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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-15935
ALTRIS SOFTWARE, INC.
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(Exact name of registrant as specified in its charter)
California 95-3634089
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State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9339 Carroll Park Drive, San Diego, CA 92121
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 625-3000
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
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None None
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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(Cover page continues on next page)
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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 on March 18, 1997, held by
non-affiliates* of the Registrant, based upon the last price reported on the
Nasdaq National Market on such date was $45,980,408.
The number of shares outstanding of the Registrant's Common Stock at the
close of business on March 18, 1997, was 9,572,569.
*Without acknowledging that any individual director of Registrant is an
affiliate, all directors have been included as affiliates with respect to shares
owned by them.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive proxy statement, which is to be filed
pursuant to Regulation 14A within 120 days after the end of Registrant's fiscal
year ended December 31, 1996, are incorporated by reference in Part III of this
Form 10-K.
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PART I
ITEM 1. BUSINESS
Altris Software, Inc. (the "Company") develops, markets and supports a
suite of object-oriented, multi-tier client/server document management software
products. These products enable users in a broad range of industries to manage,
share and distribute critical business information, expertise and other
intellectual capital in an efficient manner. The Company's products provide
several key business benefits including interoperability and scalability across
an enterprise, an extensive range of product tools and features, quick
cost-effective implementation, increasing network efficiency using the Company's
targeted image extraction technology ("TIE-Technology-TM-") to substantially
reduce network bandwidth requirements and the ability to document-enable
existing applications. In addition, the open architecture of the Company's
products permits them to be used in a standardized fashion and enables
sophisticated customization and integration with existing business applications.
Unlike many of its competitors, the Company offers its own cohesive set of
software products which provide a complete electronic document management system
("EDMS") without the high systems integration costs that can be incurred when
disparate products from a variety of suppliers must be integrated.
The Company has historically sold its suite of products through its
direct sales force and through complementary indirect channels primarily
consisting of value-added resellers ("VARs"), systems integrators and
original equipment manufacturers ("OEMs"). The Company has established a
strong market presence in the utility, manufacturing, transportation and
petrochemical and other processing industries both domestically and
internationally. The Company intends to increase market penetration in these
industries as well as in certain other select vertical markets, including
telecommunication providers, defense and other governmental agencies,
electrical and electronic equipment manufacturers, engineering and
construction firms, financial institutions, property management companies and
architecture firms.
HISTORY
The Company was incorporated in California in 1981. Throughout the mid
1980's, the Company focused on the development and manufacturing of proprietary
hardware components, as well as software, for EDMS. The Company's systems
included a significant portion of imaging hardware components developed and
manufactured by the Company. In subsequent years, the Company moved from
proprietary hardware components for EDMS to open architecture, client/server
software systems, while also providing system integration services. As part of
this change, the Company implemented a restructuring program that reduced costs
and consolidated operations to a level consistent with sales. As a result of
its early success, which generated a need for additional capital to finance
expected growth, the Company completed the initial public offering of its common
stock in June 1987, raising net proceeds of approximately $19.6 million.
In December 1991, seeking further financing to fund expected growth, the
Company issued common stock and warrants through a unit offering. The
Company received net proceeds of approximately $2,600,000 upon issuing
750,000 units at a unit price of $4.25. In January 1992, the underwriter in
the unit offering exercised its over-allotment option and the Company sold an
additional 112,500 units for net proceeds of $365,000. Each unit consisted
of two shares of the Company's common stock and one warrant to purchase one
share of common stock at an exercise price of $4.25. In 1995, such
underwriter exercised warrants which were issued to it in connection with the
offering for net proceeds of $382,000. Also in 1995, warrants were exercised
for 459,446 shares of common stock, resulting in total proceeds to the
Company of $3,848,000.
In September 1993, the Company acquired Optigraphics Corporation
("Optigraphics") for consideration valued at $8,400,000, comprised of
$2,700,000 in cash, 1,120,559 shares of the Company's common stock and
$1,734,000 in notes which were paid in full in September 1995. Optigraphics,
which was founded in 1982, provided software imaging solutions for enterprise
systems, along with traditional departmental systems. The Company was
attracted to Optigraphics for a number of factors, including the technology
behind its sophisticated workstation products, strong engineering
organization, broad customer base, including customers in the
telecommunications industry, experienced national sales force and
international reseller distribution capabilities.
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On December 27, 1995, the Company acquired United Kingdom-based Trimco
Group plc ("Trimco") for total consideration of $14,165,000. Trimco, at the
time of acquisition, was recognized as a leading developer of software
products for the capture, viewing, mark-up editing, storage, distribution and
workflow management of documents. The purchase price was comprised of
$5,550,000 in cash, 857,394 shares of the Company's common stock and a
convertible promissory note having a total principal amount of $1,000,000 due
September 27, 1996 with interest payable at 7% per annum. In addition, the
purchase price included obligations assumed which were payable to certain
Trimco employees in connection with the acquisition, consisting of cash of
$1,051,000 and 50,300 shares of the Company's common stock. Trimco was
incorporated in 1988 in the United Kingdom and has its principal offices in
Ealing, London. Trimco's products focused on applications involving office
documents as well as technical documents such as engineering drawings and
blueprints and were marketed primarily through VARs, distributors and systems
integrators. The Company's purchase of Trimco brought the total number of
customers to approximately 1,500 worldwide, representing major markets in
utilities, transportation, petrochemicals, manufacturing, construction,
telecommunications and media, government and financial services.
On October 24, 1996, the Company changed its name from Alpharel, Inc. to
"Altris Software, Inc." to better reflect the integration of the Alpharel and
Trimco organizations and products.
THE INDUSTRY
In today's marketplace, organizations are increasingly looking for
solutions to help manage their business information. Many companies are
overwhelmed by the amount and variety of information generated by their
vendors, customers, employees and consultants. As a result, organizations
are seeking computer-based information management solutions that enable them
to improve productivity, reduce costs, react quickly to changes in their
marketplace, improve customer service or comply with regulatory and quality
certification requirements.
Relational database management systems ("RDBMS") from leading companies
such as Oracle, Informix, Sybase Inc. and others were developed to enable
companies to manage certain business information such as customer names,
addresses and phone numbers, sales and accounting records, billing information
and inventory records. This type of data is often referred to as "structured"
data and is generally entered and stored in tables consisting of rows and
columns. While RDBMS enable companies to better store, process and analyze
their structured data, they were not designed to manage so-called "unstructured"
data.
Unstructured data, which can be broadly described as data that can not be
contained in a structured environment (i.e., rows and columns), includes
information generated by most software for personal computers and
workstations, such as word processing documents, spreadsheets and
computer-aided design ("CAD") drawings, as well as other types of information
which may not be in electronic format, such as manufacturing procedures,
maintenance records, training and technical manuals, facility layouts,
blueprints, product and parts drawings, specifications, schematics, invoices,
checks and other business records, presentation graphics, photos, audio and
video clips and facsimile documents. According to industry sources, up to
80% of corporate data is unstructured. Unstructured data is commonly
contained in large object files which are often referred to as a "binary
large object," which files can create network efficiency problems for
organizations that collaborate electronically either on local area networks
("LANs") or wide area networks ("WANs"). Network traffic and bandwidth
limitations have historically been, and continue to be, one of the major
constraints on the deployment of enterprise-wide document management
solutions. Without the resolution of bandwidth limitations, enterprise-wide
document management systems often provide poor response time to users or
limit the maximum number of simultaneous users supported by a network system.
Awaiting the availability of bigger bandwidth is not a solution, as the
demand for bandwidth continues to increase as users begin to utilize
increasingly complex data types such as pictures, audio and video clips.
Whatever the format and wherever the location, unstructured data represents
information which is essential to a company's business and which forms a key
part of a company's intellectual capital. In today's competitive marketplace,
companies need the ability to leverage their intellectual capital; however,
limitations on a company's ability to access, process and communicate this
information has restrained the productivity of businesses at both the individual
and team levels. Without an effective means of obtaining business information,
workers are often forced to re-create documents from scratch, duplicating effort
and
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increasing the margin for error. In addition, professionals often spend a
significant amount of their time locating documents rather than engaging in
higher-value activities. Additional complexity results where documents must
be accessed and revised by teams of workers dispersed throughout an
enterprise who may operate different desktop software and computers. The
lack of effective tools for communicating and sharing information and for
automating the business logic makes this process even more time-consuming,
inefficient and error-prone.
Electronic document management systems were developed to enable
customers to effectively and efficiently manage, share and distribute critical
business information. According to International Data Corporation ("IDC"), an
independent consulting group which follows the EDMS industry, the EDMS software
market was estimated to be approximately $225 million in 1995 and is expected to
experience a compound annual growth rate of over 40%, reaching almost $800
million in North America alone by 1997. The Gartner Group, an information
technologies ("IT") consulting group, has predicted that compound annual growth
rates for installed seats in the document management market will exceed 75% in
each of the next five years.
