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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: June 30, 1997
OR
[ ] 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: 0-28654
CLAREMONT TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-1004490
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1600 N.W. COMPTON DRIVE, SUITE 210
BEAVERTON, OREGON 97006
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(Address of principal executive offices and zip code)
503-690-4000
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(Registrant's telephone number including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, WITHOUT PAR VALUE
(Title of Class)
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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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $122,289,619 as of August 31, 1997 based upon the last sales
price as reported by Nasdaq.
The number of shares outstanding of the Registrant's Common Stock as of August
31, 1997 was 8,583,810 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated into Part III of Form 10-K by reference portions
of its Proxy Statement, dated October 2, 1997.
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CLAREMONT TECHNOLOGY GROUP, INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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Page
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PART I
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Item 1. Business 2
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 19
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners and Management 20
Item 13 Certain Relationships and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 21
Signatures 23
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PART I
ITEM 1. BUSINESS
OVERVIEW
Claremont provides IT solutions based on client/server software for select
industries focusing on the customer care needs of its clients, including
customer service, order and transaction processing, billing and logistics.
Claremont typically provides its services to large organizations involved in
markets that are experiencing dynamic change. Quite often these organizations
are experiencing new, or more difficult, competitive pressures due to a variety
of factors, including recent deregulation in their industry (e.g.
communications, financial services and utilities), greater worldwide competition
(e.g. manufacturing) or privatization (e.g. state and local government, employee
pension and retirement and health and human services). Claremont delivers its
services, including IT planning, systems integration and development and
outsourcing, through a standard project management methodology. This methodology
ties IT strategic planning and business process reengineering initiatives to the
downstream use of object oriented software modules and transferable design
frameworks in the form of standard solution components. Depending on the
client's preference, Claremont delivers its services on a fixed-price,
fixed-delivery-schedule basis or a time and materials basis. Claremont's clients
consist of large corporations and government organizations in the United States
and certain foreign markets including Canada, the United Kingdom, Australia and
New Zealand.
The Company's focus on opportunities within select vertical markets is
complemented by its expertise with the particular customer interface within
these markets and its dedication to partner with clients to co-develop large
scale business solutions. The Company's clients include AT&T, BancOne, CalPERS,
Colonial Pacific, Fred Meyer, Lucent, Ohio STRS and Sprint.
INDUSTRY BACKGROUND
Organizations today face constant pressure to improve the quality of products
and services, reduce cost and time to market and improve operating efficiency
while strengthening customer relationships. To compete effectively,
organizations must improve business processes to empower the end user and must
develop internal decision-making processes and methods of exchanging information
that are more efficient and effective. Such changes mean that IT deployment
decisions are increasingly made at the senior executive level rather than at the
departmental level and are implemented across the entire organization.
Information systems and their rapid development and deployment have become a
source of strategic advantage and are increasingly mission-critical.
As IT systems have evolved to a value-added component of an organization's
strategy, the need has grown to design, develop and deploy business applications
solutions rapidly, flexibly and in a technological framework that supports
today's geographically distributed business environment. Consequently, there has
been a shift in the past few years in the computing platforms favored by large
organizations, from single-vendor legacy mainframe-based systems to open,
multi-vendor client/server computing systems, and most recently to corporate
intranets. However, the benefits of client/server and other advanced
technologies can be difficult to obtain, because designing, developing,
deploying
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and managing client/server systems is complex, time consuming and costly. In
addition, organizations often lack the range and depth of skills necessary to
develop these systems internally and often cannot effectively attract and retain
personnel with the required technological expertise.
Organizations increasingly wish to use their information systems to address
these mission-critical business processes faster and more effectively at a lower
cost. Computer information systems now often serve as the primary information
resource through which organizations serve their customers, and increasingly
serve as the organization's primary interface to its customers. Many
organizations have found that among the most compelling applications that employ
client/server technology are solutions that effectively distribute information
directly to the business end user who services customers, or directly to the
customers themselves. Applications such as customer service, order and
transaction processing, billing, distribution and logistics directly influence
an organization's ability to generate customer satisfaction and revenue, and
therefore tend to be priorities for allocation of any organization's capital
budgets in both strong and slow economic climates.
The complexity of current technologies, the lack of sufficient in-house
resources, and the competitive pressures requiring rapid implementation of new
mission-critical systems in client/server and distributed technologies, have led
to increasing demand for third-party solution providers. To meet that demand
effectively, providers of applications and systems solutions require global
reach, a full range of technical skills, ability to provide the best available
technologies, in-depth knowledge of the customer interface in particular
industries and the ability to manage complex technological projects to
completion on time and within budget.
THE CLAREMONT SOLUTION
Claremont combines its expertise in IT consulting and large scale systems
integration to provide its clients business solutions that allow them to better
serve their customers. The following are key attributes of the Claremont
solution:
MISSION-CRITICAL BUSINESS SOLUTIONS. The Company focuses on providing
enterprise-wide IT solutions that re-engineer core business processes such as
customer service, order and transaction processing, billing and logistics.
Claremont's approach minimizes project risk through use of a methodology that
emphasizes problem definition and solution design and can employ proven software
modules and design frameworks, and through use of experienced personnel with
applicable project management and industry expertise.
VERTICAL MARKET EXPERTISE AND CLIENT PARTNERSHIP. Claremont's vertical market
orientation offers applications solutions that are based on in-depth knowledge
of particular industries and a detailed understanding of the client's business.
By targeting specific industries and developing long-term client relationships,
the Company is able to provide enterprise-wide business solutions based on a
detailed and thorough understanding of the industry in which the client operates
as well as the client's own business processes.
REUSABLE SOFTWARE MODULES AND TRANSFERABLE DESIGN FRAMEWORKS. Claremont's
standard development methodology provides a structure through which the
Company's skills and
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knowledge capital can be effectively leveraged in the form of reusable software
modules and transferable design frameworks. The ability to employ previously
constructed software modules and design frameworks in the form of standard
solution components provides Claremont leverage during the design and
integration phases, minimizes business risk and reduces both time to solution
and project costs.
CLAREMONT SERVICES
Claremont provides IT applications solutions encompassing IT planning, IT
systems integration and development, and IT outsourcing of IT
maintenance/enhancement services for large corporations and government
organizations in the United States and certain foreign markets including Canada,
the United Kingdom, Australia and New Zealand. Through its TISE methodology, the
Company seeks to deliver, in a timely fashion, cost effective systems that meet
the clients' needs and provide the flexibility to meet future application
processing requirements. The Company's methodology for delivering its services
is typically divided into the three phases illustrated below:
The following is a brief description of each phase and task of the TISE
methodology:
PHASE I: IT CONSULTING. Generally, IT Consulting precedes the actual systems
integration project and is completed in a timeframe of one to two months. IT
Consulting typically concludes with a return-on-investment analysis and a
proposal, including budgets and anticipated timeframe for implementation of the
proposed solution. The purpose of this phase is to allow executives, managers
and end users from the client work in partnership with Claremont consultants to
develop recommendations for strategic business process changes. Claremont's
preference is to also develop a high-level architectural infrastructure design
in this phase, which provides Claremont, and the client, with a structural
roadmap for approaching Phase II, the Systems Development/Integration phase.
PHASE II: SYSTEMS DEVELOPMENT/INTEGRATION. Systems Development/Integration
generally results in delivery of a fully implemented solution in six to 24
months. Appropriate application of the TISE methodology during this phase
results in the development of the IT solution, as well as the effective
implementation of that solution and meaningful change in the client's business
processes. Systems Development/Integration involves these stages:
PROCESS DESIGN. A key to Phase II of the TISE methodology is an assessment
of the operational impact of a new system, and designing re-engineered
business processes for the client to insure that the solution developed
will provide the desired results. This process begins at the earliest
stages of the design of the application itself, and continues throughout
the Systems Development/Integration process. These processes lead to the
generation of a high-level object oriented business model and the
development of an architected system infrastructure, and can often draw on
standard solution components already developed by Claremont as central
design elements.
SYSTEM DEVELOPMENT. Once the high-level system infrastructure is in place,
Claremont places an emphasis on solving detail-level system logic and
design problems before coding begins, and results in sufficiently detailed
specifications that enable Claremont to complete the actual coding and
testing of the application's
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software objects in a highly controlled, factory-like manufacturing
process. In this process, where appropriate, Claremont can incorporate
previously developed and reusable software modules. Because Claremont's
solutions replace, rather than simply surround, the client's old and often
inflexible legacy code, system development also includes the development of
a significant number of interfaces to other client systems. Claremont
assembles all the code from the previously completed tasks and conducts a
functional test of the new system.
SYSTEM DEPLOYMENT. Complete implementation of the solution requires two
final steps. The first is developing the new job descriptions and
operational procedures and training people in how to take maximum advantage
of the new system. The second step is to put the entire system through a
complete test from the user's perspective, including testing the software,
as well as the new procedures and the interfaces with existing systems.
PHASE III: OUTSOURCING. Outsourcing of the ongoing support and enhancement for
the client's new system and/or total system environment is an area of services
that has been growing for Claremont over the past few years. The outsourcing
phase of the TISE methodology provides opportunities for the Company to enhance
client partnerships and broaden the scope of its engagements.
While individual Phase I projects are small, typically $50,000 to $250,000,
total client engagements regularly involve multiple projects over several years
and can generate revenue in excess of $20 million. Claremont has been successful
in negotiating resale rights for several of its software solutions.
Claremont provides its services on both a time and materials and fixed-price
basis. Invoices for time and materials work are presented on a bi-weekly or
monthly basis. Invoices for fixed-price engagements are presented in accordance
with achievement of negotiated milestones or dates during the development
process.
TECHNOLOGICAL EXPERTISE
Claremont provides technological resources across all of its industry practice
areas and seeks to build and maintain the Company's expertise in leading edge
technologies. Technology personnel are located in Montreal, Canada; Basking
Ridge, New Jersey; Columbus and Cleveland, Ohio; Beaverton, Oregon; Sacramento
and San Francisco, California; Seattle, Washington and North Sydney, Australia.
The Company's advanced technology groups are managed on a world-wide basis so
that clients, regardless of location, have access to Claremont's technical
expertise.
At present, Claremont focuses its advanced technology skills in four main areas:
object oriented systems development; electronic commerce (internet/intranet and
groupware solutions); client/server enterprise architectures (complex network
management); and on-line analytical processing (executive support systems/data
warehousing). Claremont uses its relationships with hardware and software
providers such as Arbor Software, Forte, Hewlett Packard, IBM, Microsoft,
Netscape, Oracle, Silicon Graphics and Sun Microsystems to help ensure that it
remains current with the latest technology and to serve as a source of new
business opportunities for the Company's industry practice areas.
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MARKETS AND CLIENTS
Claremont focuses its marketing efforts on clients in information-intensive
businesses, including communications, financial services, state and local
government services and commercial services. Within these vertical markets, the
Company targets clients for whom enterprise-wide IT solutions can provide a
competitive advantage. The Company intends to continue to pursue opportunities
to provide its services in other industry sectors with similar needs.
Claremont's most significant clients, in terms of revenue earned in fiscal 1997
within its industry practice areas are listed below:
COMMUNICATIONS FINANCIAL SERVICES STATE & LOCAL GOVERNMENT
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AT&T BancOne CalPERS
Lucent Colonial Pacific Leasing Mississippi PERS
Telecom New Zealand Frank Russell Ohio STRS
Rogers Cable Washington Department of
Sprint Ecology
COMMERCIAL SERVICES
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Manufacturing RETAIL HEALTH CARE UTILITIES
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Lucent Aventure The Benchmark Group Dayton Power &
Merix Fred Meyer Blue Cross/Blue Shield Light
Microsoft Oregon Pacificorp
Oregon Steel
Wacker Siltronic
Weyerhauser
Willamette Industries
The Company has in the past derived, and may in the future derive, a significant
portion of its revenue from a relatively small number of clients. During the
fiscal year ended June 30, 1997, the Company had only one client who represented
at least 10% of the Company's revenue: Lucent, 14%. During the fiscal year
ended June 30, 1996, the Company had three clients each of whom represented at
least 10% of the Company's revenue: Lucent, 20%; Ohio STRS, 14%; and Mississippi
PERS, 11%.
The Company's IT consulting services focus on four key industry
sectors: communications, financial services, state and local government and
commercial services which represented approximately 21%, 12%, 25% and 42%,
respectively, of the Company's revenue for fiscal 1997 and 30%, 5%, 34% and 31%,
respectively, of the Company's revenue for fiscal 1996.
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COMMUNICATIONS. During the last 12 months, the Company has performed a number
of engagements, including assisting in the development of communications
products for Lucent, assisting AT&T in the redevelopment of its 900 number
billing system, supporting Sprint in a joint venture with TCI and Cox Cable to
deliver PCS services, providing business process reengineering services for
Rogers Cable and implementing Telecom New Zealand's Internet services. The
communications practice area has developed PREMOST, a billing system consisting
of a reusable set of object oriented software modules constructed to support
communications clients in their billing and customer care functions.
Collectively, these modules represent a highly flexible tool to support these
critical billing and customer care business functions. The Company believes that
in suitable applications the reusable software modules will enable Claremont to
offer its clients reduced development time and cost.
FINANCIAL SERVICES. Claremont's financial services practice is focused on
serving clients in the credit card, leasing and investment management businesses
as evidenced by its relationships with BankOne, Colonial Pacific Leasing and
Frank Russell, respectively. During the past 12 months, the Company has rapidly
expanded its presence in the financial services industries. Claremont intends to
establish a leadership position in the credit card, leasing and investment
management sub-segments of the financial services market. Claremont believes
that its competitive advantage in these segments is derived from strategic
relationships focused on emerging technologies including e-cash solutions
endorsed by MasterCard, International; a unique knowledge of the use of data
warehousing technology within the credit card industry; strong knowledge capital
of the investment management business gained from pertinent experiences in the
public pension business; and a strategic relationship with an innovative
provider of leasing software.
STATE AND LOCAL GOVERNMENT. Claremont's state and local government practice is
anchored by its longstanding strategic relationship with Ohio STRS. The
relationship has produced a set of reusable software modules for the
pension/retirement systems industry, which is being marketed under the name
CLARETY. The CLARETY product was created using the Forte software development
client/server tool set. Claremont is currently engaged in projects to implement
CLARETY software for Mississippi PERS, California PERS and Nevada PERS. The
Company believes that CLARETY software is the only object oriented client/server
product of its kind being marketed to the pension/retirement systems market.
Claremont also provides IT consulting and custom software development services
to environmental and health and human services departments of state and local
governments. Claremont is currently providing services to state and local
governments in California, Mississippi, Missouri, Oregon, Ohio and Washington.
Claremont has also developed a software product called HWIMSY for tracking
hazardous waste.
COMMERCIAL SERVICES. Within the commercial services practice area, Claremont
provides IT consulting, custom software development and application
maintenance/enhancement services to clients in a variety of industries. As its
industry expertise develops, Claremont pursues additional client engagements in
new and existing geographic markets. Currently, Claremont's vertical markets
include manufacturing, retail, health care and utilities. Claremont expects to
expand and refine its vertical market orientation as it is able to develop new
opportunities and expand existing engagements. Projects in these industries
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include such applications as systems support for new food distribution systems;
an inventory management system for a retail chain; an order processing system
for a national wood products company and a customer service system encompassing
such functions as meter management, work tracking and accounts receivable for a
major utility. Claremont has begun to provide an increasing percentage of its
services to commercial clients desiring assistance regarding IT strategies that
involve emerging technologies such as the Internet, and Enterprise Resource
Planning (ERP).
