so by reason of your death or
disability, you will cooperate with ULTRADATA in providing for the orderly
transition of your duties and responsibilities to other individuals, as is
reasonably requested by ULTRADATA.
6. ACCELERATION OF STOCK OPTIONS FOLLOWING A CORPORATE TRANSACTION.
Immediately upon the occurrence of a Corporate Transaction as defined above, all
stock options which have been granted to you as of the date of such occurrence
shall become 100% vested and shall be exercisable pursuant to the terms of your
stock option agreement.
7. PROPRIETARY RIGHTS. You hereby acknowledge and confirm that you have
executed the Company's standard Employee Invention Assignment and
Confidentiality Agreement with the Company, which agreement is in full force and
effect. The provisions of such agreement will survive any termination or
expiration of this Agreement.
5
<PAGE>
Bissinger, Ronald
November 6, 1998
8. MISCELLANEOUS. This Agreement contains the entire understanding and sole and
entire agreement between the parties with respect to the subject matter hereof,
and supersedes any and all prior agreements, negotiations and discussions
between the parties hereto with respect to the subject matter covered hereby and
may only be modified by an agreement in writing signed by ULTRADATA and you, and
which states the intent of the parties to amend this Agreement. If any provision
of this Agreement is held to be invalid or otherwise unenforceable, in whole or
in part, the remainder of such provision and the remainder of this Agreement
will not be affected thereby and will be enforced to the fullest extent
permitted by law. Neither this Agreement nor the rights or obligations hereunder
will be assignable by you. ULTRADATA may assign this Agreement to any successor
of ULTRADATA, and upon such assignment any such successor will be deemed
substituted for ULTRADATA upon the terms and subject to the conditions hereof.
This Agreement will be binding upon the successors and assigns of the parties
hereof and upon your heirs, executors and administrators. This Agreement has
been negotiated and executed in, and will be governed by and construed with the
laws of, the State of California. Any notice, request, demand or other
communication required or permitted hereunder will be deemed to be properly
given when personally served in writing, or when deposited in the United States
mail, postage pre-paid, addressed to ULTRADATA at the address shown at the
beginning of this letter, or to you at the address shown below, or by facsimile
upon confirmation of receipt. Each party hereto may change its address by
written notice in accordance with this Section 8.
Sincerely,
______________________________________
Robert J. Majteles
President and Chief Executive Officer
ACCEPTED AND AGREED:
______________________________________
Ronald H. Bissinger
Date signed:___________________, 1998
6
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-01492 of ULTRADATA Corporation on Form S-8 of our report dated February 5,
1999 appearing in the Annual Report on Form 10-K of ULTRADATA Corporation for
the year ended December 31, 1998.
Deloitte & Touche, LLP
San Jose, California
March 29, 1999
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
ULTRADATA Corporation:
We consent to the incorporation by reference in the previously filed
registration statement on Form S-8 (No. 333-01492) of ULTRADATA Corporation of
our report dated February 12, 1998, with respect to the balance sheet of
ULTRADATA Corporation as of December 31, 1997, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 1997, and the related schedule, which report
appears in the December 31, 1998 annual report on Form 10-K of ULTRADATA
Corporation.
KPMG, LLP
Mountain View, California
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements for the year ended December 31, 1998 and is qualified in its entirety
as reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,418
<SECURITIES> 321
<RECEIVABLES> 6,582
<ALLOWANCES> (521)
<INVENTORY> 1,932
<CURRENT-ASSETS> 11,577
<PP&E> 8,346
<DEPRECIATION> (5,034)
<TOTAL-ASSETS> 14,889
<CURRENT-LIABILITIES> 5,745
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 7,830
<TOTAL-LIABILITY-AND-EQUITY> 14,889
<SALES> 30,761
<TOTAL-REVENUES> 30,761
<CGS> 15,712
<TOTAL-COSTS> 15,712
<OTHER-EXPENSES> 13,728
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 179
<INCOME-PRETAX> 1,241
<INCOME-TAX> 22
<INCOME-CONTINUING> 1,219
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,219
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.15
</TABLE>