A true EDMS solution is often viewed by organizations as part of their
information systems' re-engineering, and as a result there are several
significant issues organizations typically consider when evaluating an EDMS
solution. Such issues include scalability of the system, the ability to
integrate with existing structural databases and other applications such as
document workflow and product data management ("PDM"), the price of the
system, the ability to view multiple document formats, the level and cost of
integration services required, the impact of the system on network bandwidth,
integration with existing business processes, the ability to control document
security, the ability to operate on existing computing infrastructure and
with existing applications, the system architecture and the ability to handle
large and complex data types and to customize the product to the client's
particular needs. In addition, organizations also consider user related
issues such as the ability to search, retrieve, view, annotate and edit data
in a controlled manner.
THE ALTRIS SOFTWARE SOLUTION
The Company's suite of object-oriented, multi-tier, client/server
document management software products enables users to effectively and
efficiently manage, share and distribute critical business information,
expertise and other intellectual capital. The Company's suite of products
provides several key business benefits, including those described below:
INTEROPERABILITY/ENTERPRISE SCALABILITY. The Company's suite of products
operate on most common hardware, software, network and database platforms,
including Microsoft Windows, Windows 95, Windows NT, Macintosh and UNIX
operating systems and Oracle, Microsoft, Informix and Sybase database platforms.
In addition, the Company's products are designed for enterprise-wide scalability
so that organizations can deploy solutions that not only meet the needs of
departments but also scale to an entire enterprise with multiple divisions and
thousands of users worldwide.
EXTENSIVE FUNCTIONALITY. The document management and library functions of
the Company's products allow businesses to store, organize and manage both
simple and complex documents within their organizations. Users can find and
access information through full or partial field searches or full text searches
by keyword or by a combination of words. The Company's products provide
extensive computerized controls designed to permit only authorized users to
access information. In addition to the document management and library
functions, the Company's products also include powerful tools enabling users to
make comments, annotations and redline overlays on documents on-line without
changing the underlying information, thus replacing traditional markups on paper
documents and streamlining the review process. The Company's products integrate
with existing e-mail systems and run in conjunction with popular Internet Web
Browsers such as Netscape and Microsoft Internet Explorer. The Company's
products can
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also create a portable subset of the document management system, along with
search and view tools, which can be placed on a laptop hard disk or CD-ROM.
ABILITY TO BE TAILORED. In addition, the Company's embedded APIs
simplify tailoring by both users and application developers, thereby enabling
customers to effectively customize and integrate applications with existing
information infrastructure. The Company's Toolkits include APIs for document
viewing, scanning, markup, editing, and printing, plus manipulating data in
document databases.
FASTER, MORE COST-EFFECTIVE IMPLEMENTATION. The Company provides a
complete EDMS solution which includes its own multi-format document manager that
allows users to view, annotate and edit a variety of different types of
documents, while also providing a look and feel consistent with the Company's
products. As a result, the Company believes that the overall cost of
implementing its EDMS solution is significantly lower than competitive systems
in the marketplace, which typically require the customized integration of
viewing, annotation and editing products from disparate software producers.
Furthermore, the Company's EDMS solution for a standard system of 50 to 100
users can be implemented in as little as 15 working days.
IMPROVE NETWORK EFFICIENCY. The Company's TIE-Technology substantially
reduces network traffic, decreases the time it takes to access and view
documents and increases the maximum number of simultaneous users supported by
a network system, technology which the Company believes provides it with a
significant competitive advantage.
DOCUMENT-ENABLE EXISTING APPLICATIONS. The Company's "document-enabling"
software allows users to integrate the power of electronic document
management directly into a user's business applications, providing users with
greater access to information from which to make business decisions and
extending the life of these business applications. The Company's document
enabling software has been integrated with a number of leading PDM, human
resources, manufacturing and accounting software systems.
STRATEGY
The Company's objective is to be the leading worldwide supplier of document
management software. To achieve this objective, the Company's strategy includes
the following key elements:
EXTEND TECHNOLOGY LEADERSHIP. The Company continually seeks to extend
its position as a technology leader in developing and marketing document
management solutions. The Company intends to do this by (i) continuing to
enhance the features and functionality of its current products, including by
adding and enhancing tools that allow users to customize the graphical user
interfaces ("GUIs"), layout and menu items to fit their own needs, (ii)
designing additional application programming interfaces ("APIs") to simplify
tailoring by both users and application developers and (iii) providing users
with administrative tools that enable systems operators to monitor individual
use, network traffic and printing volume. The Company also intends to
continue to enhance the performance of its current products, such as by
enabling its TIE-Technology to work with larger and more complex documents,
adopting parallel three-tier architecture and also developing tools to reduce
telecommunication expenses for the distribution and replication of data over
geographically dispersed systems. The Company also plans to introduce new
products and product extensions which are complementary to its existing suite
of products and which address both existing and emerging market needs,
including expanding the applications for its document-enabling capabilities
and its TIE-Technology.
As an example this strategy, in the second quarter of 1997 the Company
expects to introduce what it believes is a new paradigm for EDMS through its
next-generation product offering, Altris EB. This paradigm shift centers
around the Intelligent Document-TM-technology of Altris EB that enables
document delivery and viewing based on user profiles both as specified by the
user and implied through their pattern of use. Altris EB is built on a
multi-tier architecture, allowing users to choose between "thin" and "thick"
client models on the desktop (including Internet/intranet) and to deploy
process and data servers more efficiently. (A "thin" client model uses a
client/server architecture with most of the applications stored on the server
rather than on the client while a "thick" client model stores most of the
applications on the client rather than the server.) Altris EB will enable
multiple users to access, "check out," modify and re-enter documents in the
EDMS using a variety of different computing platforms and environments. A
wide range of tools are provided for information exchange and review, system
administration, configuration and tailoring plus desktop tools for easy
modification of the look-and-feel and extension of functionality. Altris EB
will support common enterprise tools such as Microsoft-R- FrontOffice and
BackOffice-TM-, Lotus-R- cc:mail and MS-Mail-R- and integrates easily with
other applications such as PeopleSoft-R-, Oracle-R- Financials and various
manufacturing and maintenance systems.
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FOCUS DIRECT SELLING EFFORTS ON SELECT VERTICAL MARKETS. The Company
focuses its direct sales force on select vertical markets with compelling
business needs for the Company's document management solutions. The Company
has established a strong market presence in the utility, manufacturing,
transportation and petrochemical and other processing industries both
domestically and internationally. The Company intends to continue to expand its
direct sales and marketing force to increase its market penetration in these
industries as well as in certain other select vertical markets, including
telecommunication providers, defense and other governmental agencies,
electrical and electronic equipment manufacturers, engineering and
construction firms, financial institutions, property management companies and
architecture firms.
EXPAND INDIRECT DISTRIBUTION CHANNELS. The Company intends to continue to
build and develop its existing VAR, systems integrator and OEM channels which
are targeted primarily at industries not covered by its direct sales force in
order to reach the broadest customer base. The Company is expanding its VAR and
systems integrator channel by hiring additional sales and support personnel,
increasing training and support programs, developing additional software tools
to facilitate configuration and recruiting additional VARs and systems
integrators in key geographical and vertical markets. The Company is also
currently seeking to develop additional OEM relationships.
PROVIDE COMPLETE SOLUTIONS. The Company intends to continue to provide
(i) complete EDMS solutions which include the Company's multi-format document
manager; (ii) an extensive range of product tools and features that are
interoperable and scaleable across an enterprise and that can be rapidly
deployed at relatively low cost; and (iii) greater network efficiencies than
competitive products. The Company has a comprehensive service and support
organization that is designed to ensure both international and domestic
customers' successful implementation and use of its suite of products. The
Company believes its customers' success in implementing and using the
Company's products is critical to sustaining references and repeat sales from
its customer base.
ESTABLISH BRAND NAME. The Company has recently changed its name to
"Altris Software, Inc." to reflect the combination of the Alpharel and Trimco
organizations and products. The Company has begun efforts to establish name
recognition for the "Altris Software" name through targeted marketing
programs, including direct mail, channel marketing, promotions, seminars,
trade shows and ongoing customer and third party communication programs. The
Company is also establishing the Altris name through its public relations
programs, white papers, technical notes and programs for industry consultants.
CUSTOMERS
The following are examples of customers who are using the Company's
products:
UTILITIES. Within the utilities industry, countless documents relating to
plant management, facility maintenance and support, transmittal processing and
tracking, matrix security and statutory compliance must be current and readily
available at all times. Furthermore, with pending deregulation, utilities are
under increasing pressure to minimize their costs. The Company has installed
document management solutions at more than 25 utilities around the world. In
one recent example, a commercial utility was relying on more than 2,000,000
microfilm documents, 750,000 paper documents and 110,000 aperture cards (a form
of microfilm technology) for its daily operations. Beginning in the engineering
department, the Company added a document management solution containing its
TIE-Technology which transformed the paper system into an integrated part of the
utility's existing applications, including its work flow applications. The
utility purchased a license for an enterprise-wide deployment covering 2,000
individual users. The Company's solution enables all current and historic plant
records, including those generated by word processors and spreadsheet programs,
to be readily available throughout the utility.