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent upon maintenance and protection of its
intellectual property rights. The Company relies on a combination of copyrights,
trade secrets and trademarks to protect its technology. The Company has
applications pending at the United States Patent and Trademark Office with
respect to the Company's VALUE SERVER, NORTHERN DIAMOND, PREMOST, CLARETY, VALUE
SOFTWARE, TISE, SPIBOX AND ISTART trademarks. The Company's practice has been to
enter into confidentiality agreements with its employees and signed agreements
that include nondisclosure provisions with its clients.
Despite these activities, no assurance can be given that the steps taken by the
Company will provide adequate protection of its intellectual property rights or
that competitors will not be able to develop similar or functionally equivalent
methodologies or products. Furthermore, effective copyright and trade secret
protection may be unavailable or limited in certain foreign countries. In
addition, litigation may be necessary to enforce the Company's intellectual
property rights, to protect the Company's trade secrets, to determine the
validity and scope of the intellectual property rights of others or to defend
against claims of infringement. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on the
Company's business, financial condition and results of operations. No assurance
can be given that infringement or invalidity claims (or claims for
indemnification resulting from infringement claims against third parties, such
as clients) will not be asserted against the Company or that any such assertions
would not have a material adverse effect on the Company's business, financial
condition or results of operations. If infringement or invalidity claims are
asserted against the Company, litigation may be necessary to defend the Company
against such claims, and in certain circumstances the Company may choose to seek
to obtain a license under the third-party's intellectual property rights. There
can be no assurance that such licenses will be available on terms acceptable to
the Company, if at all.
BUSINESS DEVELOPMENT
Claremont's business development efforts are based primarily upon personal
contacts, the reputations of its senior personnel, industry marketing programs
and attendance at appropriate industry forums. Claremont believes that business
development is an integral part of the responsibility of practice area leaders
and other senior project managers. Claremont also follows a practice of
marketing its services through strategic alliances with a select list of
hardware and software providers.
The Company employs an established selling methodology, the Miller-Heiman
process. The Miller-Heiman process is focused on sales that involve multiple
decisionmakers at different levels in large organizations. The process provides
an analytical approach to identifying the key decisionmakers, determining with
the client the value to be provided to
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the client and managing the sales process through completion. Claremont
maintains a corporate information database referred to as the Opportunity Center
to manage the selling process. The sale of a new project generally involves a
three to six month effort. At any given time numerous Claremont professionals
are active in the development of new business. The coordination of their
efforts, and the tracking of their results, is critical to Claremont's ability
to forecast and adequately staff future work. Claremont's Opportunity Center is
a critical management tool to assist the Company's senior executives in managing
this process.
COMPETITION
The markets for the Company's services are highly competitive. The Company
believes that it currently competes principally with the internal information
systems groups of its prospective clients, as well as consulting and software
integration firms including Andersen Consulting, the "Big Six" accounting firms,
ISSC (an affiliate of IBM), Computer Sciences Corporation and with other
hardware and applications software vendors. In addition there are a number of
systems integrators who serve similar markets or provide similar services, such
as Cambridge Technology Partners, Renaissance Solutions, Inc., SHL Systemhouse
(a subsidiary of MCI), Sapient Corporation and Technology Solutions Company,
with whom the Company competes or may compete in the future. Many of these
companies have significantly greater financial, technical and marketing
resources than the Company, generate greater revenue and have greater name
recognition than the Company. In addition, there are relatively low barriers to
entry into the Company's markets and the Company has faced, and expects to
continue to face, additional competition from new entrants into its markets.
The Company believes that the principal competitive factors in its markets
include reputation, project management expertise, industry expertise, speed of
development and implementation, technical expertise and ability to deliver on a
fixed-price as well as a time and materials basis. There can be no assurance
that the Company will be able to compete effectively on pricing or other
requirements with current and future competitors or that competitive pressures
faced by the Company will not cause the Company's revenue or gross margins to
decline or otherwise materially adversely affect its business, financial
condition and results of operations.
CLAREMONT PERSONNEL
The success of the Company is based on attracting and retaining talented,
creative and experienced people at all levels. The Company dedicates significant
senior resources to its recruiting effort, primarily recruiting professionals
with both IT consulting and industry experience. All of Claremont's managers and
senior managers have substantial expertise in designing and implementing
large-scale applications solutions, and many of them have relevant industry
experience. As a result, the Company's consultants provide industry knowledge
and line management expertise, in addition to technical expertise, to the
Company's clients.
As of June 30, 1997, the Company had a total of 749 employees of whom there were
676 individuals in the professional staff and 73 in administrative roles.
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In order to accommodate typical project development lead time, the Company has
found that it must recruit and hire additional personnel on the basis of
anticipated demand for their services. Although this practice has contributed to
the Company's growth to date, there can be no assurance that demand for the
Company's services will materialize as anticipated, and this practice could
result in under-utilized employees and consequently have a material adverse
effect upon the Company's business, financial condition and results of
operations.
Qualified project managers and senior technical and professional staff are in
great demand and are likely to remain a limited resource for the foreseeable
future. Limitations in the number of available project managers and senior
technical and professional staff have impaired the Company's ability to take on
available new projects. There can be no assurance that the Company will be
successful in attracting a sufficient number of highly-skilled employees in the
future, or that it will be successful in training, retaining and motivating
them. The Company's inability to attract, train and retain skilled employees or
the Company's employees' inability to achieve expected levels of performance
could impair the Company's ability to adequately manage and complete its
existing projects and to bid for or obtain new projects. This in turn could
have a material adverse effect on the Company's business, financial condition
and results of operations.
ITEM 2. PROPERTIES
The Company's headquarters and principle administrative offices are located in
approximately 14,597 square feet of leased space located in Beaverton, Oregon.
In addition, Claremont has invested in three software development centers, which
Claremont refers to as "software factories." These centers are located in
Beaverton, Oregon; Montreal, Canada; and Columbus, Ohio.
The Company's west coast business development and technical development
personnel operate from the Beaverton, Oregon location. The Company occupies
these premises under a lease expiring in September 1999. In addition, the
Company leases 14,517 square feet in Columbus, Ohio for its retirement system
national practice, central region business development and technical lab. The
lease relating to these premises expires in November 2000. The Company also
leases office space in 12 other locations, including Basking Ridge, New Jersey;
Bellevue, Washington; Cleveland, Ohio; Overland Park, Kansas; Jackson,
Mississippi; Morristown, New Jersey; Sacramento, California; San Francisco,
California; New York, New York; White Plains, New York; Montreal, Canada;
London, United Kingdom; and North Sydney, Australia, from which regional project
management and business development is conducted. Leases for these premises
range from 2,503 to 10,638 square feet. The Company anticipates that additional
space may be required as the Company's business operations expand and believes
it will be able to obtain suitable space as needed.
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ITEM 3. LEGAL PROCEEDINGS
As of September 15, 1997, there were no material pending legal proceedings to
which the Company or its subsidiaries are a party. From time to time, the
Company becomes involved in ordinary and routine legal and regulatory
proceedings incidental to the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in the quarter
ended June 30, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock commenced trading on the Nasdaq National Market
System on July 19, 1996 with an initial offering price of $15.00 per share. On
August 31, 1997 there were 138 shareholders of record of the Company's Common
Stock. The Company has not paid cash dividends on its Common Stock in the past
and does not anticipate paying cash dividends in the foreseeable future.
The high and low sales prices of the Company's Common Stock for each of the
quarterly periods from July 19, 1996 through June 30, 1997 were as follows:
1997 High Low
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Quarter 1 (from July 19, 1996) $ 36.00 $ 15.50
Quarter 2 36.75 23.50
Quarter 3 28.25 20.50
Quarter 4 24.75 13.50
During the period from April 1, 1997 through June 2, 1997, the effective date of
the Company's Registration Statement on Form S-8 relating to its stock option
plans, the Company sold an aggregate of 46,964 shares of Common Stock, for an
aggregate purchase price of approximately $80,000, to various persons pursuant
to the exercise of options granted under the 1992 Stock Incentive Plan in
reliance on Rule 701 promulgated under the Securities Act of 1933.
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ITEM 6. SELECTED FINANCIAL DATA
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<CAPTION>
(In thousands, except per share data) Year Ended June 30,
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1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Professional fees 66,811 $44,769 $27,292 $15,713 $15,667
Resold products and services 521 2,556 -- -- --
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Total revenue 67,332 47,325 27,292 15,713 15,667
Costs and expenses:
Project costs and expenses 35,335 23,988 13,704 9,106 9,112
Resold products and services 490 2,410 -- -- --
Selling, general and administrative 24,591 15,485 10,156 4,214 3,781
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Total costs and expenses 60,416 41,883 23,860 13,320 12,893
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Income from operations 6,916 5,442 3,432 2,393 2,774
Other income (expense), net 374 (169) 67 12 21
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Income before income taxes 7,290 5,273 3,499 2,405 2,795
Income tax expense 3,044 2,250 1,352 953 1,204
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Net income $4,246 $3,023 $2,147 $1,452 $1,591
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Net income per common share $0.44 $0.40 $0.31 $0.24 $0.28
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Weighted average number of common
and common equivalent shares
outstanding 9,761 7,612 7,319 6,269 5,796
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As of June 30,
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1997 1996 1995 1994 1993
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Cash and cash equivalents $15,240 $526 $340 $1,870 $1,818
Working capital $33,174 $3,450 $2,453 $2,045 $1,014
Total assets $56,141 $22,965 $9,578 $5,492 $4,620
Long-term debt, excluding current
installments $585 $1,578 $334 $8 $120
Shareholders' equity $45,405 $8,970 $5,101 $2,883 $1,583
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report on Form 10-K contains certain statements, trend analysis and other
information that constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act, which involve risks and
uncertainties. Actual results may differ materially from the results described
in the forward-looking statements. Such forward looking statements include, but
are not limited to, statements including the words "anticipate," "believe,"
"estimate," "expect," "intend," "plan" and other similar expressions. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions that
include, but are not limited to, those discussed in Item 1 of this Report and in
the following Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenue:
YEAR ENDED JUNE 30,
-------------------------------
1997 1996 1995
------ ------ ------
STATEMENT OF OPERATIONS DATA:
Revenue:
Professional fees 99 % 95 % 100 %
Resold products and services 1 5 --
------ ------ ------
Total revenue 100 100 100
Costs and expenses:
Project costs and expenses 52 51 50
Resold products and services 1 5 --
Selling, general and administrative 37 33 37
------ ------ ------
Total costs and expenses 90 89 87
------ ------ ------
Income from operations 10 11 13
Other income (expense), net 1 -- --
------ ------ ------
Income before income taxes 11 11 13
Income tax expense 5 5 5
------ ------ ------
Net income 6 % 6 % 8 %
------ ------ ------
------ ------ ------
FISCAL 1997 COMPARED TO FISCAL 1996
REVENUE. The Company's revenue consists primarily of professional fees
(including license fees for Claremont's reusable software modules), and to a
lesser extent resold hardware and software products and resold contract
services. The Company's professional fees increased 49 percent to $66.8 million
in fiscal 1997 from $44.8 million in fiscal 1996. Professional fees increased
primarily due to an increase in the number of projects performed, both for new
and existing clients. In fiscal 1997 and 1996, $0.5 million, or 1 percent of
revenue and $2.6 million, or 5 percent of revenue, respectively, resulted from
resold products and services. Resold products and services are offered to
clients on an as needed project basis and are resold with little or no mark-up.
The Company does not expect resold products and services to contribute
materially to its income from operations, and generally expects to make little
or no profit on such products and services. The Company expects to provide such
products and services only as an accommodation to the
13
<PAGE>
Company's clients as requested for particular projects. Revenue from foreign
operations increased 70 percent to $3.9 million in fiscal 1997 from $2.3 million
in fiscal 1996.
Claremont's revenue has become decreasingly dependent upon its largest clients,
though such concentration remains a characteristic of Claremont's business. The
top five clients accounted for 46 percent of revenue in fiscal 1997, down from
56 percent of revenue in fiscal 1996. In fiscal 1997 and 1996 the largest client
accounted for 14 percent and 20 percent of revenue, respectively. During fiscal
1997, 13 clients generated revenue in excess of $1.0 million, compared to 10
clients during fiscal 1996. The cancellation of a large project or a significant
reduction in the scope of such a project could have a material adverse effect on
the Company's business, financial condition and results of operations, and in
the past the cancellation of a large project has had such an effect. No
assurance can be given that such a reduction in concentration will continue or
that client concentration will not leave the Company vulnerable to loss of
projects or clients, or that such a loss would not have a material adverse
impact upon the Company's business, financial condition and results of
operations.
PROJECT COSTS AND EXPENSES. Project costs and expenses consist primarily of
salaries and employee benefits for personnel dedicated to client projects and
associated overhead costs including equipment depreciation and amortization.
Project costs and expenses increased 47 percent to $35.3 million in fiscal 1997
from $24.0 million in fiscal 1996, representing 53 percent and 54 percent of
professional fees in fiscal 1997 and 1996, respectively. The increase in project
costs and expenses was due primarily to the addition of project personnel
necessary to perform the larger number of client projects.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative costs
and expenses consist of costs associated with the Company's executive staff,
finance, facilities and human resources departments (collectively,
"Administrative Personnel"), travel and business development costs. Selling,
general and administrative costs and expenses increased 59 percent to $24.6
million (37 percent of professional fees) in fiscal 1997 from $15.5 million (35
percent of professional fees) in fiscal 1996. The increase is primarily due to
increases in professional development and recruiting expenses associated with
the increased professional personnel, increased facility expenses associated
space needs resulting from the three software development centers, increased
numbers of Administrative Personnel, costs related to acquisitions and increased
costs associated with being a public company.
OTHER INCOME (EXPENSE), NET. Other income (expense) consists primarily of
interest income on cash and cash equivalents and interest expense associated
with short-term borrowings. Other income (expense), net changed to a net income
of $374,000 in fiscal 1997 from a net expense of $169,000 in fiscal 1996. The
increase is primarily due to the increase in interest income to $664,000 for
fiscal 1997 from $49,000 for fiscal 1996, due to higher cash balances resulting
from the proceeds of the Company's initial public offering, which occurred in
July 1996.
14
<PAGE>
INCOME TAX EXPENSE. Income tax expense represents combined federal, state and
foreign taxes at an effective rate of 42 percent for fiscal 1997 compared to 43
percent for fiscal 1996. The slight decrease in the effective tax rate is due to
a change in the mix of jurisdictions in which the Company does business.
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUE. The Company's professional fees increased 64 percent to $44.8 million
in fiscal 1996 from $27.3 million in fiscal 1995. Professional fees increased
primarily due to an increase in the number of projects performed, both for new
and existing clients. In fiscal 1996, $2.6 million, or 5 percent of revenue,
resulted from resold products and services; there was no similar revenue of a
material nature in fiscal 1995. Revenue from foreign operations increased 309
percent to $2.3 million in fiscal 1996 from $562,000 in fiscal 1995. The
increase resulted primarily from operations at the Company's Montreal, Canada
software factory, which commenced operations during the third quarter of fiscal
1995, largely in support of U.S. domestic clients.
Claremont's revenue has become decreasingly dependent upon its largest clients,
though such concentration remains a characteristic of Claremont's business. The
top five clients accounted for 56 percent of revenue in fiscal 1996, down from
76 percent of revenue in fiscal 1995. In fiscal 1996 and 1995 the largest client
accounted for 20 percent and 38 percent of revenue, respectively. During fiscal
1996, ten clients generated revenue in excess of $1.0 million, compared to seven
clients during fiscal 1995.