TRANSPORTATION. In the rail transportation segment, countless documents
relating to scheduling, structures, track and signaling must be current and
readily available at all times. For example, one of the world's oldest and
largest public transportation systems had more than 3,000,000 maintenance and
safety documents stored on aperture cards and microfiche, and manual handling
processes were straining efficient operation. The Company's document
management solution and TIE-Technology now enables users quick access to all
documents on-line, including the documents described above as well as
accounts payable and invoice records, internal letters and memoranda and
other business records, with additional search, optical character recognition
("OCR") and E-mail functionality. Today, the system can be accessed and
operated by over 1,500 individual users who can retrieve critical business
information whenever necessary on a near-instantaneous basis, thereby
enabling this public transportation system to better ensure regulatory
compliance.
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MANUFACTURING. One of the world's largest manufacturers of earth-moving
and construction equipment has a vast network of independent dealers in over 128
countries. With product information contained in more than 4,200,000
engineering drawings, CAD files, manufacturing documents and aperture cards,
dealers providing customer service in these countries were often forced to wait
for the results of lengthy searches and incurred costly delivery charges. The
Company supplied this manufacturer with a document management solution for
storing and retrieving the millions of pages of product information. Today,
over 15,000 users perform more than 20,000 views and prints per day at locations
around the world with information requests filled in seconds rather than days.
PETROCHEMICAL. In the highly regulated petrochemical industry, companies
must have the ability to quickly access critical information for safety,
maintenance and regulatory compliance purposes. One of the world's largest
petrochemical companies operates oil platforms in the North Sea from its
principal facilities in Scotland and Norway. Large engineering drawings,
detailed schematics, maintenance instructions and other intricate documentation
often had to be delivered by boat or helicopter, creating substantial delays.
By using the Company's TIE-Technology, this customer was able to transmit
documents to its oil platforms directly by satellite. As a result of the
success of the system, the Company was asked to install document management
software at three other sites. The resulting document management solution
currently has thousands of individual users worldwide and manages all forms of
documents, including paper-based documents, business applications and CAD
created documents.
FINANCIAL SERVICES. A major bank in the United Kingdom is using the
Company's office document management system to provide on-line customer services
at all of its locations. Customers can retrieve current account information and
view canceled checks, statements and loan documents on-line. The Company's
document management solution is also being used at a major U.S. bank to
facilitate the high-speed processing of checks, coupons, letters, invoices and
envelopes for corporate and commercial customers. This high-volume system
processes hundreds of thousands of receivables a day, which are posted and
available for viewing electronically more quickly than through traditional
services.
SALES AND MARKETING
DIRECT SALES
The Company focuses its direct sales force on select vertical markets
with compelling business needs for the Company's document management
solution. The Company has established a strong market presence in the
utility, manufacturing, transportation and petrochemical and other processing
industries both domestically and internationally. The Company's strategy is
to continue to expand its direct sales and marketing force to increase its
market penetration in these industries as well as in certain other select
vertical markets, including telecommunication providers, defense and other
governmental agencies, electrical and electronic equipment manufacturers,
engineering and construction firms, financial institutions, property
management companies and architecture firms.
As of December 31, 1996, the Company's sales and marketing organization
consisted of 46 employees primarily based in Company sales offices located in
the U.S. and in London, England. Additionally, the Company's field sales
force regularly conducts presentations and demonstrations of the Company's
suite of products to management and users at the customer site as part of the
direct sales effort. Sales cycles for the Company's products generally last
from six to twelve months.
INDIRECT DISTRIBUTION CHANNELS
Although the Company has historically generated the majority of its
revenues from its direct sales force, the Company has also established a
network of third-party VARs, system integrators and OEMs who build and sell
systems (with components or complete systems provided by the Company) that
address specific customer needs within various vertical markets, including
those targeted directly by the Company. Sales through indirect channels
accounted for 23% and 14% of the Company's total revenue for the years ended
December 31, 1996 and 1995, respectively.
The Company's strategy is to continue to build and develop its existing
VAR, systems integrator and OEM channels which are primarily targeted at the
industries and geographic regions not covered by its direct sales force in
order to reach the broadest customer base. The VARs and systems integrators
are an
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integral part of the Company's distribution strategy as they are responsible
for identifying potential end-users, selling the Company's products to
end-users as part of a complete hardware and software solution, customizing
and integrating the Company's products at the end-user's site and supporting
the end-user following the sale. Additionally, the Company intends to focus
increased effort on growing its VAR and systems integrator channel through
hiring additional sales and support personnel, increasing training and
support programs, developing additional software tools to facilitate
configuration and recruiting additional VARs and systems integrators in key
geographical and vertical markets. OEMs also are an integral part of the
Company's distribution strategy as they generally generate greater sales
volume and require considerably less post-sales support than the Company's
VARs and systems integrators. The Company currently is actively seeking to
develop additional OEM relationships.
Set forth below are several of the VARs, systems integrators and OEMs with
whom the Company has entered into cooperative sales arrangements:
Adepso Deverrill Plc Structural Dynamic
Alpha Numeric Solutions Excitech Computers Research Corp.
AMS GE Capital Consulting Systemhouse
CACI Information Systems Koren Projects Management Simdell Office Systems
CAD Capture MDIS SMI Software
Control Data Systems Metaphase Softology
Computing Devices Octagon Computing Services Staffware
International Oswego Technologies Systeica
Data General Persetel TELSOC
DSS Plexxus Wang
Datel
There can be no assurance that any customer, VAR, systems integrator or OEM
will continue to purchase the Company's products. The failure by the Company to
maintain its existing relationships, or to establish new relationships in the
future, could have a material adverse effect on the Company's business, results
of operations and financial condition.
MARKETING COMMUNICATIONS
In support of its sales efforts, the Company conducts sales training
courses, targeted marketing programs including direct mail, channel marketing,
promotions, seminars, trade shows, telemarketing and ongoing customer and
third-party communications programs. The Company also seeks to stimulate
interest in its products through public relations, speaking engagements, white
papers, technical notes and programs targeted at educating consultants about the
capabilities of the Company and its products.
SERVICES AND SUPPORT
The Company believes that a high level of services and support are critical
to its performance. As a result, the Company maintains a telephone hotline to
provide technical assistance and software support directly to its end-users on
an as-needed basis. The Company also provides technical support, maintenance,
training and consulting to its VARs, systems integrators and OEMs, which in turn
provide technical support services directly to end-users. These services are
designed to increase end-user satisfaction, provide feedback to the Company as
to end-users' demands and requirements and generate recurring revenue. The
Company plans to continue to expand its services and support programs as the
breadth of the products offered by the Company increases.
VAR, SYSTEMS INTEGRATORS AND OEM SUPPORT
The Company employs pre-sales, technical support personnel that work
directly with VARs, systems integrators and OEMs to provide responses to
technical sales inquiries. The Company also offers educational and training
programs, as well as customized consulting services to its VARs, systems
integrators and OEMs. Fees for training and consulting services are
generally charged on a per diem basis. The Company also provides product
information bulletins on an ongoing basis, including bulletins posted through
its Internet web site and through periodic informational updates about the
products installed. These bulletins generally answer commonly asked
questions and provide information about new product features.
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TECHNICAL SUPPORT AND SOFTWARE MAINTENANCE
The Company, in conjunction with its VARs and systems integrators, offers
end-users a software maintenance program that includes software updates
provided by the Company to end-users and technical support provided by the
VARs and systems integrators. Telephone consultation is provided by the
Company to VARs and systems integrators to respond to end-user questions that
VARs and systems integrators are unable to answer. VARs and systems
integrators typically charge end-users a fee for maintenance and support of
the entire EDMS and imaging system, including software and hardware. In
turn, the Company charges VARs and systems integrators an annual fee based
upon a percentage of the then-current list prices of the licensed software.
WARRANTY
The Company generally includes a 90-day limited warranty with software
licenses. During the warranty period, end-users are entitled to corrections for
documented program errors. The services and updates provided during the
warranty period may be extended by the end-user entering into the Company's
software maintenance program.
PRODUCTS
The Company's suite of object-oriented, client/server document management
software products enables users to effectively and efficiently manage, share
and distribute critical business information, expertise and other
intellectual capital. The underlying architecture for the Company's EDMS
employs a model designed to ensure scalability, modularity and high
performance. The Company's suite of products are grouped into three main
categories, which are Core Document Services, Client Interfaces and Toolkits.
CORE DOCUMENT SERVICES
The Company's EDMS Server, which is the central component of the document
management system, provides document capture, storage, distribution, version
control, check-in/check-out and process management. The EDMS Server manages
documents of all types, including CAD, image, multi-media and text, as well as
compound or virtual documents consisting of multiple document types and
documents that are edited in one format and distributed in another (for example,
editing a CAD application and distributing in an image format, or editing in
Microsoft Office and distributing in a printed document format). Some examples
of core document services include:
CAPTURE: Documents are loaded individually or in batches and moved through
a process which includes quality control, indexing and storage. Multiple
indexing options are provided, including indexing by structured fields, keywords
or full text. For documents residing in hardcopy format, an intermediate
recognition step is performed by optical character recognition ("OCR") to create
searchable ASCII text. In addition, the Company's COLD technology provides the
ability to capture structured data and retain and present it in report format,
allowing searches against the reports.