PROJECT COSTS AND EXPENSES. Project costs and expenses increased 75 percent to
$24.0 million in fiscal 1996 from $13.7 million in fiscal 1995, representing 54
percent and 50 percent of professional fees in fiscal 1996 and 1995,
respectively. The increase in project costs and expenses was due primarily to
the addition of project personnel necessary to perform the larger number of
client projects.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative costs
and expenses increased 52 percent to $15.5 million in fiscal 1996 from $10.2
million in fiscal 1995. The increase is primarily due to increases in
professional development and recruiting expenses associated with the increased
professional personnel, increased facility expenses associated space needs
resulting from new software development centers and increased numbers of
Administrative Personnel and expansion into international markets during the
quarter ended March 31, 1996. In addition, the Company incurred approximately
$300,000 in non-recurring charges attributable to separation agreements with two
terminated executives. See "Certain Transactions." Selling, general and
administrative costs and expenses declined to 35 percent of professional fees in
fiscal 1996 from 37 percent of professional fees in fiscal 1995, due to revenue
increases outpacing selling, general and administrative costs and expenses
increases on a percentage basis in the period.
OTHER INCOME (EXPENSE), NET. Other income (expense) consists primarily of
interest expense associated with short-term borrowings and interest income on
cash and cash equivalents. Other income (expense), net changed to a net expense
of $169,000 in fiscal 1996 from a net income of $67,000 in fiscal 1995. The
change is primarily attributable to
15
<PAGE>
interest expense associated with bank borrowings incurred to finance the
Company's acquisition of computer equipment in fiscal 1996.
INCOME TAX EXPENSE. Income tax expense represents combined federal, state and
foreign taxes at an effective rate of 43 percent for fiscal 1996 compared to 39
percent for fiscal 1995. The increase in the effective tax rate is due to a
change in the mix of jurisdictions in which the Company does business, as well
as changes in certain federal tax laws.
VARIABILITY OF RESULTS OF OPERATIONS
The Company's revenue and results of operations have fluctuated significantly in
the past and will likely fluctuate in the future. Factors causing such
fluctuations have included and may include, among other factors, the number,
size and scope of projects in which the Company is engaged, the contractual
terms and degree of completion of such projects, any delays incurred in
connection with a project, employee hiring and utilization rates, the adequacy
of provisions for losses, the accuracy of estimates of resources required to
complete ongoing projects, general economic conditions, weather-related
shut-downs in major markets, vacation days, total business days in a quarter and
the business practices of clients such as deferring commitments on new projects
until after the end of the calendar or the client's fiscal year. In addition,
the timing of revenue is difficult to forecast because the Company's sales cycle
is relatively long. A high percentage of the Company's operating expenses,
particularly personnel and rent, are relatively fixed in advance of any
particular quarter. For example, while the number of professional staff the
Company employs may be adjusted to reflect active projects, such adjustments
take time and the Company must maintain a sufficient number of senior
professionals to oversee existing clients and to focus on securing new client
engagements. As a result, unanticipated variations in the number or progress
toward completion of the Company's projects or in employee utilization rates may
cause significant variations in operating results in any particular quarter and
could result in material adverse changes to the Company's business, financial
condition and results of operation
Due to the foregoing factors, among others, it is possible that in some future
periods the Company's results of operations will be below the expectations of
the securities analysts and investors. In such event, the price of the Company's
Common Stock may be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and investments in
property and equipment primarily through cash generated from operations, bank
borrowings and capital lease financing. In July 1996, the Company completed its
initial public offering and in August 1996, the Company sold additional shares
pursuant to the exercise of the underwriters' over-allotment option. Net
proceeds from the offering and over-allotment totaled $26.9 million.
At June 30, 1997, the Company had working capital of $33.2 million, including
$15.2 million of cash and cash equivalents.
16
<PAGE>
Cash increased $14.7 million during fiscal 1997 as a result of net cash provided
from financing activities of $26.7 million, offset by $716,000 used in
operations, $4.1 million for the purchase of property and equipment and $6.9
million for software development costs.
Accounts receivable increased $6.2 million to $14.0 million at June 30, 1997
from $7.8 million at June 30, 1996 primarily as a result of growth in revenues.
Days sales outstanding were 66 at June 30, 1997 compared to 64 at June 30, 1996.
The Company experienced a 62 percent reduction in past due accounts (defined as
accounts outstanding more than 60 days) to $529,000 at June 30, 1997 compared to
$1.4 million at June 30, 1996.
Revenue earned in excess of billings, which represents amounts due to the
Company under contracts, primarily from government entities, that can not be
billed until certain milestones are met, increased $0.9 million to $6.5 million
at June 30, 1997 from $5.7 million at June 30, 1996. The Company continues to
work closely with its clients to attempt to reduce the collection cycle of this
asset group.
Refundable income taxes increased to $2.7 million at June 30, 1997 from a
payable of $619,000 at June 30, 1996 primarily as a result of the income tax
benefit associated with certain stock option exercises.
Accounts payable increased $0.5 million to $2.0 million at June 30, 1997 from
$1.5 million at June 30, 1996 primarily due to growth of the business.
During fiscal 1997, the Company had capital expenditures of $4.1 million,
primarily related to furniture and personal computers, and $6.9 million
associated with the capitalization of software development costs. As of June
30, 1997 the Company did not have any material commitments for capital
expenditures.
As of June 30, 1997, the Company had a total of $8.6 million of capitalized
software development costs associated with the Company's reusable software
modules, including CLARETY and PREMOST. To the extent capitalized software
development costs are greater than the potential revenue associated with the
developed software, the Company would be required to immediately expense such
excess amount under SFAS 86. The amount of the excess required to be expensed
in any particular period may be as much as the total amount of capitalized
software development costs then carried on the Company's balance sheet,
depending on the potential revenue associated with the developed software at
such time. Recognition of such expenses, if any, could have a material adverse
effect on the Company's results of operations.
The Company had a revolving line of credit with Bank of America Oregon, a
subsidiary of BankAmerica Corporation, providing for borrowings of up to $6.0
million. As of June 30, 1997, there were no borrowings against this line. This
revolving line of credit expired on August 1, 1997.
On August 21, 1997, the Company signed a business loan agreement (the
"Agreement") with a commercial bank. This Agreement includes a $2.0 million line
of credit and a $750 standby letter of credit. The line of credit and letter of
credit bear interest at the bank's
17
<PAGE>
reference rate plus .25 percent, or, at the Company's option, at rates based on
the Offshore Rate or the LIBOR rate. The expiration date of this Agreement is
September 1, 1999. This Agreement also covers currently outstanding term loans
for an original principal amount of $5,000,000 which had previously been covered
under the Business Loan Agreement dated April 24, 1995. The Agreement is
secured by all machinery and equipment and receivables of the Company and
contains certain financial ratio and other covenants. As of the date of this
report, the Company was in compliance with all such covenants.
The Company has certain term loans with Bank of America Oregon primarily to
finance equipment purchases. As of June 30, 1997 there was $1.6 million of
related debt outstanding against these loans. Debt service under these lines is
payable over 36 months, including principal and interest. There are three
separate borrowings under this facility at interest rates ranging from 7.59
percent to 8.05 percent, and all such borrowings are secured by all of the
assets of the Company.
The Company is a guarantor on a non-revolving line of credit with Bank of
America Oregon, which provided for borrowings of up to $2.0 million, for
purposes of facilitating the purchase of Claremont's Common Stock by Company
executives in July 1995. As of June 30, 1997 there was $923,000 of related debt
outstanding against the line. Advances under the line of credit were made
directly to the Company executive with full recourse and bear interest at Bank
of America's NT&SA Reference Rate, plus one percentage point. Claremont's
guaranty is secured by a pledge of each borrower's shares of the Company's
Common Stock. Advances under the line of credit are for 36 months and include
monthly interest payments, made by each Company executive, with principal
repayment by each Company executive due on or before July 31, 1998.
As a provider of professional services, the Company has few tangible assets
against which to borrow. Therefore, the Company primarily requires equity
capital to finance or leverage its working capital. The Company believes that
the cash provided from operations, borrowings available under its revolving line
of credit and the net proceeds of its initial public offering in July 1996 will
be sufficient to meet the Company's working capital and capital expenditure
requirements for at least the next fiscal year.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings per Share" ("SFAS 128"). This
statement establishes a different method of computing net income per share than
is currently required under the provisions of Accounting Principles Board
Opinion No. 15. Under SFAS 128, the Company is required to present both basic
net income per share and diluted net income per share. Basic net income per
share is expected to be comparable or slightly higher than the previously
presented net income per share as the effect of dilutive stock options is not
considered in computing basic net income per share. Diluted net income per
share is expected to be comparable or slightly lower than the previously
presented net income per share. The Company will adopt SFAS 128 in the quarter
ended December 31, 1997 and will restate all prior earnings per share
presentations to conform to the provisions of SFAS 128.
18
<PAGE>
In June 1997, the FASB issued Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. The objective of SFAS
130 is to report a measure of all changes in equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners. The Company expects to adopt SFAS 130 in the first
quarter of 1998 and does not expect comprehensive income to be materially
different from currently reported net income.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
FINANCIAL STATEMENTS
The financial statements required by this item begin on page F-1 of this
document.
<TABLE>
<CAPTION>
SUPPLEMENTARY FINANCIAL DATA
(In thousands, except per share amounts) Q1 1997 Q2 1997 Q3 1997 Q4 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 13,879 $ 15,735 $ 18,477 $ 18,720
Gross Profit 6,820 7,873 8,545 8,238
Operating Income 1,713 2,335 2,122 746
Net Income 1,067 1,450 1,296 433
Net Income Per Share $ 0.12 $ 0.15 $ 0.13 $ 0.05
(In thousands, except per share amounts) Q1 1996 Q2 1996 Q3 1996 Q4 1996
-------- -------- -------- --------
Net Sales $ 8,883 $ 11,907 $ 12,885 $ 13,650
Gross Profit 4,166 5,395 5,449 5,917
Operating Income 936 2,067 876 1,563
Net Income 538 1,172 495 818
Net Income Per Share $ 0.07 $ 0.16 $ 0.07 $ 0.11
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is included under the captions ELECTION OF
DIRECTORS, EXECUTIVE OFFICERS and SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE, respectively in the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption EXECUTIVE
COMPENSATION in the Company's Proxy Statement for its 1997 Annual Meeting of
Shareholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in the Company's Proxy
Statement for its 1997 Annual Meeting of Shareholders and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS in the Company's Proxy Statement for its
1997 Annual Meeting of Shareholders and is incorporated herein by reference.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The financial statements included herein are as follows:
DESCRIPTION PAGE
- ----------- ----
Independent Auditors' Report F-1
Consolidated Balance Sheets, June 30, 1997 and 1996 F-2
Consolidated Statements of Operations, Years Ended June 30,
1997, 1996 and 1995 F-3
Consolidated Statements of Shareholders' Equity, Years Ended
June 30, 1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows, Years Ended June 30,
1997, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6
(a) (2) FINANCIAL STATEMENT SCHEDULES
None.
(a) (3) EXHIBITS INCLUDED HEREIN:
Number DESCRIPTION
------ -----------
2.1 Agreement and Plan of Merger By and Among Claremont Technology
Group, Inc., Claremont Acquisition Corporation, OpTex, Inc.,
Michael L. Johnson, Michael A. Guider, Juli A. Shivley, Richard E.
Brown, Laura Henderson and Michael Lininger, dated July 10, 1997
(C)
2.2 Escrow Agreement by and among Claremont Technology Group, Inc.,
First Trust National Association, as an escrow agent, and Michael
L. Johnson in his capacity as the Shareholder Representative for
OpTex, Inc., dated July 10, 1997 (C)
3.1 Second Restated Articles of Incorporation of Claremont Technology
Group, Inc. (A)
3.2 Second Amended and Restated Bylaws of Claremont Technology
Group, Inc. (A)
4 Form of Shareholder Agreement under 1992 Stock Incentive Plan (A)
10.1 Form of Indemnity Agreement between Claremont Technology
Group, Inc. and each of its executive officers and directors(A)
10.2 1992 Stock Incentive Plan, as amended (A)
10.3 Form of Stock Option Agreement Under 1992 Stock Incentive Plan (A)
10.4 1996 Stock Option Plan for Nonemployee Directors (A)
10.5 Letter of Agreement by and among Mr. Tony Martins, Ms. Anna Mara,
Ms. Claude Gareau, Mr. Ronald Bastien, Tony Martins &
Associes., Inc. and Claremont Technology Group, Inc. dated as of
January 23, 1995 (A)
10.6 Employment Agreement by and between Claremont Technology Group,
Inc. and Paul J. Cosgrave dated July 1, 1994 (A)
10.7 Employment Agreement by and between Claremont Consulting
Group, Inc. (k/n/a Claremont Technology Group, Inc.) and Dennis M.
Goett dated February 1, 1996 (A)
10.8 Employment Agreement by and between Claremont Technology
Group, Inc. and Stephen Hawley dated February 5, 1993 (A)
21
<PAGE>
Number DESCRIPTION
------ -----------
10.9 Lease by and between Amberjack, Ltd. and Claremont Technology
Group, Inc. dated January 13, 1995, as amended (A)
10.10 Lease by and between Birtcher Properties, Inc., Manager for
Amberjack, Ltd., and Claremont Technology Group, Inc. dated
November 27, 1991, as amended (A)
10.11 Lease Agreement by and between TOW Ltd. and Claremont Technology
Group, Inc. dated October 1995 (A)
10.12 Claremont Technology Group, Inc. 401(k) Plan and Trust (A)
10.13 Claremont Technology Group, Inc. Employee Stock Ownership Plan (A)
10.14 Business Loan Agreement between Bank of America Oregon and
Claremont Technology Group, Inc. dated August 21, 1997 (D)
10.15 Stock Purchase Agreement dated May 17, 1996 by and between
Claremont Technology Group, Inc. (the Company), the shareholders of
the Company, Paul J. Cosgrave and the Investors (B)
10.16 Common Stock Purchase Warrant issued by Claremont Technology Group,
Inc. to DLJ Capital Corporation dated May 20, 1996 (A)
10.17 Settlement Agreement and Release dated May 20, 1996 by and between
Claremont Technology Group, Inc. and DLJ Capital Corporation and
associated funds (A)
11 Computation of Earnings Per Share (D)
21 Subsidiaries of the Registrant (D)
23 Consent of KPMG Peat Marwick LLP (D)
27 Financial Data Schedule (D)
(A) Incorporated by reference to Exhibits to Company's Registration Statement
of Form S-1 as amended, effective July 19, 1996 (Commission Registration
No. 333-04561).
(B) Incorporated by reference to Exhibits to the Company's Form 10-K for the
fiscal year ended June 30, 1996 as filed with the Securities and Exchange
Commission on September 27, 1996.
(C) Incorporated by reference to Exhibits to the Company Form 8-K, dated July
10, 1997 as filed with the Securities and Exchange Commission on July 25,
1997.
(D) Filed herewith.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Registrant during the quarter ended
June 30, 1997.
22
<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.
Date: September 15, 1997
CLAREMONT TECHNOLOGY GROUP, INC.
By /s/ PAUL J. COSGRAVE
--------------------
Paul J. Cosgrave
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on September 15, 1997:
SIGNATURE TITLE
- --------- -----
/s/ PAUL J. COSGRAVE Chairman of the Board, President and
- -------------------- Chief Executive Officer
Paul J. Cosgrave (Principal Executive Officer)
/s/ DENNIS M. GOETT Chief Financial Officer and Director
- ------------------- (Principal Financial and Accounting Officer)
Dennis M. Goett
/s/ NEIL E. GOLDSCHMIDT Director
- -----------------------
Neil E. Goldschmidt
/s/ JERRY L. STONE Director
- ------------------
Jerry L. Stone
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Claremont Technology Group, Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Claremont
Technology Group, Inc. and subsidiaries as of June 30, 1997 and 1996 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Claremont Technology
Group, Inc. and subsidiaries as of June 30, 1997 and 1996 and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1997 in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Portland, Oregon
August 14, 1997
F-1
<PAGE>
<TABLE>
<CAPTION>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 15,240 $ 526
Receivables:
Accounts receivable, net 13,975 7,811
Revenue earned in excess of billings 6,537 5,653
Other 179 153
Prepaid expenses and other current assets 745 683
Refundable income taxes 2,745 -
Deferred income taxes 1,048 266
---------- ----------
Total Current Assets 40,469 15,092
Property and equipment, net 5,844 4,069
Software development costs, net of accumulated amortization
of $554 and $61 8,554 2,146
Other non-current assets, net of accumulated amortization
of $589 and $194 1,274 1,658
---------- ----------
Total Assets $ 56,141 $ 22,965
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,975 $ 1,464
Line of credit - 4,600
Current installments of long-term debt 993 944
Accrued expenses 3,564 3,354
Income taxes payable - 619
Deferred revenue 763 661
---------- ----------
Total Current Liabilities 7,295 11,642
Long-term debt, excluding current installments 585 1,578
Deferred income taxes 2,856 775
---------- ----------
Total Liabilities 10,736 13,995
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, no par value. Authorized 10,000
shares; no shares issued or outstanding - -
Common stock, no par value. Authorized 25,000 shares;
8,257 and 4,832 shares issued and outstanding at
1997 and 1996, respectively 33,343 1,331
Retained earnings 12,043 7,649
Cumulative translation adjustment 19 (10)
---------- ----------
Total Shareholders' Equity 45,405 8,970
---------- ----------
Total Liabilities and Shareholders' Equity $ 56,141 $ 22,965
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended June 30,
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Professional fees $ 66,811 $ 44,769 $ 27,292
Resold products and services 521 2,556 -
-------- -------- --------
Total revenue 67,332 47,325 27,292
-------- -------- --------
Costs and expenses:
Project costs and expenses 35,335 23,988 13,704
Resold products and services 490 2,410 -
Selling, general and administrative 24,591 15,485 10,156
-------- -------- --------
Total costs and expenses 60,416 41,883 23,860
-------- -------- --------
Income from operations 6,916 5,442 3,432
-------- -------- --------
Other income (expense):
Interest income 664 49 83
Interest expense (185) (182) (31)
Other, net (105) (36) 15
-------- -------- --------
Total other income (expense) 374 (169) 67
-------- -------- --------
Income before income taxes 7,290 5,273 3,499
Income tax expense 3,044 2,250 1,352
-------- -------- --------
Net income $ 4,246 $ 3,023 $ 2,147
-------- -------- --------
-------- -------- --------
Net income per common share $ 0.44 $ 0.40 $ 0.31
-------- -------- --------
-------- -------- --------
Weighted average number of common and
common equivalent shares outstanding 9,761 7,612 7,319
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Cumulative Total
----------------- Retained Translation Shareholders'
Shares Amount Earnings Adjustment Equity
------ ------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994 3,949 47 2,836 - 2,883
Net income - - 2,147 - 2,147
Tax benefit of stock options exercised - 83 - - 83
Stock options exercised 339 102 - - 102
Purchase of common stock (55) (30) (85) - (115)
Foreign currency translation adjustment - - - 1 1
------ ------ -------- ----------- -------------
Balance at June 30, 1995 4,233 202 4,898 1 5,101
Net income - - 3,023 - 3,023
Tax benefit of stock options exercised - 525 - - 525
Stock options exercised 668 500 - - 500
Stock compensation recognized - 107 - - 107
Purchase of common stock (69) (3) (272) - (275)
Foreign currency translation adjustment (11) (11)
------ ------ -------- ----------- -------------
Balance at June 30, 1996, as previously
reported 4,832 1,331 7,649 (10) 8,970
Acquisition of business 60 - 148 - 148
------ ------ -------- ----------- -------------
Balance at June 30, 1996 as restated 4,892 1,331 7,797 (10) 9,118
Net income - - 4,246 - 4,246
Tax benefit of stock options exercised - 4,136 - - 4,136
Stock options exercised 1,070 1,006 - - 1,006
Proceeds from issuance of common
stock, net of issuance costs of $1,204 2,012 26,870 - - 26,870
Warrants exercised,net 283 - - - -
Foreign currency translation adjustment - - - 29 29
------ ------ -------- ----------- -------------
Balance at June 30, 1997 8,257 $ 33,343 $ 12,043 $ 19 $ 45,405
------ ------ -------- ----------- -------------
------ ------ -------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,246 $ 3,023 $ 2,147
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 3,211 1,376 467
Deferred income taxes 1,285 699 (423)
Non-cash expenses recognized 356 107 -
Changes in assets and liabilities, net of effect of acquisitions:
Receivables (7,243) (7,625) (3,565)
Prepaid expenses and other current assets 16 (688) 5
Other non-current assets (9) (1,030) (90)
Accounts payable and accrued expenses 666 1,858 1,451
Deferred revenue 102 366 (3)
Refundable income taxes (2,745) - -
Income taxes payable (601) 201 242
-------- -------- --------
Net cash provided (used) by operating activities (716) (1,713) 231
-------- -------- --------
Cash flows from investing activities:
Acquisition, net of cash acquired (291) (130) (204)
Purchase of property and equipment (4,068) (3,663) (1,498)
Capitalized software development costs (6,901) (2,077) (122)
-------- -------- --------
Net cash used by investing activities (11,260) (5,870) (1,824)
-------- -------- --------
Cash flows from financing activities:
Payments on line of credit (5,900) (12,025) (4,200)
Proceeds from line of credit 1,300 16,425 4,400
Payments of long-term debt (944) (671) (39)
Proceeds from issuance of long-term debt - 2,570 500
Payments of obligations under capital leases - (3) (83)
Purchases of common stock - (275) (115)
Proceeds from exercise of stock options 1,006 500 102
Adjustment for pooling of interest 148 - -
Net proceeds from common stock offering 26,870 - -
Tax benefit of stock option exercises 4,136 525 83
Payments (issuance) of notes receivable, net 76 720 (575)
-------- -------- --------
Net cash provided by financing activities 26,692 7,766 73
-------- -------- --------
Effect of exchange rate changes on cash (2) 3 (10)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 14,714 186 (1,530)
Cash and cash equivalents at beginning of year 526 340 1,870
-------- -------- --------
Cash and cash equivalents at end of year $ 15,240 $ 526 $ 340
-------- -------- --------
-------- -------- --------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 209 $ 144 $ 31
Cash paid for taxes $ 849 $ 804 $ 1,319
Supplemental disclosure of non-cash investing and
financing activities:
Net liabilities assumed in merger $ - $ 57 $ 151
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997, 1996 and 1995
(In thousands, except per share amounts)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Claremont Technology Group, Inc. (the Company) provides enterprise-wide
information technology (IT) solutions that reengineer mission-critical
business processes such as customer service, order and transaction
processing, billing and logistics. Claremont services include IT planning,
systems integration and development and outsourcing, through a project
management methodology that employs reusable object oriented software
modules and transferable design frameworks.
Claremont provides solutions to large organizations in select IT intensive
vertical markets including commercial services, communications, financial
services and state and local government. Claremont's clients consist of
large corporations and government organizations in the United States and
certain foreign markets.
FISCAL PERIODS
For 1997 and 1996, the Company's fiscal year ended on the Friday closest to
June 30. The Company's fiscal year for 1995 ended on June 30. The fiscal
year will generally be 52 weeks and periodically will consist of 53 weeks.
All years presented consist of 52 weeks. For convenience the Company has
indicated in these financial statements that its fiscal year ends on June
30.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
Claremont Technology Group, Inc. and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
CASH EQUIVALENTS
For the purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less
to be cash equivalents. Cash equivalents consist of commercial paper,
bankers' acceptances, and other highly liquid investments.
F-6
<PAGE>
FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, trade receivables, accounts
payable and short-term borrowings approximate fair value because of the
short-term nature of these instruments. The fair value of long-term debt
was estimated by discounting the future cash flows using market interest
rates and does not differ significantly from that reflected in the
financial statements.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
REVENUE AND COST RECOGNITION
Revenues from fixed-price contracts are recognized on the
percentage-of-completion method, measured by the percentage of cost
incurred to date to the estimated total cost at completion. This method is
used because management considers accumulated costs to be the best
available measure of progress on these contracts. The cumulative impact of
any revision in estimates of the percent complete is reflected in the year
in which the changes become known. Losses on projects in progress are
recognized when known. Revenue earned in excess of billings is comprised
of earnings on certain contracts in excess of contractual billings on such
contracts. Billings in excess of earnings are classified as deferred
revenues.
Revenues from time and materials contracts are recognized during the period
in which the services are provided.
ACCOUNTS RECEIVABLE
Accounts receivable are shown net of allowance for doubtful accounts of
$136 and $110 at June 30, 1997 and 1996, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment under capital leases
is stated at the present value of future minimum lease payments at the
inception of the lease.
Depreciation of property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets ranging from three to
five years. Equipment held under capital leases and leasehold improvements
are amortized straight-line over the shorter of the lease term or estimated
useful lives of the assets.
F-7
<PAGE>
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
FOREIGN CURRENCY TRANSLATION
The local currency is the functional currency in the Company's foreign
subsidiaries. Assets and liabilities of the foreign subsidiaries are
translated to U.S. dollars at current rates of exchange, and revenues and
expenses are translated using weighted average rates, in accordance with
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation." Gains and losses from foreign currency translation are
included as a separate component of shareholders' equity. Foreign currency
transaction gains and losses are included as a component of other income
and expense.
INTANGIBLE ASSETS
Software development costs incurred subsequent to establishing a product's
technological feasibility are capitalized until such product is available
for general release to customers in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software
to be Sold, Leased or Otherwise Marketed". Capitalized software costs are
amortized on a product-by-product basis. Amortization is recorded based on
the greater of (a) the estimated economic life of the software (generally
five years or less) or (b) the ratio of current gross revenues for each
product to the total of current and anticipated gross revenues for each
product, commencing when such product is available for general release.
Other intangibles include purchased technology and a covenant not to
compete, which are amortized over periods ranging from two to five years
using the straight-line method. Total amortization costs for other
intangibles were $395 in fiscal 1997 and were immaterial in fiscal 1996 and
1995.
F-8
<PAGE>
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
COMPUTATION OF NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
shares of common and common equivalent shares outstanding. Common
equivalent shares from stock options and warrants are excluded from the
computation if their effect is antidilutive, except that pursuant to the
Securities and Exchange Staff Accounting Bulletins, common and common
equivalents shares issued at prices below the public offering price during
the twelve months immediately preceding the initial filing date have been
included in the calculation as if they were outstanding for all periods
presented using the treasury stock method and the initial public offering
price.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." SFAS 128 changes the standards for computing and
presenting earnings per share (EPS) and supersedes APB Opinion No. 15,
"Earnings per Share." SFAS 128 simplifies the standards for computing
earnings per share and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. This Statement requires
restatement of all prior-period EPS data presented. Following is the pro
forma effect of adoption on the Company's earnings per share for the years
ended June 30, 1997, 1996 and 1995:
Year Ended June 30,
-----------------------------------
1997 1996 1995
------- ------- -------
Primary EPS as reported $ 0.44 $ 0.40 $ 0.31
Effect of SFAS 128 0.12 0.26 0.21
------- ------- -------
Basic EPS as restated $ 0.56 $ 0.66 $ 0.52
------- ------- -------
------- ------- -------
Fully diluted EPS as reported $ 0.44 $ 0.41 $ 0.31
Effect of SFAS 128 0.00 (0.01) 0.00
------- ------- -------
Diluted EPS as restated $0.44 $ 0.40 $ 0.31
------- ------- -------
------- ------- -------
F-9
<PAGE>
(2) ACQUISITIONS
In January 1996, the Company purchased certain assets of The Node
Connection (TNC). The acquisition has been accounted for as a purchase,
and the financial results of TNC have been included in the accompanying
consolidated financial statements since the date of acquisition. The cost
of the acquisition has been allocated on the basis of the estimated fair
value of the assets acquired and the liabilities assumed.
In February 1997, the Company acquired certain assets and liabilities of
Pacific Star Technologies Pty. Limited from Queensland Systems Integration
Pty. Limited ("QSI"), a software and systems integration company, for $291.
The acquisition has been accounted for as a purchase, and financial results
have been included in the accompanying consolidated financial statements
since the date of acquisition. The cost of the acquisition has been
allocated on the basis of the estimated fair value of the assets acquired
and the liabilities assumed.
The separate operational results of QSI are not material and accordingly
pro-forma financial results have been omitted.
In April 1997, the Company issued 60 shares of common stock in exchange for
all of the outstanding common stock of the TDS Group, Inc. ("TDS"). TDS
specializes in developing comprehensive information systems for government
and non-profit organizations. The acquisition has been accounted for as a
pooling of interests and accordingly, the Company's consolidated financial
statements have been restated to include the results of TDS for fiscal
1997. Results of TDS prior to fiscal 1997 were immaterial, thus prior
periods presented have not been restated.
Merger costs of $140 were incurred and charged to expense in the fourth
quarter of 1997 for services rendered to facilitate completion of the
transaction.
(3) BALANCE SHEET COMPONENTS
PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the
following: June 30,
--------------------
1997 1996
------- -------
Furniture and equipment $ 1,538 $ 1,147
Computer equipment and software 8,428 4,759
Leased equipment 216 216
Leasehold improvements 149 108
------- -------
10,331 6,230
Less accumulated depreciation and amortization (4,487) (2,161)
------- -------
Property and equipment, net $ 5,844 $ 4,069
------- -------
------- -------
Depreciation expense for the years ended June 30, 1997, 1996 and 1995 was
$2,326, $1,178 and $469, respectively.
F-10
<PAGE>
ACCRUED EXPENSES
The Company's accrued expenses consist of the following:
June 30,
-------------------
1997 1996
------- -------
Accrued payroll $ 885 $ 787
Accrued vacation 1,854 1,105
Accrued payroll taxes 418 710
Accrued profit sharing 366 682
Accrued other 41 70
------- -------
$ 3,564 $ 3,354
------- -------
------- -------
(4) INVESTMENT IN PARTNERSHIP
Claremont Retirement Solutions, Ltd. (the Partnership) was formed with one
of the Company's major customers to receive royalties from Claremont
Retirement Technologies, Inc. ("CRTI") for future sales of a
pension/retirement system template to other public and private pension
funds. CRTI has obtained licensing rights from the Partnership to remarket
the template. CRTI's initial equity contribution to the Partnership
represents approximately 1 percent of the Partnership's total capital.
(5) LEASES
The Company leases certain of its office space through noncancelable
operating lease arrangements. The leases expire May 31, 1998 through
September 30, 2002, and are net leases with the Company paying all
executory costs, including insurance, utilities, and maintenance. Rental
expense for operating leases during the years ended June 30, 1997, 1996 and
1995 was approximately $793, $820 and $404, respectively.