LIBRARY SERVICES: The EDMS Server provides comprehensive library
functions, including storage, management, distribution, routing,
check-in/check-out, version control and change management. Documents of all
formats are managed in a secure environment which can provide distribution to
authorized users at remote sites. The EDMS Server permits storage to a wide
variety of media, including CD-ROM, magnetic disk, optical disks and a redundant
array of inexpensive disks ("RAID") and uses caching and other functions to
enhance performance. The EDMS Server enables the secure check-in/check-out of
documents for editing, routing for comment or approval and management of the
revision history. The EDMS Server also provides stereo vaulting capability,
enabling two editions of documents to be stored, one for editing and one for
viewing distribution.
GRAPHICAL WORKFLOW: The EDMS Server provides tools which allow a company
to customize the workflow process. These tools work by using "drag-and-drop"
functions with icons to define the workflow process. This fully integrated
technology enables both ad-hoc and structured workflow. Sophisticated reporting
and monitoring tools are also provided to enable users to manage the entire
document life cycle.
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IMAGE MANAGEMENT: Image is an important data type in any EDMS solution.
The EDMS Server architecture is designed for both simple and complex image
management. The Company's multi-format document manager allows users to view,
annotate and edit a variety of different types of documents, while also
providing a look and feel consistent with the Company's products. In addition,
to address network traffic limitations, the Company's TIE-Technology allows
monochrome and color images (in industry and international standard formats) to
be displayed with only about 5-10% of the network traffic of competing products.
This performance is achieved across all popular network types.
DISTRIBUTION: Documents can be distributed in hard copy through a
printer, plotter or fax machine. The output can be tagged with information
such as the date and time, the identity of the requestor and a standard
warning label. The output is automatically rotated and scaled for optimum
fit to paper. Documents can also be distributed on-line over LANs, WANs and
the Internet, thereby facilitating annotating, redlining and editing.
Additionally, documents can be distributed through a wide variety of other
media, including CD-ROM, magnetic disk, optical disks and RAID. The EDMS
Server can also create a portable subset of the document management system,
along with search and view tools, which can be placed on a laptop hard disk
or CD-ROM using CD-ROM Author. To address network traffic limitations, the
Company has developed its TIE-Technology which displays documents at
significantly faster rates than competing products. The Company has also
developed Secure File Access which permits a company to restrict access and
editing within an EDMS on a document-by-document basis, as compared to
competitive products employing a network file system that can only restrict
access at the client/server level.
CLIENT INTERFACES
The Company offers a variety of system GUIs to allow users to obtain the
most desirable combination of functionality and style. Key system interfaces
include:
- TARGET. The Company's Target product is designed for office
environments and provides a graphical interface to the EDMS Server,
enabling users to search for, display and route documents. In
addition, Target enables users to add documents and access such
functions as graphical work-flow and full text search. Such functions
are optional add-ons.
- PRO EDM. Pro EDM is designed for users in technical and engineering
organizations that need the capability to manage very large and
complex documents in hardcopy or electronic format. Pro EDM offers
the ability to manage these large and complex format documents, as
well as all of the functionality of the Company's Target product.
- INTERNET/INTRANET. In many companies, the Internet and Intranet are
becoming extremely popular as an interface for the general user
population. The Company's products integrate with existing e-mail
systems and also run in conjunction with popular Internet Web Browsers
such as Netscape and Microsoft Internet Explorer, allowing users to
search and display documents through the Internet and Intranet without
the need for any client-side software. As an option, however, users
can choose to install a local copy of the Company's view software for
higher display performance.
- DOCUMENT-ENABLED APPLICATIONS. The Company's "document-enabling"
software allows users to integrate the power of electronic document
management imaging directly into a user's business applications,
providing users with greater access to information from which to make
business decisions and extending the life of these business
applications. The Company's document enabling software has been
integrated with a number of leading PDM, workflow and accounting
software systems.
- MULTI-FORMAT DOCUMENT MANAGER. The Company's multi-format document
manager allows users to view, annotate and edit a variety of different
types of documents, while also providing a look and feel consistent
with the Company's products. More than 100 document formats are
supported. By employing TIE-Technology, the Company believes its
products deliver superior display performance without significant
impact on the network.
- CAD CONNECT AND ACROBAT. The Company's CAD Connect distributes
documents from the CAD system as a raster edition, enables redlining
on the raster edition and further enables the incorporation of the
redlining into the original CAD file following import. The redlines are
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registered against the original just as they were against the raster
image and can be used by the drafter as a reference or for direct
incorporation. Acrobat Connect provides PDF capability within a
document management system.
TOOLKIT
The Company's customers generally have unique needs for their document
management systems and associated user interfaces. To address these needs, the
Company provides embedded APIs to simplify tailoring by both users and
application developers, thereby enabling customers to effectively customize and
integrate applications with existing information infrastructure. The Company's
Toolkits includes APIs for document viewing, scanning, markup, raster editing
and printing, plus APIs for manipulating data in document databases. The
Company also offers toolkits that provide customers with the ability to
document-enable applications built with C/C++, Powerbuilder and Visual BASIC, as
well as existing, legacy UNIX, mini or mainframe applications.
The Company's desktop products run on Microsoft Windows, Windows 95,
Windows NT, Macintosh and UNIX operating systems, and its EDMS Server
supports a range of server hardware including a variety of UNIX platforms
such as Hewlett-Packard, IBM, Sun, Digital and Data General as well as
Microsoft Windows NT on both Intel and DEC Alpha platforms. The system
operates in conjunction with industry-standard RDBMS including Oracle,
Sybase, Informix, Ingres, Microsoft Sequel Server and Progress. The system
also embeds leading full-text search technologies from Fulcrum, Excalibur and
BRS, and connects to leading e-mail packages such as Microsoft Mail and
cc:Mail.
Pricing for the Company's systems can vary substantially based upon the
particular features of the system and peripheral-device content (e.g., scanners,
printers, workstations, etc.). While pilot systems begin at a price of
approximately $15,000 for a small target system, the price of full scale
enterprise systems can range up to several million dollars. In the past, most
systems ordered from the Company have ranged from $150,000 to $1,500,000. Once
an electronic document management system is installed, the Company generally
receives ongoing revenues from follow-on contracts as a result of enhancements,
expansion and maintenance. Enhancements can modify a system in order to, among
other things, accommodate more documents or users, interface with different
peripheral devices, update the system with recently developed improvements
(including improvements which increase the speed of the system) or implement
other changes in response to changes in the customer's general data processing
environment. Variations in both the size and timing of orders can result in
significant fluctuations in the Company's revenues on a quarterly basis.
PRODUCT DEVELOPMENT
The Company's product development efforts are focused on providing
customers with the most technologically advanced solutions for their document
management needs. The Company believes that the marketplace is rapidly
moving toward demanding that all corporate information, both structured and
unstructured, simple and complex, be managed as a consistent and
interconnected global enterprise network. This trend demands that products
and services work across technology platforms, business processes and
geographic locations to establish real-time document management systems with
imaging capabilities. The need to manage global enterprise networks
encompasses many different forms of information, including small and large
documents and other complex information objects (x-rays, photos, color JPEG
files, etc.). The Company has responded to this market evolution by
developing new approaches to deal with the problem of accessing very large
documents or information objects over WANs and LANs and intends to continue
to devote research and development activity to this area.
The Company intends to continue to extend its position as a technology
leader in developing and marketing document management solutions that include
imaging capability. The Company intends to do this by continuing to enhance the
features and functionality of its current products, including tools to allow
users to customize the GUIs, layout and menu items of the EDMS to fit their own
needs, designing additional APIs to simplify tailoring by both users and
application developers and administrative tools to enable systems operators to
monitor individual use, network traffic and printing volume. The Company also
intends to continue to enhance the performance of its current products,
including advancing its TIE-Technology to work with larger and more complex
documents, adopting parallel three-tier architecture and also developing tools
to reduce telecommunication expenses for the distribution and replication of
data over geographically dispersed systems. Through leveraging its technology,
the Company also plans to introduce
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new products and product extensions which are complementary to its existing
suite of products and which address both existing and emerging market needs,
including expanding the applications for its document-enabling capabilities and
its TIE-Technology.
The Company has committed substantial resources to product development.
As of December 31, 1996, the Company had 79 employees engaged in product
development and application engineering, and in 1996, 1995 and 1994, the
Company's research and product development expenses were approximately
$3,363,000, $1,402,000 and $769,000, respectively. Development is also
conducted within the scope of a customer contract if a customer requires
additional functionality not provided by the Company's present systems.
Technical expenses included in cost of revenues were approximately
$2,607,000, $2,140,000 and $2,313,000 for 1996, 1995 and 1994, respectively.
In 1996, a substantial portion of the Company's development efforts have been
devoted to integrating the Company's United Kingdom and United States
engineering resources in an effort to accelerate the introduction of its
next-generation Altris EB product offering and other next generation document
management products. The Company anticipates that it will continue to commit
substantial resources to research and development in the future. See
"Business-Strategy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Operating Expenses."