F-11
<PAGE>
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) are as follows:
Year Ending June 30,
1998 $ 856
1999 743
2000 524
2001 373
2002 203
Thereafter 31
-------
Total minimum lease payments $ 2,730
-------
-------
(6) LONG-TERM DEBT
Long-term debt consists of the following:
June 30,
-----------------------
1997 1996
-------- --------
7.6% installment loan payable in
monthly installments of $61,
including interest, with final
payment due April 1999, secured by
certain furniture and equipment $ 1,189 $ 1,799
7.59% installment loan payable
in monthly installments of $14 with
final payment due November 1998,
secured by certain furniture and
equipment 222 334
8.05% installment loan payable in
monthly installments of $16,
including interest, with final
payment due May 1998, secured by
certain furniture and equipment 167 389
-------- --------
1,578 2,522
Less current installment of long-
term debt (993) (944)
-------- --------
Long-term debt, excluding current
installments $ 585 $ 1,578
-------- --------
-------- --------
The aggregate maturities of long-term debt for years subsequent to June 30,
1997 are as follows:
Year Ending June 30,
1998 $ 993
1999 585
-------
Total payments on long-term debt $ 1,578
-------
-------
During 1995, the Company entered into a $2 million line of credit with a
bank, which was subsequently increased to $6 million in June 1996, with an
interest rate of .25 percentage points above the bank's reference rate
(8.75 percent at June 30, 1997). This line of credit is secured by
furniture, equipment, and accounts receivable. At June 30, 1997, there were
no amounts outstanding on this line of credit. This line of
F-12
<PAGE>
credit expired on August 1, 1997 and the Company entered into a new line of
credit agreement dated August 21, 1997 (see note 16 Subsequent Events).
The Company is a guarantor on a nonrevolving line of credit with a bank,
which provides for borrowings of up to $2 million for purposes of
facilitating the purchase of Company common stock by Company executives.
As of June 30, 1997, there was $923 of related debt outstanding against the
line. Advances under the line of credit were made directly to the Company
executive with full recourse and bear interest. Advances under the line of
credit were for 36 months and include monthly interest payments, made by
each Company executive, with principal repayment by each Company executive
on or before July 31, 1998.
The various lines of credit with Bank of America Oregon are contained in a
master Business Loan Agreement, which includes covenants relating to the
maintenance of certain financial ratios and minimum net worth. The
Company was in compliance with these covenants at June 30, 1997.
The Company has available a standby letter of credit for up to $125. As of
June 30, 1997, there were no amounts outstanding under the line of credit
(see note 16 Subsequent Events).
In August 1997, the Company signed a business loan agreement (the
"Agreement") with a commercial bank. This Agreement includes a $2.0 million
line of credit and a $750 standby letter of credit. The line of credit and
letter of credit bear interest at the bank's reference rate plus .25
percent, or, at the Company's option, at rates based on the Offshore Rate
or the LIBOR rate. The expiration date of this Agreement is September 1,
1999. This Agreement also covers currently outstanding term loans for an
original principal amount of $5,000 which had previously been covered under
the Business Loan Agreement dated April 24, 1995. The Agreement is secured
by all machinery and equipment and receivables of the Company and contains
certain financial ratio and other covenants.
(7) INCOME TAXES
The components of income tax expense are as follows:
Year Ended June 30,
-------------------------------
1997 1996 1995
------- ------- -------
Current:
Federal $ 967 $ 1,232 $ 1,351
State and local 300 319 398
Foreign -- -- 26
------- ------- -------
1,267 1,551 1,775
Deferred:
Federal 1,930 552 (314)
State and local 494 147 (109)
Foreign (647) -- --
------- ------- -------
1,777 699 (423)
------- ------- -------
$ 3,044 $ 2,250 $ 1,352
------- ------- -------
------- ------- -------
F-13
<PAGE>
The actual income tax expense differs from the expected tax expense
(computed by applying the U.S. federal and corporate income tax rate of 34
percent to net income before income taxes) as follows:
Year Ended June 30,
-------------------------------
1997 1996 1995
------- ------- -------
Computed expected income tax expense $ 2,479 $ 1,793 $ 1,190
Increase (reduction) in income tax
expense resulting from:
State income tax expense 518 292 214
Other 47 165 (52)
------- ------- -------
Income tax expense $ 3,044 $ 2,250 $ 1,352
------- ------- -------
------- ------- -------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
June 30,
-------------------
1997 1996
------- -------
Deferred tax assets:
Accrued expenses $ 342 $ 215
Expenses deductible in future periods -- 42
State net operating loss carryforward 358 --
Alternative minimum tax credit carryforward 120 --
Foreign net operating losses 647 --
Other 90 61
------- -------
Total gross deferred tax assets 1,557 318
Deferred tax liability:
Capitalized software development costs (3,360) (812)
Property and equipment, due to differences
in depreciation (5) (15)
------- -------
Total gross deferred tax liabilities (3,365) (827)
------- -------
Net deferred tax assets (liabilities) $ (1,808) $ (509)
------- -------
------- -------
(8) STOCK INCENTIVE PLANS
During fiscal 1992, the Company adopted, and the Board of Directors
approved, a stock incentive plan for eligible employees, directors and
outside consultants of the Company (the 1992 Plan). Either non-qualified
or incentive stock options may be issued under this plan and are
exercisable for a period of up to ten years from the date of grant.
Certain of these options are subject to acceleration clauses. As of
June 30, 1996, the Company had authorized issuance of such options to
purchase up to an aggregate of 5,000 shares of its common stock. The
options vest and are exercisable over various periods from the initial
grant date.
F-14
<PAGE>
During fiscal 1996, the Company also adopted and the Board of Directors
approved the 1996 Stock Option Plan for Nonemployee Directors (the 1996
Nonemployee Director Plan). Under the terms of the 1996 Nonemployee
Director Plan, directors of the Company who are not employees of the
Company or any subsidiary of the Company are eligible to receive
nonqualified options to purchase shares of common stock. A total of 200
shares of common stock have been reserved for issuance upon exercise of
stock options granted under the 1996 Nonemployee Director Plan. Upon
election to the Board of Directors, each director is granted an option to
purchase 20 shares, which option will vest over a three-year period (each a
"Recruitment Grant"). Following the first annual meeting of shareholders
after a Recruitment Grant is fully vested, the nonemployee director holding
such fully-vested Recruitment Grant will receive an option to purchase an
additional 15 shares of common stock, which option will vest over a
three-year period (a "First Renewal Grant"). Furthermore, following the
first annual meeting of shareholders after a nonemployee director's First
Renewal Grant is fully vested, and following every third annual meeting of
shareholders thereafter, such nonemployee director will be granted an
option to purchase an additional 15 shares of common stock, which option
will vest over a three-year period. The exercise price of options granted
under the 1996 Nonemployee Director Plan may not be less than the fair
market value of a share of common stock on the date of the grant of the
option.
The following table summarizes stock option activity through June 30, 1997:
<TABLE>
<CAPTION>
Weighted
Average
Shares Price
-------- ---------
<S> <C> <C>
Outstanding options at June 30, 1994 2,501 $ 0.67
Granted 1,323 2.08
Exercised (332) 0.29
Canceled (108) 1.59
-------- ---------
Outstanding options at June 30, 1995 3,384 1.23
Granted 543 3.90
Exercised (668) 0.75
Canceled (167) 3.35
-------- ---------
Outstanding options at June 30, 1996 3,092 1.69
Granted 810 17.61
Exercised (1,070) 0.95
Canceled (393) 12.37
-------- ---------
Outstanding options at June 30, 1997 2,439 $ 5.59
-------- ---------
-------- ---------
</TABLE>
F-15
<PAGE>
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123") which defines a fair
value based method of accounting for an employee stock option and similar
equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it
also allows an entity to continue to measure compensation cost for those
plans using the method of accounting prescribed by Accounting Principles
Board Opinion 25 ("APB 25"). Entities electing to remain with the
accounting in APB 25 must make pro forma disclosures of net income and, if
presented, earnings per share, as if the fair value based method of
accounting defined in SFAS 123 had been adopted.
The Company has elected to account for its stock-based compensation plans
under APB 25; however, the Company has computed, for pro forma disclosure
purposes, the value of all options granted during 1997 and 1996 using the
following weighted average assumptions for grants:
For the Year Ended June 30, 1997 1996
------------ ------------
Risk-free interest rate 6.0% 6.0%
Expected dividend yield 0% 0%
Expected lives 5 years 5 years
Expected volatility 70% n/a
Using the Black-Scholes methodology for 1997 and the minimum value method
for 1996, the total value of options granted during fiscal 1997 and 1996
was $4,460 and $259, respectively, which would be amortized on a pro forma
basis over the vesting period of the options (typically five years). The
weighted average fair value of options granted during fiscal 1997 and 1996
was $5.50 per share and $0.48 per share, respectively. If the Company had
accounted for its stock-based compensation plans in accordance with SFAS
123, the Company's net income and net income per share would approximate
the pro forma disclosures below:
For the Year Ended June 30, 1997 1996
------------------ -----------------
As Pro As Pro
Reported Forma Reported Forma
-------- ------- -------- -------
Net income $ 4,246 $ 4,003 $ 3,023 $ 2,997
Net income per share $ 0.44 $ 0.42 $ 0.40 $ 0.39
The effects of applying SFAS 123 in this pro forma disclosure may not be
indicative of future amounts. SFAS 123 does not apply to awards prior to
July 1, 1995.
F-16
<PAGE>
The following table summarizes information about stock options outstanding
and exercisable at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- -------------------------
Weighted
Average Weighted Weighted
Remaining Average Number of Average
Range of Number Contractual) Exercise Shares Exercise
Exercise Price Outstanding Life (years) Price Exercisable Price
---------------- ------------ ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.136 - $1.73 1,198 6.4 $1.33 761 $1.20
$1.74 - $3.55 320 7.7 $2.89 128 $2.70
$3.56 - $8.00 288 8.5 $4.09 63 $4.04
$8.01 - $15.00 567 9.5 $14.19 16 $14.79
$15.01 - $25.00 29 9.5 $22.91 2 $22.41
$25.01 - $36.00 37 9.2 $32.99 0 $27.75
---------------- ------------ ------------ -------- ----------- ---------
$0.136 - $36.00 2,439 7.6 $5.59 970 $1.85
---------------- ------------ ------------ -------- ----------- ---------
---------------- ------------ ------------ -------- ----------- ---------
</TABLE>
(9) EMPLOYEE STOCK OWNERSHIP PLAN
In June 1995, the Company established an Employee Stock Ownership Plan
(ESOP) for all non-union U.S. employees. The ESOP is designed to invest
primarily in common stock of the Company. Each nonunion employee of the
Company or any affiliated company automatically participates in the ESOP
on the January 1 or July 1 following such employee's date of hire.
A participant's account becomes fully vested and nonforfeitable after
seven years of service with the Company, or earlier if the participant
attains age 65, becomes totally disabled or dies. The participant's
account vests at the rate of 10 percent per year for the first four years
of employment, and at the rate of 20 percent per year for each year
thereafter, until fully vested. The Company pays all administrative
costs of the ESOP.
The Company makes all contributions to the ESOP, which may be made in
either cash or shares of common stock. The contributions to the ESOP for
the years ended June 30, 1997, 1996 and 1995 consisted of cash of $150,
$448 and $300, respectively. Future contributions to the ESOP will be
made at the Company's discretion.
(10) PROFIT SHARING PLAN
In January 1990, the Company adopted a qualified profit sharing plan
pursuant to Section 401(k) of the Internal Revenue Code. The plan
requires participants to be at least 21 years of age and have completed
at least one hour of service. Employees can make voluntary contributions
up to limitations prescribed by the Internal Revenue Code. Company
matching contributions are discretionary. For the years ended June 30,
1997, 1996 and 1995, the Company recognized discretionary matching
contributions of $117, $129 and $75, respectively.
F-17
<PAGE>
(11) STOCK WARRANT
On May 20, 1996, the Company issued a five-year warrant to purchase 400
shares of common stock at an exercise price of $10.33 per share. The
warrant was exercised on October 23, 1996 using a net exercise provision,
for a total of 283,029 shares of the Company's Common Stock. As of June
30, 1997, the warrant was fully exercised and no shares of the Company's
Common Stock remain issuable under this warrant.
(12) BUSINESS AND CREDIT CONCENTRATION
Revenues from certain of the Company's largest customers individually
exceeded 10 percent of revenues as follows:
Year Ended June 30,
--------------------
1997 1996 1995
------ ----- -----
Ohio State Teachers Retirement System 8% 14% 38%
Lucent Technologies 14% 20% 19%
Mississippi Public Employee Retirement System 3% 11% --
At June 30, 1997 and 1996, the trade accounts receivable and revenue in
excess of billings balances from these customers were $5,425 and $5,882,
respectively.
(13) RELATED PARTY TRANSACTIONS
The Company issued promissory notes totaling $514 and $385 to certain
employees during the fiscal years ended June 30, 1996 and 1995,
respectively. The notes are due at varying dates through July 31, 1997
and bear interest at rates ranging from 4% to 7.1%.
The Company entered into a retirement and severance agreement with its
founder, Steven L. Darrow, and (as of the date of the agreement,
March 15, 1996) largest shareholder. Under that agreement, in exchange
for his commitment not to compete with the Company for five years, the
Company agreed to pay an amount equal to one year's salary, provide a
continuation of medical benefits during his lifetime, forgive certain
loans from the Company and pay resulting withholding taxes, and grant him
and certain trusts and individuals to whom he had transferred stock
certain "piggyback" registration rights. With respect to this agreement,
the Company recorded $966 as a covenant not to compete and classified
such amount under "other noncurrent assets". Additionally, the agreement
provided for the acceleration of the exercisability of otherwise not yet
exercisable stock options for the 35.8 shares of the Company's common
stock with an exercise price of $1.03 each, resulting in noncash
compensation expense of $107.
F-18
<PAGE>
The Company retained a board member as a consultant through his
consulting firm, and also directly as a part-time employee, for payments
aggregating $73 in fiscal year 1996 and $113 in fiscal 1995. The
consulting and employment arrangement with the board member ended
effective April 26, 1996.
(14) COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's financial position, results of operations or
liquidity.
The Company has approximately $500 of performance bonds outstanding as of
June 30, 1997.
The Company has entered into three-year employment agreements with its
president and chief financial officer. These agreements became effective
upon retaining these individuals and provide for an initial base salary
of $400 and $295, respectively. Each agreement states that if the
executive's employment is terminated by the Company for reasons other
than cause, the executive's base salary will continue for the longer of
three years from the start date or six months from the termination date.
Regardless of the reason for termination, each agreement contains
commitments of noncompetition and nonsolicitation of the Company's
personnel. These commitments last the longer of 18 months after
departure from the Company, or for as long as base salary continues to be
paid.
(15) BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates primarily in one business segment, providing systems
integration services.
Revenue by geographical area is provided below:
Year Ended June 30,
--------------------------------------
1997 1996 1995
---------- --------- ---------
United States $ 63,388 45,004 $ 26,730
Canada 3,363 2,321 562
Australia 581 -- --
---------- --------- ---------
Total $ 67,332 47,325 $ 27,292
---------- --------- ---------
---------- --------- ---------
F-19
<PAGE>
(16) SUBSEQUENT EVENTS
ACQUISITIONS
In July 1997, the Company completed two business combinations that were
accounted for as purchases. The Company purchased Communications
Informatiques Trilan Canada, Inc. ("Trilan") and OpTex, Inc. ("OpTex").
The results of operations of each acquisition will be included in the
Company's results of operations from the date of acquisition. Trilan
offers technology consulting services specializing in network management,
call and help center management and outsourcing. OpTex develops billing
and customer management software for the communications industry and
provides customer service and complete billing services through its fully
functional service bureau for communications industry clients.
F-20
<PAGE>
[Logo]BANK OF AMERICA NT & SA BUSINESS LOAN AGREEMENT
- -------------------------------------------------------------------------------
This Agreement dated as of August 21, 1997 is between Bank of America NT &
SA (the "Bank") and Clarement Technology Group, Inc. (the "Borrower").
1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide
a line of credit to the Borrower. The amount of the line of credit (the
"Facility 1 Commitment") is Two Million Dollars ($2,000,000).
(b) This is a revolving line of credit with a within line facility for a
standby letters of credit. During the availability period, the Borrower
may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of
the line of credit plus the outstanding amounts of any standby letters of
credit to exceed the Facility 1 Commitment.
1.2 AVAILABILITY PERIOD. The line of credit is available between the date
of this Agreement and September 1, 1999 the "Facility 1 Expiration
Date") unless the Borrower is in default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as described
below, the interest rate is the Reference Rate plus .25 percentage point.
(b) The Reference Rate is the rate of interest publicly announced from
time to time by Bank as its Reference Rate. The Reference Rate is set
based on various factors, including Bank's costs and desired return,
general economic conditions and other factors, and is used as a reference
point for pricing some loans. The Bank may price loans to its customers
at, above, or below the Reference Rate. Any change in the Reference Rate
shall take effect at the opening of business on the days specified in the
public announcement of a change in the Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on September 1, 1997, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest
or other charges outstanding under this line of credit no later than the
Facility 1 Expiration Date.
1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the
Reference Rate, the Borrower may elect to have all or portions of the line of
credit (during the availability period) bear interest at the rate(s)
described below during an interest period agreed to by the Bank and the
Borrower. Each interest rate is a rate per year. Interest will be paid on the
first day of every month and on the last day each interest period. At the end
of any interest period, the interest rate will revert to the rate based on
the Reference Rate, unless the Borrower has designated another optional
interest rate for the portion.
- ------------------------------------------------------------------------------
-1-
<PAGE>
1.6 OFFSHORE RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Offshore Rate
plus 2.0 percentage points.
Designation of an Offshore Rate portion is subject to the following
requirements:
(a) The interest period during which the Offshore Rate will be in effect
will be no shorter than 30 days and no longer than one year. The last day
of the interest period will be determined by the Bank using the practices
of the offshore dollar inter-bank market.
(b) Each Offshore Rate portion will be for an amount not less than One
Hundred Thousand Dollars ($100,000).
(c) The "Offshore Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All amounts
in the calculation will be determined by the Bank as of the first day of
the interest period.)
Offshore Rate = Grand Cayman Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means the interest rate (rounded upward to
the nearest 1/16th of one percent) at which the Bank's Grand
Cayman, Branch Grand Cayman British West Indies, would offer U.S.
dollar deposits for the applicable interest period to other major
banks in the offshore dollar inter-bank market.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in the Federal Reserve Board Regulation
D, rounded upward to the nearest 1/100 of one percent. The
percentage will be expressed as a decimal, and will include,
but not be limited to, marginal, emergency, supplemental, special,
and other reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect to any portion
of the principal balance of the line of credit which is scheduled to be
repaid before the last day of the applicable interest period.
(e) Any portion of the principal balance of the line of credit already
bearing interest at the Offshore Rate will not be converted to a
different rate during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the amount
of accrued interest on the amount prepaid, and a prepayment fee equal
to the amount (if any) by which
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of the
interest period, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the offshore dollar
market for a period starting on the date on which it was prepaid
and ending on the last day of the interest period for such
portion.
(g) The Bank will have no obligation to accept an election for an Offshore
Rate portion if any of the following described events has occurred and is
continuing:
- -------------------------------------------------------------------------------
-2-
<PAGE>
(i) Dollar deposits in the principal amount, and for periods equal
to the interest period, of an Offshore Rate portion are not
available in the offshore Dollar inter-bank market; or
(ii) the Offshore Rate does not accurately reflect the cost of an
Offshore Rate portion.
1.7 LIBOR RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the LIBOR Rate plus
2.0 percentage points.
Designation of a LIBOR Rate portion is subject to the following requirements:
(a) The interest period during which the LIBOR Rate will be in effect will
be 30, 60, 90, 180 or 365 days. The last day of the interest period
will be determined by the Bank using the practices of the London
inter-bank market.
(b) Each LIBOR Rate portion will be an amount not less than One Hundred
Thousand Dollars ($100,000).
(c) The Borrower shall irrevocably request a LIBOR Rate portion no later
than 9:00 a.m. San Francisco time three (3) banking days before the
commencement of the interest period.
(d) The "LIBOR Rate" means the interest rate determined by the following
formula, rounded upward to the nearest 1/100 of one percent. (All
amounts in the calculation will be determined by the Bank as of the
first day of the interest period.)
LIBOR Rate = London Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "London Rate" means the interest rate (rounded upward to the
nearest 1/16th of one percent) at which the Bank of America
NT & SA's London Branch, London, Great Britain, would offer
U.S. dollar deposits for the applicable interest period to other
major banks in the London inter-bank market at approximately
11:00 a.m. London time two (2) banking days before the
commencement of the interest period.
(ii) "Reserve Percentage" means the total of the maximum reserve
percentages for determining the reserves to be maintained by the
member banks of the Federal Reserve System for Eurocurrency
Liabilities, as defined in the Federal Reserve Board Regulation
D, rounded upward to the nearest 1/100 of one percent. The
percentage will be expressed as a decimal, and will include,
but not be limited to, marginal, emergency, supplemental,
special, and other reserve percentages.
(e) The Borrower may not elect a LIBOR Rate with respect to any portion of
the appreciable balance of the line of credit which is scheduled to be
repaid before the last day of the applicable interest period.
(f) Any portion of the principal balance of the line of credit already
bearing interest at the LIBOR Rate will not be converted to a different
rate during its interest period.
(g) Each prepayment of a LIBOR Rate portion, whether voluntary, by reason
of acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid, and a prepayment fee equal to the amount
(if any) by which:
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of the
interest period, exceeds
- --------------------------------------------------------------------------------
-3-
<PAGE>
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the London inter-bank
market for a period starting on the date on which it was prepaid
and ending on the last day of the interest period for such
portion.
(h) The Bank will have no obligation to accept the election for LIBOR Rate
portion if any of the following described events has occurred and is
continuing:
(i) Dollar deposits in the principal amount, and for periods equal
to the interest period, of a LIBOR Rate portion are not
available in the London inter-bank market; or
(ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR
Rate portion.
1.8 LETTERS OF CREDIT. At the request of the Borrower, between the date of
this Agreement and September 1, 1999, (the "Expiration Date"), the Bank will
issue standby letters of credit with a maximum maturity of one year, up to
365 days beyond the Expiration Date; provided, however, that the maturity
date may be automatically extended each year for an additional year unless
the Bank gives written notice to the contrary.
The amount of outstanding letters of credit, including amounts drawn on
letters of credit and not yet reimbursed, may not exceed at any one time
Seven Hundred Fifty Thousand Dollars ($750,000). The Borrower agrees:
(a) any sum owed to the Bank under a letter of credit may, at the option of
the Bank, be added to the principal amount outstanding under this
Agreement. The amount will bear interest and be due as described elsewhere
in this Agreement.
(b) if there is a default under this Agreement, to immediately prepay and
make the Bank whole for any outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to a letter of
credit is subject to the Bank's written approval and must be in form and
content satisfactory to the Bank and in favor of a beneficiary acceptable
to the Bank.
(d) to sign the Bank's form Application and Agreement for Standby Letter of
Credit.
(e) to pay any issuance and/or other fees that the Bank notifies the Borrower
will be charged for issuing and processing letters of credit for the
Borrower.
2. FACILITY NO. 2: TERM LOAN AMOUNT AND TERMS
2.1 OUTSTANDING TERM LOAN. There is outstanding from the Bank to the
Borrower a term loan in the original principal amount of Five Hundred
Thousand Dollars ($500,000). This term loan is currently subject to the terms
and conditions of Facility No. 2 of the Business Loan Agreement dated April
24, 1995. As of the date of this Agreement, the term loan shall be deemed to
be outstanding under Facility No. 2 of this Agreement, and shall be subject to
all the terms and conditions stated in this Agreement.
2.2 INTEREST RATE. Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Reference Rate plus .5 percentage
point.
2.3 REPAYMENT TERMS.
(a) The Borrower will repay principal and interest in Ten successive monthly
installments of Fifteen Thousand Six Hundred Seventy-Nine and 72/100
Dollars ($15,679.72) starting September 10, 1997. On May 11, 1998, the
Borrower will repay the remaining principal balance plus any interest then
due.
- -------------------------------------------------------------------------------
-4-
<PAGE>
(b) The Borrower may prepay the loan if full or in part at any time. The
prepayment will be applied to the most remote installment of principal due
under this agreement.
2.4 OPTIONAL INTEREST RATES. Instead of the interest rate based on the
Reference Rate, the Borrower may elect to have all or portions of the loan
bear interest at the rate(s) described below during an interest period agreed
to by the Bank and the Borrower. Each interest rate is a rate per year.
Interest will be paid on the last day of each intrest period, and on the
first day each month and on the last day of each interest period. At the end
of any interest period, the interest rate will revert to the rate based on
the Reference Rate, unless the Borrower has designated another optional
interest rate for the portion.
2.5 LONG TERM RATE. The Borrower may elect to have all or portions of the
principal balance of the loan bear interest at the Long Term Rate, subject to
the following requirements:
(a) The interest period during which the Long Term Rate will be in effect
will be one year or more.
(b) The "Long Term Rate" means the fixed interest rate the Bank and the
Borrower agree will apply to the portion during the applicable interest
period.
(c) Each Long Term Rate portion will be for an amount not less than One
Hundred Thousand Dollars ($100,000).
(d) Any portion of the principal balance of the loan already bearing
interest at the Long Term Rate will not be converted to a different rate
during its interest period.
(e) The Borrower may prepay the Long Term Rate portion in whole or in part
in the minimum amount of One Hundred Thousand Dollars ($100,000). The
Borrower will give the Bank irrevocable written notice of the Borrower's
intention to make the prepayment, specifying the date and amount of the
prepayment. The notice must be received by the Bank at least 5 banking days
in advance of the prepayment. All prepayments of principal on the Long Term
Rate portion will be applied on the most remote principal installment or
installments then unpaid.
(f) Each prepayment of a Long Term Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by payment of all
accrued interest on the amount of the prepayment and the prepayment fee
described below.
(g) The prepayment fee will be the sum of fees calculated separately for each
Prepaid Installment, as follows:
(i) The Bank will first determine the amount of interest which would
have accrued each month for the Prepaid Installment had it remained
outstanding until the applicable Original Payment Date, using the
Long Term Rate;
(ii) The Bank will then subtract from each monthly interest amount
determined in (i), above, the amount of interest which would accrue for
that Prepaid Installment if it were reinvested from the date of
prepayment through the Original Payment Date, using the following rate:
(A) If the Original Payment Date is more than 5 years after the date of
prepayment: the Treasury Rate plus one-quarter of one percentage
point;
(B) If the Original Payment Date is 5 years or less after the date of
prepayment: the Money Market Rate.
- ------------------------------------------------------------------------------
-5-
<PAGE>
(iii) If (i) minus (ii) for the Prepaid Installment is greater than
zero, the Bank will discount the monthly differences to the date of
prepayment by the rate used in (ii) above. The sum of the discounted
monthly differences is the prepayment fee for that Prepaid
Installment.
(h) The following definitions will apply to the calculation of the prepayment
fee:
"Money Market" means the domestic certificate of deposit market, the
eurodollar deposit market or other appropriate money market
selected by the Bank.
"Money Market Rate" means the fixed interest rate per annum which the
Bank determines could be obtained by reinvesting a specified Prepaid
Installment in the Money Market from the date of prepayment through the
Original Payment Date.
"Original Payment Dates" mean the dates on which principal of the Long
Term Rate portion would have been paid if there had been no prepayment.
If a portion of the principal would have been paid later than the end of
the interest period in effect at the time of prepayment, then the
Original Payment Date for that portion will be the last day of the
interest period.
"Prepaid Installment" means the amount of the prepaid principal of the
Long Term Rate portion which would have been paid on a single Original
Payment Date.
"Treasury Rate" means the interest rate yield for U.S. Government
Treasury Securities which the Bank determines could be obtained by
reinvesting a specified Prepaid Installment in such securities from the
date of prepayment through the Original Payment Date.
(i) The Bank may adjust the Treasury Rate and Money Market Rate to
reflect the compounding, accrual basis, or other costs of the Long Term
Rate portion. Each of the rates is the Bank's estimate only and the Bank
is under no obligation to actually reinvest any prepayment. The rates
will be based on information from either the Telerate or Reuters
information services, The Wall Street Journal, or other information
sources the Bank deems appropriate.
3. FACILITY NO. 3 TERM LOAN AMOUNT AND TERMS
3.1 OUTSTANDING TERM LOAN. There is outstanding from the Bank to the Borrower
a term loan in the original principal amount of Two Million Dollars
($2,000,000). This term loan is currently subject to the terms and conditions
of Facility No. 3 of the Business Loan Agreement dated April 24, 1995. As of
the date of this Agreement, the term loan shall be deemed to be outstanding
under Facility No. 3 of this Agreement, and shall be subject to all the terms
and conditions stated in this Agreement.
3.2 INTEREST RATE. The interest rate is the Reference Rate plus 1.0
percentage point.
3.3 REPAYMENT TERMS.
(a) The Borrower will repay principal, interest and any other amounts
due, upon demand by the Bank, in the event of any default by a Nominee
Borrower.
(b) The Borrower may prepay each term loan in full or in part at any
time. Each prepayment will be applied to the most remote installment of
principal due under such term loan.
- ------------------------------------------------------------------------------
-6-
<PAGE>
3.4 NOMINEE BORROWER. At the Bank's sole option, during the availability
period described in 3.2 of the original Business Loan Agreement dated April
24, 1995, the Borrower may designate certain individuals, each of whom shall
be an Executive or officer of the Borrower, to whom the Bank may provide a
36 month term loan. The amount of any extension of credit to a Nominee
Borrower shall reduce the amount of the Facility 3 Commitment. Each such
Nominee Borrower shall execute a note and any other documents required by
the Bank, all in form and substance satisfactory to the Bank, evidencing
each term loan. Each note and term loan shall be guaranteed by the Borrower.
3.5 NOMINEE BORROWER TERM. The Bank and each Nominee Borrower shall execute
a note and any other documents required by the Bank. The documents shall
provide that the term of each term loan shall not exceed 36 months. The
Borrower will be required to make periodic interest payments and periodic
defined principal reductions. The term loans to the Nominee Borrowers shall
be unsecured but will be supported by a guaranty of the Borrower.
4. FACILITY NO. 4: TERM LOAN AMOUNT AND TERMS
4.1 OUTSTANDING TERM LOAN. There is outstanding from the Bank to the Borrower
a term loan in the original principal amount of Five Hundred Thousand Dollars
($500,000). This term loan is currently subject to the terms and conditions
of Facility No. 4 of the Business Loan Agreement dated April 24, 1995. As of
the date of this Agreement, the term loan shall be deemed to be outstanding
under Facility No. 4 of this Agreement, and shall be subject to all the terms
and conditions stated in this Agreement.
4.2 INTEREST RATE. Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Reference Rate plus .5 percentage
point.
4.3 REPAYMENT TERMS.
(a) The Borrower will pay all accrued but unpaid interest on the 1st day of
each month and upon payment in full of the principal of this loan.
(b) The Borrower will repay principal in 15 successive equal monthly
installments of Thirteen Thousand Eight Hundred Eighty-Eight and 89/100
(13,888.89) starting September 1, 1997. On November 2, 1998, the Borrower
will repay the remaining principal balance plus any interest then due.