COMPETITION
The market for the Company's products is intensely competitive, subject to
rapid change and significantly affected by new product introduction and other
market activities of industry participants. The Company currently encounters
direct competition from a number of public and private companies such as
Documentum, Inc., FileNet Corporation (and its Saros subsidiary), Novasoft and
PC DOCS. Many of these direct competitors have significantly greater financial,
technical, marketing and other resources than the Company. The Company also
expects that direct competition will increase as a result of recent
consolidation in the software industry.
The Company also faces indirect competition from systems integrators and
VARs. The Company relies on a number of systems consulting and systems
integration firms for implementation and other customer support services, as
well as for recommendation of its products to potential purchasers. Although
the Company seeks to maintain close relationships with these service providers,
many of these third parties have similar, and often more established,
relationships with the Company's principal competitors. If the Company is
unable to develop and retain effective, long-term relationships with these third
parties, the Company's competitive position would be materially and adversely
affected. Further, there can be no assurance that these third parties will not
market software products in competition with the Company in the future or will
not otherwise reduce or discontinue their relationship with, or support of, the
Company and its products. In addition, RDBMS vendors, such as Oracle, Informix
and Sybase, and other software developers such as Microsoft, may compete with
the Company in the future. Like the Company's current competitors, many of
these companies have longer operating histories, significantly greater resources
and name recognition and a larger installed base of customers than the Company.
The Company believes that the principal competitive factors affecting its
market include system features such as scalability of the system, the ability to
integrate with existing structural databases and other applications such as
document workflow and PDM, the ability to provide image management capability,
the price of the system, the level and cost of integration required, the impact
of the system on network bandwidth, integration with existing business
processes, the ability to operate on existing computing infrastructure and with
existing applications, the system architecture and the ability to handle large
and complex data types and to customize products to the client's needs. In
addition, organizations also consider features such as the ability to search,
retrieve, view, annotate and edit data in a controlled manner. Although the
Company believes that it currently competes favorably with respect to the
factors referenced above, there can be no assurance that the Company can
maintain its competitive position against current and any potential competitors,
especially those with greater financial, marketing, service, support, technical
and other resources than the Company.
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<PAGE>
PRODUCT BACKLOG AND CURRENT CONTRACTS
The Company's contract backlog consists of the aggregate anticipated
revenues remaining to be earned at a given time from the uncompleted portions
of its existing contracts. It does not include revenues that may be earned
if customers exercise options to make additional purchases. At December 31,
1996, the Company's contract backlog was $6,204,000, as compared to
$4,132,000 at December 31, 1995. The Company expects substantially all of
the December 31, 1996 backlog to be completed in 1997. The amount of
contract backlog is not necessarily indicative of future contract revenues
because short-term contracts, modifications to or terminations of present
contracts and production delays can provide additional revenues or reduce
anticipated revenues. The Company's backlog is typically subject to large
variations from time to time when new contracts are awarded. Consequently,
it is difficult to make meaningful comparisons of backlog.
The Company's contracts with its customers customarily contain provisions
permitting termination at any time at the convenience of the customer (or the
U.S. Government if the Company is awarded a subcontract under a prime contract
with the U.S. Government), upon payment of costs incurred plus a reasonable
profit on the goods and services provided prior to termination. To the extent
the Company deals directly or through prime contractors with the U.S. Government
or other governmental sources, it is subject to the business risk of changes in
governmental appropriations. In order to reduce the risks inherent in competing
for business with the U.S. Government, the Company has directed its government
contracts marketing efforts toward teaming with large corporations, who
typically have existing government contracts, can alleviate the cash flow
burdens often imposed by government contracts and have more extensive experience
in and resources for administering government contracts. The Company does not
have any contractual arrangements regarding such joint marketing efforts. In
the past, such efforts have been pursued when deemed appropriate by the Company
and such corporations in response to opportunities for jointly providing systems
or services to potential government agency customers.
PATENTS AND TECHNOLOGY
The Company's success is dependent in part upon proprietary technology.
The Company owns certain U.S. and foreign patents covering certain aspects of
its document management systems technology including two patents concerning the
technology used to present the raster data to the view, markup or edit user very
quickly which involve data storage/transmission and scaling algorithms which
utilize industry standards. The Company also owns a patent on technology to
allow edit users to make changes to documents without having to specify whether
they are working on raster or vector data and a patent for a cinematic revisory
capability that allows users to modify and store drawing changes in raster and
vector format for subsequent review of the original document and each sequential
revision. There can be no assurance that the Company's patents will be found
valid if challenged or, if valid, will provide meaningful protection against
competition. While the Company believes that the protection afforded by its
patents will have value, the rapidly changing technology in the industry makes
the Company's success largely dependent on the technical competence and creative
skills of its personnel.
The Company also relies on a combination of trade secret, copyright and
non-disclosure agreements to protect its proprietary rights in its software and
technology. There can be no assurance that such measures are or will be
adequate to protect the Company's proprietary technology. Furthermore, there
can be no assurance that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technology.
The Company's software is licensed to customers under license agreements
containing provisions prohibiting the unauthorized use, copying and transfer of
the licensed program. Policing unauthorized use of the Company's products is
difficult and, while the Company is unable to determine the extent to which
piracy of its software products exists, any significant piracy of its products
could materially and adversely affect the Company's financial condition and
result of operations. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to as great an extent as do the laws of
the United States and there can be no assurance that the Company's means of
protecting its proprietary rights will be adequate.
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In addition, the Company also relies on certain software that it licenses
from third parties, including software that is integrated with internally
developed software and used in the Company's products to perform key functions.
There can be no assurances that the developers of such software will remain in
business, that they will continue to support their products or that their
products will otherwise continue to be available to the Company on commercially
reasonable terms. The loss of or inability to maintain any of these software
licenses could result in delays or reductions in product shipments until
equivalent software can be developed, identified, licensed and integrated, which
could adversely affect the Company's business, operating results and financial
condition.
EMPLOYEES
As of February 28, 1997, the Company had 193 full-time employees, of whom
79 were engaged in product development and application engineering activities,
49 in customer support and implementation, 46 in sales and marketing and 19 in
administration. The Company also utilizes consultants for specific projects.
None of the Company's employees is represented by a labor union. The Company
has experienced no work stoppages and believes its relationship with its
employees is good. Competition for qualified personnel in the industry in which
the Company competes is intense. The Company believes that its future success
will depend, in large measure, on its ability to continue to attract, hire and
retain qualified employees and consultants.
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ITEM 2. PROPERTIES
The Company's headquarters are located in San Diego, California. The
Company leases 31,016 square feet of a 40,000 square foot building in San Diego.
The term of the lease is through March 2001, at a monthly rent of $16,438, with
annual increases of approximately 4%.
In October 1996, the Company closed its engineering and sales office in
Camarillo, California, approximately 50 miles northwest of Los Angeles. The
facility is currently subleased (See Note 10 to the Consolidated Financial
Statements). The lease covers 19,400 square feet of a 40,000 square foot
building. The term of the lease is through April 2001. The Company has a
right of first refusal on an additional 10,268 square feet of the building.
The monthly rent is $11,955, subject to annual adjustments not to exceed 4%
in any year. The lessor waived five months rent during the lease term.
The Company's United Kingdom subsidiary leases a facility which occupies
18,000 square feet in Ealing, London. The term of the lease is through March
2001, with an option to cancel the lease in March 1998 with six months notice.
The monthly rent is $19,903.
In addition, the Company's United Kingdom subsidiary is the lessee under a
lease for facilities previously occupied by the United Kingdom subsidiary which
are currently subleased. The lease covers 1,600 square feet and expires in
August 2006. The monthly rent is $4,156.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising in the
normal course of business. The Company believes that any liability with respect
to such legal actions, individually or in the aggregate, is not likely to be
material to the Company's consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
See Item 4 of the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq National Market under the
symbol "ALTS." The following table shows, for the calendar quarters indicated,
the high and low sale prices of the Common Stock on the Nasdaq National Market:
YEAR ENDED DECEMBER 31, 1994 HIGH LOW
First Quarter . . . . . . . . . . . . . . . . . . $3.50 $2.38
Second Quarter . . . . . . . . . . . . . . . . . . 4.88 2.38
Third Quarter. . . . . . . . . . . . . . . . . . . 3.76 2.76
Fourth Quarter . . . . . . . . . . . . . . . . . . 4.32 2.62
YEAR ENDED DECEMBER 31, 1995
First Quarter . . . . . . . . . . . . . . . . . . $4.26 $2.62
Second Quarter . . . . . . . . . . . . . . . . . . 3.50 2.38
Third Quarter. . . . . . . . . . . . . . . . . . . 14.76 3.00
Fourth Quarter . . . . . . . . . . . . . . . . . . 12.00 8.12
YEAR ENDED DECEMBER 31, 1996
First Quarter . . . . . . . . . . . . . . . . . . $13.88 $7.26
Second Quarter . . . . . . . . . . . . . . . . . . 18.00 8.76
Third Quarter. . . . . . . . . . . . . . . . . . . 12.50 7.38
Fourth Quarter . . . . . . . . . . . . . . . . . . 10.63 5.75
On March 1, 1997, there were approximately 500 holders of record of the
Company's Common Stock and the last sale price of the Common Stock as reported
on the Nasdaq National Market on March 18, 1997 was $5.25 per share. The stock
prices listed above have been restated to reflect the one-for-two reverse stock
split effected by the Company on October 25, 1996.
DIVIDEND POLICY
The Company has never paid a dividend on its Common Stock, and the current
policy of its Board of Directors is to retain all earnings to provide funds for
the operation and expansion of the Company's business. Consequently, the
Company does not anticipate that it will pay cash dividends on its Common Stock
in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company. The financial data for each of the five years in the period ended
December 31, 1996 have been derived from the audited Consolidated Financial
Statements. The results of Trimco are included below since December 27, 1995,
the date of acquisition. (See Note 2 of the Notes to the Consolidated Financial
Statements.)
The data set forth below should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, and Management's Discussion
and Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
Consolidated Statement of Operations Data 1996 1995 1994 1993 1992
-------- --------- -------- -------- --------
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenues $24,511 $ 12,731 $ 9,547 $ 8,354 $ 6,273
Cost of revenues 9,704 5,791 4,822 4,444 4,275
-------- --------- -------- -------- --------
Gross profit 14,807 6,940 4,725 3,910 1,998
-------- --------- -------- -------- --------
Operating expenses:
Research and development 3,363 1,402 769 1,108 435
Charge for purchased research and
development - 10,595 - 4,920 -
Marketing and sales 5,581 3,570 2,627 1,361 763
General and administrative 3,077 1,581 1,146 907 696
Write down of assets to net
realizable value - 1,664
Restructuring expense - - - 3,447 -
Loss on office closure 410 - - - -
-------- --------- -------- -------- --------
12,431 18,812 4,542 11,743 1,894
-------- --------- -------- -------- --------
Income (loss) from operations 2,376 (11,872) 183 (7,833) 104
Interest and other income 88 137 207 183 179
Interest and other expense (114) (95) (115) (54) (61)
-------- --------- -------- -------- --------
Income (loss) before income taxes 2,350 (11,830) 275 (7,704) 222
Provision for income taxes - - - - -
-------- --------- -------- -------- --------
Net income (loss) $ 2,350 $(11,830) $ 275 $(7,704) $ 222
-------- --------- -------- -------- --------
-------- --------- -------- -------- --------
Net income (loss) per share $ .25 $ (1.68) $ .04 $ (1.29) $ .04
Weighted average shares outstanding 9,507 7,026 6,992 5,986 5,924
<CAPTION>
At December 31,
--------------------------------------------------------
Consolidated Balance Sheet Data 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Working capital $ 6,971 $ 939 $2,799 $ 5,007 $ 5,997
Total assets 22,891 19,002 9,771 11,087 10,554
Capital lease obligations - - - - 81
Long-term obligations 1,966 1,420 - 1,770 -
Shareholders' equity 14,770 8,116 5,658 5,364 9,101
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
When used in the following discussion, the words "believes",
"anticipates" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from
those projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The following discussion should be read in conjunction with the Selected
Consolidated Financial Data and the Consolidated Financial Statements, including
the Notes thereto.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total
revenues of items included in the Company's Consolidated Statement of Operations
for each of the last three fiscal years:
For the year ended December 31,
-------------------------------
1996 1995 1994
------ ------ ------
Revenues 100.0% 100.0% 100.0%
Cost of revenues 39.6 45.5 50.5
------ ------ ------
Gross profit 60.4 54.5 49.5
------ ------ ------
Operating expenses:
Research and development 13.7 11.0 8.1
Charge for purchased research and
development - 83.2 -
Marketing and sales 22.8 28.0 27.5
General and administrative 12.5 12.4 12.0
Write down of assets to net realizable value - 13.1 -
Loss on office closure 1.7 - -
------ ------ ------
50.7 147.7 47.6
------ ------ ------
Income (loss) from operations 9.7 (93.2) 1.9
Interest and other income .4 1.0 2.2
Interest and other expense (.5) (.7) (1.2)
------ ------ ------
Income (loss) before income taxes 9.6 (92.9) 2.9
Provision for income taxes - - -
------ ------ ------
Net income (loss) 9.6% (92.9)% 2.9%
------ ------ ------
------ ------ ------
REVENUES
Revenues for 1996 were $24,511,000 as compared to $12,731,000 for 1995.
The increase of 93% in 1996 is the result of the expansion of business
opportunities and resources in both international and domestic markets as a
result of the acquisition of Trimco in December 1995. In addition, revenues
increased due to sales of new software product and version releases. The
increase in 1996 revenues was also due in part to revenues generated by new
system sales and sales of enhancements, expansions and maintenance to an
expanded customer base. The Company's increased system sales resulted
primarily from increased demand for document management systems in the
marketplace which management believes is due to the reduction in the cost of
client/servers and workstations which, combined with document management
software, has brought about a more cost effective solution to customers.
Revenue derived from each new system varies depending on the number of users,
features and complexity of the system.
New systems revenues in 1996, 1995, and 1994 were $15,505,000 (63%),
$6,285,000 (49%) and $4,074,000 (43%), respectively, while revenues from system
enhancements, expansion and maintenance were $9,006,000 (37%), $6,446,000 (51%)
and $5,473,000 (57%), respectively. System enhancements are changes to a system
previously installed by the Company in order to, among other things, accommodate
more documents or users, interface with different peripheral devices, update the
system with recently developed improvements (including improvements which
increase the speed of the system) or implement other changes in response to the
customer's general data processing environment. See "Business - Sales and
Marketing."
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In 1996, new system revenues increased $9,220,000 from 1995, while revenues
from system enhancements, expansion and maintenance increased $2,560,000. The
increase in new system revenue was primarily due to orders received for three
large corporate enterprise systems, each in excess of $1,000,000. The increase
in system expansions, enhancements and maintenance was due to continued
expansions and enhancements by the Company's growing installed customer base as
the result of the acquisition of Trimco in 1995.
In 1995, new system revenues increased $2,211,000 from 1994, while revenues
from system enhancements, expansion and maintenance increased $973,000 over the
same period. The increase in new system revenue was primarily due to a greater
number of sales of large systems in 1995 as compared to 1994. The increase in
revenues from system expansions and enhancements was due to the Company's
growing installed customer base, offset in part by reduced maintenance revenues.
A small number of customers have typically accounted for a large
percentage of the Company's annual revenues. One consequence of this has
been that revenues can fluctuate significantly on a quarterly basis.
Management believes that the acquisition of Trimco at the end of 1995 has
assisted in reducing the Company's dependence on a relatively small number of
large customers by providing a larger base of customers for expansion,
enhancement and maintenance services.
COST OF REVENUES
Gross profit as a percentage of revenues was 60%, 55% and 50% for 1996,
1995 and 1994, respectively. The increase in gross profit margin in 1996
from 1995 was due primarily to the significant increase in software license
revenues, which typically have a gross profit margin of approximately 83%.
Software license revenues were $13,991,000, $5,369,000 and $2,551,000 in 1996,
1995 and 1994, respectively, representing 57%, 42% and 27% of revenues in
each of those years, respectively. The improvement in gross profit margin in
1995 compared to 1994 was also due primarily to the significant increase in
software license revenues. The higher margin of the software sales was
offset partially by lower margin hardware sales which increased from $1,354,000
in 1994 to $2,333,000 in 1995 and to $1,892,000 in 1996. Service revenues,
which include maintenance, training and consulting services, increased to
$8,628,000 in 1996 from $5,029,000 in 1995 which had decreased from
$5,641,000 in 1994. Software and services are sold at a significantly higher
margin than third party products which are resold at a lower gross profit
percentage in order for the Company to remain competitive in the marketplace.
Gross profit percentages can fluctuate quarterly based on the revenue mix of
Company software, services and third party software or hardware.
OPERATING EXPENSES
Research and development expense was $3,363,000, $1,402,000 and $769,000
for 1996, 1995 and 1994, respectively. The increase from 1995 to 1996 was
primarily due to additional personnel from the acquisition of Trimco, which more
than doubled the development team devoted to research and development activities
associated with new product version releases and the next generation product
suite. Research and development expense increased $633,000 in 1995 from 1994
primarily due to the expansion of the Company's engineering staff in connection
with the Company's efforts to continue to enhance and expand its current product
suite. Research and development expense can vary based on the amount of
engineering service contract work required for customers versus purely internal
development projects. It may also vary based on internal development projects
in which technological feasibility and marketability of a product are
established. These costs are capitalized as incurred and then amortized when
the product is available for general release to customers. Technical expenses
on customer-funded projects are included in cost of revenues, while expenses on
internal projects are included in research and development expense. See
"Business - Product Development." Technical expenses on customer-funded
projects were $2,607,000 in 1996, $2,140,000 in 1995 and $2,313,000 in 1994.
In connection with the acquisition of Trimco, the Company allocated a
significant portion of the purchase price to purchased research and development
resulting in a charge of $10,595,000 in 1995. See Note 2 of the Notes to the
Consolidated Financial Statements. The charge relates to research and
development projects in process relating to Trimco's next generation of document
management products. At the date of acquisition, the technological feasibility
of acquired technology had not yet been established and the technology had no
future alternative uses. The Company has expended a significant portion of its
18
<PAGE>
own engineering resources on the development of this technology for
anticipated new product offerings which the Company anticipates will be
released in mid-1997.