4.4 OPTIONAL INTEREST RATES. Instead of the interest rate based on the
Reference Rate, the Borrower may elect to have all or portions of the loan
bear interest at the rate(s) described below during an interest period agreed
to by the Bank and the Borrower. Each interest rate is a rate per year.
Interest will be paid on the last day of each interest period, and on the
first day each month and on the last day of each interest period. At the end
of any interest period, the interest rate will revert to the rate based on
the Reference Rate, unless the Borrower has designated another optional
interest rate for the portion.
4.5 LONG TERM RATE. The Borrower may elect to have all or portions of the
principal balance of the loan bear interest at the Long Term Rate, subject to
the following requirements:
(a) The interest period during which the Long Term Rate will be in effect
will be one year or more.
(b) The "Long Term Rate" means the fixed interest rate the Bank and the
Borrower agree will apply to the portion during the applicable interest
period.
(c) Each Long Term Rate portion will be for an amount not less than One
Hundred Thousand Dollars ($100,000).
- -------------------------------------------------------------------------------
-7-
<PAGE>
(d) Any portion of the principal balance of the loan already bearing
interest at the Long Term Rate will not be converted to a different rate
during its interest period.
(e) The Borrower may prepay the Long Term Rate portion in whole or in part
in the minimum amount of One Hundred Thousand Dollars ($100,000). The
Borrower will give the Bank irrevocable written notice of the Borrower's
intention to make the prepayment, specifying the date and amount of the
prepayment. The notice must be received by the Bank at least 5 banking days
in advance of the prepayment. All prepayments of principal on the Long Term
Rate portion will be applied on the most remote principal installment or
installments then unpaid.
(f) Each prepayment of a Long Term Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by payment of all
accrued interest on the amount of the prepayment and the prepayment fee
described below.
(g) The prepayment fee will be the sum of fees calculated separately for each
Prepaid Installment, as follows:
(i) The Bank will first determine the amount of interest which would
have accrued each month for the Prepaid Installment had it remained
outstanding until the applicable Original Payment Date, using the Long
Term Rate;
(ii) The Bank will then subtract from each monthly interest amount
determined in (i), above, the amount of interest which would accrue for
that Prepaid Installment if it were reinvested from the date of
prepayment through the Original Payment Date, using the following rate:
(A) If the Original Payment Date is more than 5 years after the date
of prepayment: the Treasury Rate plus one-quarter of one percentage
point;
(B) If the Original Payment Date is 5 years or less after the date of
prepayment: the Money Market Rate.
(iii) If (i) minus (ii) for the Prepaid Installment is greater than
zero, the Bank will discount the monthly differences to the date of
prepayment by the rate used in (ii) above. The sum of the discounted
monthly differences is the prepayment fee for that Prepaid Installment.
(h) The following definitions will apply to the calculation of the prepayment
fee:
"Money Market" means the domestic certificate of deposit market, the
eurodollar deposit market or other appropriate money market selected by
the Bank.
"Money Market Rate" means the fixed interest rate per annum which the
Bank determines could be obtained by reinvesting a specified Prepaid
Installment in the Money Market from the date of prepayment through the
Original Payment Date.
"Original Payment Dates" mean the dates on which principal of the Long Term
Rate portion would have been paid if there had been no prepayment. If a
portion of the principal would have been paid later than the end of the
interest period in effect at the time of prepayment, then the Original
Payment Date for that portion will be the last day of the interest period.
"Prepaid Installment" means the amount of the prepaid principal of
the Long Term Rate portion which would have been paid on a single Original
Payment Date.
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-8-
<PAGE>
"Treasury Rate" means the interest rate yield for U.S. Government Treasury
Securities which the Bank determines could be obtained by reinvesting a
specified Prepaid Installment in such securities from the date of
prepayment through the Original Payment Date.
(i) The Bank may adjust the Treasury Rate and Money Market Rate to reflect
the compounding, accrual basis, or other costs of the Long Term Rate
portion. Each of the rates is the Bank's estimate only and the Bank is
under no obligation to actually reinvest any prepayment. The rates will
be based on information from either the TELERATE or REUTERS information
services, THE WALL STREET JOURNAL, or other information sources the Bank
deems appropriate.
5. FACILITY NO. 5: TERM LOAN AMOUNT AND TERMS
5.1 OUTSTANDING TERM LOAN. There is outstanding from the Bank to the
Borrower a term loan in the original principal amount of Two Million Dollars
($2,000,000). This term loan is currently subject to the terms and conditions
of Facility No. 5 of the Business Loan Agreement dated April 24, 1995. As of
the date of this Agreement, the term loan shall be deemed to be outstanding
under Facility No. 5 of this Agreement, and shall be subject to all the terms
and conditions stated in this Agreement.
5.2 INTEREST RATE. Unless the Borrower elects an optional interest rate as
described below, the interest rate is the Reference Rate plus .5 percentage
point.
5.3 REPAYMENT TERMS.
(a) The Borrower will repay principal and interest in Twenty successive
monthly installments of Sixty Thousand Six Hundred Fifty-Nine and 47/100
($60,659.47) starting September 1, 1997.
(b) The Borrower may prepay the loan in full or in part at any time. The
prepayment will be applied to the most remote installment of principal
due under this agreement.
5.4 OPTIONAL INTEREST RATES. Instead of the interest rate based on the
Reference Rate, the Borrower may elect to have all or portions of the loan
bear interest at the rate(s) described below during an interest period agreed
to by the Bank and the Borrower. Each interest rate is a rate per year.
Interest will be paid on the last day of each interest period, and on the
first day each month and on the last day of each interest period. At the end
of any interest period, the interest rate will revert to the rate based on
the Reference Rate, unless the Borrower has designated another optional
interest rate for the portion.
5.5 LONG TERM RATE. The Borrower may elect to have all or portions of the
principal balance of the loan bear interest at the Long Term Rate, subject to
the following requirements:
(a) The interest period during which the Long Term Rate will be in effect
will be one year or more.
(b) The "Long Term Rate" means the fixed interest rate the Bank and the
Borrower agree will apply to the portion during the applicable interest
period.
(c) Each Long Term Rate portion will be for an amount not less than One
Hundred Thousand Dollars ($100,000).
(d) Any portion of the principal balance of the loan already bearing interest
at the Long Term Rate will not be converted to a different rate during
its interest period.
(e) The Borrower may prepay the Long Term Rate portion in whole or in part
in the minimum amount of One Hundred Thousand Dollars ($100,000). The
Borrower will give the Bank irrevocable written notice of the Borrower's
intention to make the prepayment, specifying the date and amount of the
prepayment. The notice must be received by the Bank at least 5 banking
days in advance of the prepayment. All
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prepayments of principal on the Long Term Rate portion will be applied
on the most remote principal installment or installments then unpaid.
(f) Each prepayment of a Long Term Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by payment of
all accrued interest on the amount of the prepayment and the prepayment
fee described below.
(g) The prepayment fee will be the sum of fees calculated separately for
each Prepaid Installment, as follows:
(i) The Bank will first determine the amount of interest which would
have accrued each month for the Prepaid Installment had it remained
outstanding until the applicable Original Payment Date, using the
Long Term Rate;
(ii) The Bank will then subtract from each monthly interest amount
determined in (i), above, the amount of interest which would
accrue for that Prepaid Installment if it were reinvested from
the date of prepayment through the Original Payment Date, using
the following rate:
(A) If the Original Payment Date is more than 5 years after the
date of prepayment: the Treasury Rate plus one-quarter of
one percentage point;
(B) If the Original Payment Date is 5 years or less after the
date of prepayment: the Money Market Rate.
(iii) If (i) minus (ii) for the Prepaid Installment is greater than
zero, the Bank will discount the monthly differences to the date
of prepayment by the rate used in (ii) above. The sum of the
discounted monthly differences is the prepayment fee for that
Prepaid Installment.
(h) The following definitions will apply to the calculation of the prepayment
fee:
"Money Market" means the domestic certificate of deposit market, the
eurodollar deposit market or other appropriate money market selected by
the Bank.
"Money Market Rate" means the fixed interest rate per annum which the
Bank determines could be obtained by reinvesting a specified Prepaid
Installment in the Money Market from the date of prepayment through the
Original Payment Date.
"Original Payment Dates" mean the dates on which principal of the Long
Term Rate portion would have been paid if there had been no prepayment.
If a portion of the principal would have been paid later than the end of
the interest period in effect at the time of prepayment, then the
Original Payment Date for that portion will be the last day of the
interest period.
"Prepaid Installment" means the amount of the prepaid principal of the
Long Term Rate portion which would have been paid on a single Original
Payment Date.
"Treasury Rate" means the interest rate yield for U.S. Government
Treasury Securities which the Bank determines could be obtained by
reinvesting a specified Prepaid Installment in such securities from the
date of prepayment through the Original Payment Date.
(i) The Bank may adjust the Treasury Rate and Money Market Rate to reflect
the compounding, accrual basis, or other costs of the Long Term Rate
portion. Each of the rates is the Bank's estimate only and the Bank is
under no obligation to actually reinvest any prepayment. The rates will
be based on information from either the Telerate or Reuters information
services, The Wall Street Journal, or other information sources the Bank
deems appropriate.
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6. FEES AND EXPENSES
6.1 UNUSED COMMITMENT FEE. The Borrower agrees to pay a fee on any difference
between the Facility 1 Commitment and the amount of credit it actually
uses, determined by the weighted average loan balance maintained during
the specified period. The fee will be calculated at .20% per year. This
fee is paid quarterly in arrears.
6.2 EXPENSES.
(a) The Borrower agrees to immediately repay the Bank for expenses that
include, but are not limited to, filing, recording and search fees,
appraisal fees, title report fees and documentation fees.
(b) The Borrower agrees to reimburse the Bank for any expenses it incurs in the
preparation of this Agreement and any agreement or instrument required by
this Agreement. Expenses include, but are not limited to, reasonable
attorneys' fees, including any allocated costs of the Bank's in-house
counsel.
(c) The Borrower agrees to reimburse the Bank for the cost of periodic audits
and appraisals of the personal property collateral securing this
Agreement, at such intervals as the Bank may reasonable require. The
audits and appraisals may be performed by employees of the Bank of by
independent appraisers.
7. COLLATERAL
7.1 PERSONAL PROPERTY. The Borrower's obligations to the Bank under will be
secured by personal property the Borrower now owns or will own in the future
as listed below. The collateral is further defined in security agreement(s)
executed by the Borrower. In addition, all personal property collateral
securing this Agreement shall also secure all other present and future
obligations of the Borrower to the Bank (excluding any consumer credit
covered by the Federal Truth in Lending law, unless the Borrower has
otherwise agreed in writing). All personal property collateral securing any
other present or future obligations of the Borrower to the Bank shall also
secure this Agreement.
(a) Machinery and equipment.
(b) Receivables.
7.2 CASH COLLATERAL. (FACILITY 3). If the aggregate principal balance
outstanding on the term loan described in 3.1 on August 10, 1997 exceeds 60%
of the original aggregate balance of the term loans, the Borrower shall
provide the Bank with cash collateral equal to the amount of the difference.
The Borrower agrees to execute any documents which the Bank may require in
order to perfect the Bank's security interest in such collateral.
8. DISBURSEMENTS, PAYMENTS AND COSTS
8.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be made
in writing in a manner acceptable to the Bank, or by another means acceptable
to the Bank.
8.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank
from time to time;
(b) made for the account of the Bank's branch selected by the Bank from
time to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank;
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(d) evidenced by records kept by the Bank. In addition, the Bank may, at
its discretion, require the Borrower to sign one or more promissory notes.
8.3 TELEPHONE AUTHORIZATION.
(a) The Bank may honor telephone instructions for advances or repayments or for
the designation of optional interest rates signer(s) of this Agreement or
a person or persons authorized by the signer(s) of this Agreement on
Facility 1.
(b) Advances on Facility 1 will be deposited in and repayments will be withdrawn
from the Borrower's account number 28013-00339, or such other accounts
with the Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and execuses the Bank (including its officers,
employees, and agents) for, from and against all liability, loss, and
costs in connection with any act resulting from telephone instructions it
reasonably believes are made by a signer of this Agreement or a person
authorized by a signer. This indemnity and excuse will survive this
Agreement's termination.
8.4 DIRECT DEBIT (PRE-BILLING)
(a) The Borrower agrees that the Bank will debit the Borrower's deposit account
number 28013-00339 (the "Designated Account") on the date each payment of
principal and interest and any fees from the Borrower becomes due (the
"Due Date"). If the Due Date is not a banking day, the Designated Account
will be debited on the next banking day.
(b) Approximately 10 days prior to the Due Date on Facility 1 Commitment, the
Bank will mail to the Borrower a statement of the amounts that will be
due on that Due Date (the "Billed Amount"). The calculation will be made
on the assumption that no new extensions of credit or payments will be
made between the date of the billing statement and the Due Date, and that
there will be no changes in the applicable interest rate.
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount of principal due and interest accrued
(collectively, the "Accrued Amount").
If the Billed Amount debited to the Designated Account differs from the
Accrued Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the Billed
Amount for the following Due Date will be increased by the amount of
the discrepancy. The Borrower will not be in default by reason of any
such discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the Billed
Amount for the following Due Date will be decreased by the amount of
the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue
based on the actual amount of principal outstanding without compounding.
The Bank will not pay the Borrower interest on any overpayment.
(d) The Borrower will maintain sufficient funds in the Designated Account to
cover each debit. If there are insufficient funds in the Designated
Account on the date the Bank enters any debit authorized by this
Agreement, the debit will be reversed.
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8.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking
day is a day other than a Saturday or a Sunday on which the Bank is open for
business in Oregon and banks are open for business in California. For amounts
bearing interest at an offshore rate (if any), a banking day is a day other
than a Saturday or a Sunday on which the Bank is open for business in Oregon
and the Bank is dealing in offshore dollars. All payments and disbursements
which would be due on a day which is not a banking day will be due on the
next banking day. All payments received on a day which is not a banking day
will be applied to the credit on the next banking day.
8.6 TAXES. The Borrower will not deduct any taxes from any payments it
makes to the Bank. If any government authority imposes any taxes or charges
on any payments made by the Borrower, the Borrower will pay the taxes or
charges. Upon request by the Bank, the Borrower will confirm that it has paid
the taxes by giving the Bank official tax receipts (or notarized copies)
within 30 days after the due date. However, the Borrower will not pay the
Bank's net income taxes.
8.7 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request
or requirement of a regulatory agency. The costs and losses will be allocated
to the loan in a manner determined by the Bank, using any reasonable method.
The costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments
for credit.
8.8 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year
and the actual number of days elapsed. This results in more interest or a
higher fee than if a 365-day year is used.
8.9 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance,
any amount not paid when due under this Agreement (including interest) shall
bear interest from the due date at the Reference Rate plus 1.0 percentage
point. This may result in compounding of interest.
8.10 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the
option of the Bank bear interest at a rate per annum which is 1.0 percentage
point higher than the rate of interest otherwise provided under this
Agreement. This will not constitute a waiver of any event of default.
9. CONDITIONS
The Bank must receive the following items, in form and content acceptable to
the Bank, before it is required to extend any credit to the Borrower under
this Agreement:
9.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance
by the Borrower of this Agreement and any instrument or agreement required
under this Agreement have been duly authorized.
9.2 SECURITY AGREEMENTS. Signed original security agreements, financing
statements and fixture filings (together with collateral in which the Bank
requires a possessory security interest), which the Bank requires.
9.3 EVIDENCE OF PRIORITY. Evidence that security interests and liens in
favor of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing.