Marketing and sales expense was $5,581,000, $3,570,000 and $2,627,000 for
1996, 1995 and 1994, respectively. The increase from 1995 to 1996 was
primarily due to additional personnel and other costs resulting from the
addition of Trimco's operations. In addition, the Company incurred
additional marketing and promotional costs as a result of its name change and
from increasing its presence at trade shows. The increase from 1994 to 1995
was primarily due to additional sales and support personnel hired along with
additional costs associated with the Company's revenue growth. During 1995,
the Company opened three new sales offices. In addition, the Company
significantly increased its presence at trade shows and increased the amount
of expenditures on advertising materials.
General and administrative expense was $3,077,000, $1,581,000 and
$1,146,000 for 1996, 1995 and 1994, respectively. The increase from 1995 to
1996 was due primarily to additional personnel and other costs resulting from
the addition of Trimco's operations. General and administrative expense
includes amortization of goodwill which increased from $66,000 in 1995 to
$746,000 in 1996. The increase in general and administrative expense from
1994 to 1995 was due primarily to costs associated with additional personnel.
In October 1996, the Company closed its facility in Camarillo, California
which served as a warehouse for hardware inventory and a remote engineering
office. As a result of such closure, the Company incurred a $410,000 loss
which was recorded in 1996. The Company's engineers who were in the
Camarillo office are now telecommuting from their homes and other locations.
The $410,000 loss resulted from subleasing the facility and additional costs
related to the relocation of employees and the movement of inventory and
equipment to the Company's headquarters in San Diego, California.
In connection with the acquisition of Trimco in 1995, the Company
wrote-down certain intangible assets to their net realizable value, resulting in
a $1,664,000 charge to operations. The write-down was a result of the
acceleration of the Company's plans to introduce a next-generation suite of
products. Management believes that the Company will be able to complete the
development of these new products sooner using the resources of the combined
companies, thus reducing the likelihood of recovering existing capitalized
software costs associated with the Company's current generation of products. In
addition, the costs of certain software development tools which will not be
utilized in the development of next-generation products, and certain software
products to be replaced, were written off.
INTEREST AND OTHER INCOME
Interest and other income was $88,000, $137,000 and $207,000 for 1996, 1995
and 1994, respectively. The decrease in 1996, 1995 and 1994 was primarily the
result of lower short-term investment balances.
INTEREST AND OTHER EXPENSE
Interest and other expense totaled $114,000, $95,000 and $115,000 for
1996, 1995 and 1994, respectively. The increase in interest expense for 1996
compared to 1995 was due to the higher rate of interest paid on the Company's
debt. While the Company had a higher debt balance in 1995 versus 1996, the rate
of interest paid was more favorable in 1995 than 1996. The decrease in 1995
from 1994 was due to lower interest expense incurred on the Company's debt.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company's cash and cash equivalents totaled
$2,200,000 as compared to $4,656,000 at December 31, 1995, and its current ratio
was 2.1 to 1. The Company also had short-term investments totaling $90,000
comprised of time deposits. The Company has two revolving credit facilities
which provide for borrowings of up to $1,771,000. At December 31, 1996,
$1,403,000 was outstanding on the revolving loan agreements and $368,000 was
unused. See Note 4 of the Notes to the Consolidated Financial Statements.
19
<PAGE>
In 1996, cash provided by financing activities totaled $2,831,000 while
cash used in operating and investing activities totaled $3,053,000 and
$2,346,000, respectively. Cash provided by financing activities in 1996 was
primarily through the issuance of Series C convertible preferred stock
totaling $1,964,000. Cash used in investing activities was used primarily
for capital expenditures totaling $1,142,000.
In 1995, cash provided by operating and financing activities totaled
$1,191,000 and $8,340,000, respectively, while cash used in investing activities
totaled $5,911,000. Cash generated from financing activities in 1995 was
primarily through the issuance of Series B convertible preferred stock totaling
$3,306,000 and the exercise of warrants totaling $4,230,000. A substantial
portion of the cash used in investing activities was used in connection with the
acquisition of Trimco and the payoff of the remaining payable to former
Optigraphics shareholders which totaled $5,785,000.
On December 27, 1995, the Company acquired Trimco. See Note 2 to the
Consolidated Financial Statements. The cash portion of the consideration to
Trimco shareholders totaled $5,550,000. As part of the transaction, the
Company also issued a convertible note due in September 1996, having a
principal balance of $1,000,000 with interest payable at 7% per annum. In
February 1996, the note was converted into 125,000 shares of the Company's
common stock. In addition, in connection with the transaction, the Company
assumed an accrued liability for $1,051,000 payable to Trimco employees in
January 1996.
The Company believes that current working capital and funds generated from
operations will be adequate to meet expected needs for working capital and
capital expenditures over at least the next twelve months; however, in order to
continue to expand the Company's market penetration with its next-generation
product suite and to increase name recognition with the Company's new name, the
Company intends to explore additional financing options.
NET OPERATING LOSS TAX CARRYFORWARDS
As of December 31, 1996, the Company had a net operating loss
carryforward ("NOL") for federal and State income tax purposes of $31,700,000
and $7,000,000, respectively. In addition, the Company generated but has not
used research and investment tax credits for federal income tax purposes of
approximately $500,000. Under the Internal Revenue Code of 1986, as amended
(the "Code"), the Company generally would be entitled to reduce its future
Federal income tax liabilities by carrying unused NOL forward for a period of
15 years to offset future taxable income earned, and by carrying unused tax
credits forward for a period of 15 years to offset future income taxes.
However, the Company's ability to utilize any NOL and credit carryforwards in
future years may be restricted in the event the Company undergoes an
"ownership change," generally defined as a more than 50 percentage point
change of ownership by one or more statutorily defined "5-percent
stockholders" of a corporation, as a result of future issuances or transfers
of equity securities of the Company within a three-year testing period. In
the event of an ownership change, the amount of NOL attributable to the
period prior to the ownership change that may be used to offset taxable
income in any year thereafter generally may not exceed the fair market value
of the Company immediately before the ownership change (subject to certain
adjustments) multiplied by the applicable long-term, tax-exempt rate
announced by the Internal Revenue Service in effect for the date of the
ownership change. A further limitation would apply to restrict the amount of
credit carryforwards that might be used in any year after the ownership
change. As a result of these limitations, in the event of an ownership
change, the Company's ability to use its NOL and credit carryforwards in
future years may be delayed and, to the extent the carryforward amounts
cannot be fully utilized under these limitations within the carryforward
periods, these carryforwards will be lost. Accordingly, the Company may be
required to pay more Federal income taxes or to pay such taxes sooner than if
the use of its NOL and credit carryforwards were not restricted.
Over the past three years the Company has issued equity securities in
connection with the Trimco acquisition in December 1995, the Optigraphics
acquisition in September 1993 and through traditional stock option grants to
employees. Although there was no "ownership change" in 1996, this activity,
combined with the liquidity available to stockholders, increases the
potential for an "ownership change" for income tax purposes.
20
<PAGE>
In connection with the acquisition of Trimco, the Company acquired deferred
tax assets of approximately $926,000. The Company has recorded a $626,000
valuation allowance, offsetting the deferred tax assets. Any future recognition
of acquired tax benefits will be used first to reduce any remaining goodwill and
other intangible assets related to the acquisition; once those assets are
reduced to zero, the benefit will be included as a reduction of the Company's
income tax provision.
In connection with the acquisition of Optigraphics, the Company acquired
Optigraphics' NOL of $9,500,000 for federal income tax purposes. As a result of
the change in ownership of Optigraphics, $8,000,000 of the NOL is limited
whereby the Company may only utilize approximately $500,000 annually to offset
future taxable income of Optigraphics. The remaining portion of Optigraphics'
NOL does not have any annual limitation.
INFLATION
The Company believes that inflation has not had a material effect on its
operations to date. Although the Company enters into fixed-price contracts,
management does not believe that inflation will have a material impact on its
operations for the foreseeable future, as the Company takes into account
expected inflation in its contract proposals and is generally able to project
its costs based on forecasted contract requirements.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Altris Software, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 40 present fairly, in all material
respects, the financial position of Altris Software, Inc. and its subsidiaries
at December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
San Diego, California
February 25, 1997
22
<PAGE>
ALTRIS SOFTWARE, INC.