9.4 INSURANCE. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
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9.5 BORROWER'S GUARANTY. Guaranty signed by the Borrower in the amount of
the extension of credit to each Nominee Borrower.
9.6 OTHER ITEMS. Any other items that the Bank reasonably requires.
10. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each
request for an extension of credit constitutes a renewed representation:
10.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed
and existing under the laws of the state where organized.
10.2 AUTHORIZATION. This Agreement, and any instrument or agreement
required hereunder, including the guaranty of loans to Nominee Borrowers, are
within the Borrower's powers, have been duly authorized, and do not conflict
with any of its organizational papers.
10.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance
with its terms, and any instrument or agreement required hereunder, when
executed and delivered, will be similarly legal, valid, binding and
enforceable.
10.4 GOOD STANDING. In each state in which the Borrower does business, it
is properly licensed, in existence and in good standing, and, where required,
in compliance with fictitious name statutes.
10.5 NO CONFLICTS. This Agreement does not conflict with any law,
agreement, or obligation by which the Borrower is bound.
10.6 FINANCIAL INFORMATION. All financial and other information that has
been or will be supplied to the Bank, including the Borrower's financial
statement dated as of March 31, 1997 is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
Since the date of the financial statement specified above, there has been no
material adverse change in the assets or the financial condition of the
Borrower.
10.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been
disclosed in writing to the Bank.
10.8 COLLATERAL. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
10.9 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade
name rights, patent rights and fictitious name rights necessary to enable it
to conduct the business in which it is now engaged without conflict with the
rights of others.
10.10 OTHER OBLIGATIONS. The Borrower is not in default on any obligation
for borrowed money, any purchase money obligations or any other material
lease, commitment, contract, instrument or obligation.
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10.11 INCOME TAX RETURNS. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year, except as have
been disclosed in writing to the Bank.
10.12 NO EVENT OF DEFAULT. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
11. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
11.1 USE OF PROCEEDS.
(a) To use the proceeds of the Facility 1 credit only for working capital.
(b) To use the proceeds of the Facility 2 credit only for equipment
purchases.
(c) To use the proceeds of the Facility 3 credit only for Nominee Borrower
term loans.
11.2 FINANCIAL INFORMATION. To provide the following financial information
and statements and such additional information as requested by the Bank from
time to time:
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's
annual 10K with audit.
(b) Within 45 days of the quarter end, the Borrower's 10Q.
11.3 CURRENT RATIO. To maintain on a consolidated basis a ratio of current
assets to current liabilities of at least 25:10.
For the purpose of this paragraph current assets shall consist of (i) cash,
(ii) trade receivables, (iii) revenue earned in excess of billings and (iv)
prepaid expenses. Facility No. 1 will be deemed a current liability for
purposes of calculating this covenant.
11.4 TANGIBLE NET WORTH. To maintain on a consolidated basis tangible net
worth equal to at least Thirty Three Million Dollars ($33,000,000).
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles)
less total liabilities, including but not limited to accrued and deferred
income taxes, and any reserves against assets.
11.5 MAXIMUM NET LOSS. To report on a consolidated basis a net loss after
taxes and extraordinary items not to exceed Two Million Dollars ($2,000,000)
for each period of two (2) consecutive quarters.
11.6 OTHER DEBTS. Not to have outstanding or incur any direct or contingent
debts (other than those to the Bank and its affiliates), or become liable for
the debts of others without the Bank's written consent. This does not
prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
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(c) Obtaining safety bonds in the usual course of business.
(d) Debts and lines of credit in lines on the date of this
Agreement disclosed in writing to the Bank.
11.6 OTHER LIENS. Not to create, assume, or allow any security interest or lien
(including judicial liens) on property the borrower now or later owns, except:
(a) Deeds of trust and security agreements in favor of the Bank and its
affiliates.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to
the Bank.
11.7 LOANS TO OFFICERS. Not to make any loans, advances or other extensions
of credit (excluding those term loans provided for under the Facility 3
Commitment) to any of the Borrower's executives, officers, or directors or
shareholders (or any relatives of any of the foregoing) in an amount which
exceeds Twenty Thousand ($20,000) in the aggregate.
11.8 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over Tow Hundred Fifty Thousand Dollars ($250,000) against
the Borrower.
(b) any substantial dispute between the borrower and any government
authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's financial condition or
operations.
(e) any change in the borrower's name, address or legal structure.
11.9 BOOKS AND RECORDS. to maintain adequate books and records.
11.10 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the borrower's properties, books or records are in
the possession of a third party, the borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
11.11 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
11.12 PRESERVATION OF RIGHTS. To maintain and preserve all rights,
privileges, and franchises the Borrower now has.
11.13 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.
11.14 PERFECTION OF LIENS. To help the Bank perfect and protect its security
interest and liens, and reimburse it for related costs it incurs to protect
its security interests and liens.
11.15 COOPERATION. To take any action requested by the bank to carry out the
intent of this Agreement.
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11.16 INSURANCE.
(a) INSURANCE COVERING COLLATERAL. To maintain all risk property damage
insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be in an amount acceptable to the
Bank. The insurance must be issued by an insurance company acceptable to
the Bank and must include a lender's loss payable endorsement in favor of
the Bank in a form acceptable to the Bank.
(b) GENERAL BUSINESS INSURANCE. To maintain insurance satisfactory to the
Bank as to amount, nature and carrier covering property damage (including
loss of use and occupancy) to any of the Borrower's properties, public
liability insurance including coverage for contractual liability, product
liability and workers' compensation, and any other insurance which is
usual for the Borrower's business.
(c) EVIDENCE OF INSURANCE. Upon the request of the Bank, to deliver to the
Bank a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
11.17 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture, syndicate, or
other combination.
(d) lease, or dispose of all or a substantial part of the Borrower's business
or the Borrower's assets.
(e) acquire or purchase a business or its assets.
(f) sell or otherwise dispose of any assets for less than fair market value,
or enter into any sale and leaseback agreement covering any of its fixed
or capital assets.
12. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank for, from, and against
any loss or liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply whether
the hazardous substance is on, under or about the Borrower's property or
operations or property leased to the Borrower. The indemnity includes but is not
limited to attorneys' fees (including the reasonable estimate of the allocated
cost of in-house counsel and staff). The indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys and assigns. For these purposes, the term "hazardous
substances" means any substance which is or becomes designated as "hazardous" or
"toxic" under any federal, state or local law, or any petroleum products,
including crude oil and any product derived directly or indirectly from, or any
fraction or distillate of, crude oil. This indemnity will survive repayment of
the Borrower's obligations to the Bank.
13. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If a bankruptcy petition is filed with
respect to the Borrower, the entire debt outstanding under this Agreement
will automatically become due immediately.
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13.1 FAILURE TO PAY. The Borrower fails to make a payment under this
Agreement when due.
13.2 NON-COMPLIANCE. The Borrower fails to meet the conditions of, or fails
to perform any obligation under:
(a) this Agreement,
(b) any other agreement made in connection with this loan, or
(c) any other agreement the Borrower has with the Bank or any affiliate of
the Bank.
13.3 CROSS-DEFAULT. Any default occurs under any agreement in connection
with any credit the Borrower has obtained from anyone else or which the
Borrower has guaranteed.
13.4 LIEN PRIORITY. The Bank fails to have an enforceable first lien (except
for any prior liens to which the Bank has consented in writing) on or
security interest in any property given as security for this loan.
13.5 FALSE INFORMATION. The Borrower has given the Bank false or misleading
information or representations.
13.6 BANKRUPTCY. The Borrower files a bankruptcy petition, a bankruptcy
petition is filed against the Borrower, or the Borrower makes a general
assignment for the benefit of creditors.
13.7 RECEIVERS. A receiver or similar official is appointed for the
Borrower's business, or the business is terminated.
13.8 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more
trade creditors against the Borrower in an aggregate amount of Two Hundred
Fifty Thousand Dollars ($250,000) or more in excess of any insurance coverage.
13.9 JUDGMENTS. Any judgments or arbitration awards are entered against the
Borrower; or the Borrower enters into any settlement agreements with respect
to any litigation or arbitration, in an aggregate amount of Two Hundred Fifty
Thousand Dollars ($250,000) or more in excess of any insurance coverage.
13.10 GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's financial condition or
ability to repay.
13.11 DEFAULT UNDER GUARANTY OR SUBORDINATION AGREEMENT. Any guaranty,
subordination agreement, security agreement, deed of trust, or other document
required by this Agreement is violated or no longer in effect.
13.12 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the
Borrower's financial condition, properties or prospects, or ability to repay
the loan.
13.13 NOMINEE BORROWER DEFAULT. Any Nominee Borrower fails to make any
payment when due under any term loan as described in Article 3 of this
Agreement.
14. ENFORCING THIS AGREEMENT; MISCELLANEOUS
14.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made
under generally accepted accounting principles, consistently applied.
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14.2 OREGON LAW. This Agreement is governed by Oregon law.
14.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's
and the Bank's successors and assignees. The Borrower agrees that it may not
assign this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the
right of set-off against the Borrower.
14.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those
that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for injury
to persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply
even though this Agreement provides that it is governed by Oregon law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent of
the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether
any such claim or controversy is barred by the statute of limitations
and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of laws to be confirmed and enforced.
(g) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) a provisional or interim remedy; and/or
(B) additional or supplemental remedies.
- --------------------------------------------------------------------------------
-19-
<PAGE>
(h) The pursuit of or a successful action for provisional, interim,
additional or supplementary remedies, or the filing of a court action,
does not constitute a waiver of the right of the Borrower or the Bank,
including the suing party, to submit the controversy or claim to
arbitration if the other party contests the lawsuit.
(i) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under
the deed of trust or mortgage, or to proceed by judicial foreclosure.
Waivers. If any part of this Agreement is not enforceable, the rest of the
Agreement may be enforced. The Bank retains all rights, even if it makes a
loan after default. If the Bank waives a default, it may enforce a later
default. Any consent or waiver under this Agreement must be in writing.
14.6 COSTS. If the Bank incurs any expenses in connection with enforcing
this Agreement or administering this Agreement (including in connection with
extending, amending, renewing or modifying this Agreement), or if the Bank
takes collection action under this Agreement, it is entitled to costs and
reasonable attorneys' fees, including any allocated costs of in-house counsel.
14.7 ATTORNEYS' FEES. In the event of a lawsuit or arbitration proceeding,
the prevailing party is entitled to recover costs and reasonable attorneys'
fees (including any allocated costs of in-house counsel) incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator (and not by a jury). Such costs and attorneys' fees shall
include, without limitation, those incurred on any appeal, as determined by
the appellate court, and any anticipated costs and attorneys' fees to pursue
or collect any judgement.
14.8 ONE AGREEMENT. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
14.9 EXCHANGE OF INFORMATION. The Borrower agrees that the Bank may
exchange financial information about the Borrower with BankAmerica
Corporation affiliates and other related entities.
14.10 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on
the signature page of this Agreement, or to such other addresses as the Bank
and the Borrower may specify from time to time in writing.
14.11 HEADINGS. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
14.12 COUNTERPARTS. This Agreement may be executed in as many counterparts
as necessary or convenient, and by the different parties on separate
counterparts each of which, when so executed, shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.
- ------------------------------------------------------------------------------
-20-
<PAGE>
14.12 WRITTEN AGREEMENTS. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND
COMMITMENTS MADE BY THE BANK AFTER OCTOBER 3, 1989, CONCERNING LOANS AND
OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD
PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING,
EXPRESS CONSIDERATION AND BE SIGNED BY THAT BANK TO BE ENFORCEABLE.
This Agreement is executed as of the date stated at the top of the first page.
[LOGO]
BANK OF AMERICA NT & SA CLAREMONT TECHNOLOGY GROUP, INC.
X /s/ Robert Countryman X /s/ Terry D. Murphy
- ---------------------------------- -------------------------------------
By: Robert Countryman By: Terry D. Murphy
Title: Vice President Title: Secretary/Vice President Finance
ADDRESS WHERE NOTICES TO THE BANK ADDRESS WHERE NOTICES TO THE BORROWER
ARE TO BE SENT: ARE TO BE SENT:
Oregon Commercial Banking #2090 1600 NW Compton Drive
P.O. Box 6400 Beaverton, Oregon 97006
Portland, Oregon 97228
- --------------------------------------------------------------------------------
-21-
<PAGE>
CLAREMONT TECHNOLOGY GROUP, INC.
AND SUBSIDIARIES
CALCULATIONS OF NET INCOME PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------ ------------------------------ ------------------------------
Primary Fully Diluted Primary Fully Diluted Primary Fully Diluted
------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted Average Shares
Outstanding for the Period 7,578 7,578 4,597 4,597 4,117 4,117
Dilutive Common Stock
Options Using the Treasury
Stock Method 2,183 2,178 2,549 2,432 2,736 2,736
Shares added pursuant to
SAB 83 -- -- 466 466 466 466
------------------------------ ------------------------------ ------------------------------
Total Shares Used for Per
Share Calculations 9,761 9,756 7,612 7,495 7,319 7,319
------------------------------ ------------------------------ ------------------------------
------------------------------ ------------------------------ ------------------------------
Net Income $ 4,246 $ 4,246 $ 3,023 $ 3,023 $ 2,147 $ 2,147
Adjustment to Income to
Give Effect for 20% Treasury
Stock Limitation -- -- 47 36 103 103
------------------------------ ------------------------------ ------------------------------
Net Income as Adjusted $ 4,246 $ 4,246 $ 3,070 $ 3,059 $ 2,250 $ 2,250
------------------------------ ------------------------------ ------------------------------
------------------------------ ------------------------------ ------------------------------
Net Income Per Share $ 0.44 $ 0.44 $ 0.40 $ 0.41 $ 0.31 $ 0.31
------------------------------ ------------------------------ ------------------------------
------------------------------ ------------------------------ ------------------------------
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. Claremont Technology Group Canada, Inc., a Quebec corporation
2. Claremont Technology Group (U.K.) Limited, a corporation organized
under the laws of the United Kingdom
3. Gunford Limited (Claremont Technology (Ireland) Limited), a corporation
organized under the laws of Ireland
4. Claremont Retirement Technologies, Inc., an Ohio corporation
5. Claremont Technology Group (Australia) PTY Limited, a corporation
organized under the laws of Australia
6. OpTex, Inc., an Ohio corporation
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Claremont Technology Group, Inc. and Subsidiaries
We consent to incorporation by reference in the registration statement (No.
333-28161) on Form S-8 of Claremont Technology Group, Inc. of our report dated
August 14, 1997, relating to the consolidated balance sheets of Claremont
Technology Group, Inc. and Subsidiaries as of June 30, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1997, which
report appears in the June 30, 1997 annual report on Form 10-K of Claremont
Technology Group, Inc.
KPMG PEAT MARWICK LLP
Portland, Oregon,
September 19, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 15,240
<SECURITIES> 0
<RECEIVABLES> 20,648
<ALLOWANCES> 136
<INVENTORY> 0
<CURRENT-ASSETS> 40,469
<PP&E> 10,331
<DEPRECIATION> 4,487
<TOTAL-ASSETS> 56,141
<CURRENT-LIABILITIES> 7,295
<BONDS> 1,578
0
0
<COMMON> 33,343
<OTHER-SE> 12,062
<TOTAL-LIABILITY-AND-EQUITY> 56,141
<SALES> 521
<TOTAL-REVENUES> 67,332
<CGS> 490
<TOTAL-COSTS> 35,335
<OTHER-EXPENSES> 24,591
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 185
<INCOME-PRETAX> 7,290
<INCOME-TAX> 3,044
<INCOME-CONTINUING> 4,246
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,246
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