CONSOLIDATED BALANCE SHEET
December 31,
-------------------------
1996 1995
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 2,200,000 $ 4,656,000
Short term investments 90,000 270,000
Receivables, net 9,752,000 4,207,000
Inventory, net 443,000 469,000
Other current assets 641,000 803,000
----------- -----------
Total current assets 13,126,000 10,405,000
Property and equipment, net 2,156,000 1,645,000
Computer software, net 2,252,000 1,549,000
Goodwill, net 4,972,000 4,945,000
Other assets 385,000 458,000
----------- -----------
$22,891,000 $19,002,000
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,614,000 $ 2,192,000
Accrued liabilities 1,643,000 3,211,000
Notes payable 710,000 1,834,000
Convertible note payable - 1,000,000
Deferred revenue 1,188,000 1,229,000
----------- -----------
Total current liabilities 6,155,000 9,466,000
Long term notes payable 1,203,000 475,000
Other long term liabilities 763,000 945,000
----------- -----------
Total liabilities 8,121,000 10,886,000
----------- -----------
Commitments (Note 10)
Shareholders' equity:
Preferred stock, $1 par value,
1,000,000 shares authorized; 750,761 designated;
172,500 shares issued and outstanding - 3,306,000
Common stock, no par, 20,000,000 shares authorized;
9,559,944 and 8,475,452 issued and outstanding,
respectively 61,583,000 54,085,000
Foreign currency translation adjustment 112,000 -
Accumulated deficit (46,925,000) (49,275,000)
----------- -----------
Total shareholders' equity 14,770,000 8,116,000
----------- -----------
$22,891,000 $19,002,000
----------- -----------
----------- -----------
See accompanying notes to the consolidated financial statements.
23
<PAGE>
ALTRIS SOFTWARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31,
----------------------------------------
1996 1995 1994
---- ---- ----
Revenues $ 24,511,000 $ 12,731,000 $ 9,547,000
Cost of revenues 9,704,000 5,791,000 4,822,000
------------ ------------ -----------
Gross profit 14,807,000 6,940,000 4,725,000
------------ ------------ -----------
Operating expenses:
Research and development 3,363,000 1,402,000 769,000
Charge for purchased research and
development - 10,595,000 -
Marketing and sales 5,581,000 3,570,000 2,627,000
General and administrative 3,077,000 1,581,000 1,146,000
Write down of assets to net
realizable value - 1,664,000 -
Loss on office closure 410,000 - -
------------ ------------ -----------
Total operating expenses 12,431,000 18,812,000 4,542,000
------------ ------------ -----------
Income (loss) from operations 2,376,000 (11,872,000) 183,000
Interest and other income 88,000 137,000 207,000
Interest and other expense (114,000) (95,000) (115,000)
------------ ------------ -----------
Income (loss) before income taxes 2,350,000 (11,830,000) 275,000
Provision for income taxes - - -
------------ ------------ -----------
Net income (loss) $ 2,350,000 $(11,830,000) $ 275,000
------------ ------------ -----------
------------ ------------ -----------
Net income (loss) per share $ .25 $ (1.68) $ .04
------------ ------------ -----------
------------ ------------ -----------
Weighted average shares
outstanding 9,507,000 7,026,000 6,992,000
------------ ------------ -----------
------------ ------------ -----------
See accompanying notes to the consolidated financial statements.
24
<PAGE>
ALTRIS SOFTWARE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Foreign
Preferred Stock Common Stock Currency
----------------------- ------------------------- Translation Accumulated
Shares Amount Shares Amount Adjustment Deficit
-------- ---------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 6,827,799 $43,084,000 $(37,720,000)
Exercise of stock options 42,625 19,000
Net income 275,000
---------- ------------ ------------
Balance at December 31, 1994 6,870,424 43,103,000 (37,445,000)
Exercise of stock options 213,188 188,000
Exercise of underwriter
unit warrants 75,000 382,000
Exercise of warrants 459,446 3,848,000
Issuance of Common Stock
in connection with
acquisition 857,394 6,564,000
Issuance of Series B
Preferred Stock 172,500 $3,306,000
Net loss (11,830,000)
-------- ---------- ---------- ------------ ---------- ------------
Balance at December 31, 1995 172,500 3,306,000 8,475,452 54,085,000 - (49,275,000)
Exercise of stock options 316,875 1,263,000
Conversion of Series B
Preferred Stock to
Common Stock (172,500) (3,306,000) 406,617 3,306,000
Issuance of Series C
Preferred Stock 100,000 1,964,000
Conversion of Series C
Preferred Stock to
Common Stock (100,000) (1,964,000) 236,000 1,964,000
Conversion of note to
Common Stock 125,000 965,000
Foreign currency translation
adjustment $112,000
Net income 2,350,000
-------- ---------- ---------- ------------ ---------- ------------
Balance at December 31, 1996 - - 9,559,944 $61,583,000 $112,000 $(46,925,000)
-------- ---------- ---------- ------------ ---------- ------------
-------- ---------- ---------- ------------ ---------- ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
25
<PAGE>
ALTRIS SOFTWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,350,000 $(11,830,000) $ 275,000
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 2,194,000 797,000 621,000
Loss on disposal of assets 12,000 - -
Charge for purchased research and development - 10,595,000 -
Write down of assets to net realizable value - 1,664,000 -
Changes in assets and liabilities, net of effect of acquisitions:
Receivables, net (5,545,000) (422,000) (625,000)
Inventory, net 26,000 303,000 (164,000)
Other assets (721,000) (161,000) (217,000)
Accounts payable 422,000 (73,000) 317,000
Accrued liabilities (1,568,000) 145,000 (932,000)
Billings in excess of costs - - (351,000)
Deferred revenue (41,000) 28,000 (315,000)
Other long term liabilities (182,000) 145,000 -
------------ ------------ ------------
Net cash (used in) provided by operating activities (3,053,000) 1,191,000 (1,391,000)
------------ ------------ ------------
Cash flows from investing activities:
Short term investments maturing 180,000 1,534,000 635,000
Purchases of property and equipment (1,142,000) (504,000) (295,000)
Purchases of software (306,000) (135,000) (170,000)
Computer software capitalized (1,078,000) (1,021,000) (806,000)
Cash paid for acquisitions, net of cash acquired - (5,785,000) (150,000)
------------ ------------ ------------
Net cash used in investing activities (2,346,000) (5,911,000) (786,000)
------------ ------------ ------------
Cash flows from financing activities:
Principal payment under cash advanced by a bank
related to former Optigraphics shareholder
notes payable (1,634,000) - -
Principal payments under capital lease obligations - - (81,000)
Repayments under notes payable (212,000) (84,000) (62,000)
Net borrowings under revolving loan and bank
agreements 1,450,000 700,000 -
Retirement of note payable to former
Optigraphics shareholder - - (36,000)
Net proceeds from issuance of preferred stock 1,964,000 3,306,000 -
Proceeds from exercise of warrants - 4,230,000 -
Proceeds from exercise of stock options 1,263,000 188,000 19,000
------------ ------------ ------------
Net cash provided by (used in) financing activities 2,831,000 8,340,000 (160,000)
------------ ------------ ------------
Effect of exchange rate changes on cash 112,000 - -
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (2,456,000) 3,620,000 (2,337,000)
Cash and cash equivalents at beginning of period 4,656,000 1,036,000 3,373,000
------------ ------------ ------------
Cash and cash equivalents at end of period $ 2,200,000 $ 4,656,000 $ 1,036,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
26
<PAGE>
ALTRIS SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Altris Software, Inc. ("Altris" or the "Company") develops, markets and
supports a suite of object-oriented, client/server document management software
products. These products enable customers in a broad range of industries to
effectively and efficiently manage, share and distribute critical business
information, expertise and other intellectual capital.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
FOREIGN CURRENCY
The functional currency of the Company's United Kingdom subsidiary is
pounds sterling. Assets and liabilities are translated into U.S. dollars at
end-of-period exchange rates. Revenues and expenses are translated at average
exchange rates in effect for the period. Net currency exchange gains or losses
resulting from such translation are excluded from net income and accumulated in
a separate component of shareholders' equity. Gains and losses resulting from
foreign currency transactions, which are not significant, are included in the
Consolidated Statement of Operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and also
requires disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Significant estimates made by management include realizability of deferred
income tax assets, capitalized software costs, valuation of stock issued in
acquisitions, allowance for doubtful accounts and reserves for excess or
obsolete inventory.
REVENUE RECOGNITION
The Company's revenues are derived from sales of its document management
systems that are primarily composed of software and services, including
maintenance, training and consulting services, and third party hardware. The
Company recognizes revenue in accordance with Statement of Position 91-1
"Software Revenue Recognition." Software license and third party hardware
revenues are recognized upon shipment of the product if no significant vendor
obligations remain and collection is probable. In cases where a significant
vendor obligation exists, revenue recognition is delayed until such obligation
has been satisfied. Annual maintenance revenues, which consist of ongoing
support and product updates, are recognized on a straight-line basis over the
term of the contract. Payments received in advance of performance of the
related service for maintenance contracts are recorded as deferred revenue.
Revenues from training and consulting services are recognized when the services
are performed. Contract revenues for long term contracts or programs requiring
specialized systems are recognized using the percentage-of-completion method of
accounting, primarily based on contract costs incurred to date compared with
total estimated costs at completion. Provisions for anticipated contract losses
are recognized at the time they become known.
Contracts are billed based on the terms of the contract. There are no
retentions in billed contract receivables. Unbilled contract receivables relate
to revenues earned but not billed at the end of the period. Billings in excess
of costs incurred and related earnings are included in current liabilities.
27
<PAGE>
ALTRIS SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUE OF FINANCIAL INVESTMENTS
It is management's belief that the carrying amounts shown for the Company's
financial instruments are reasonable estimates of their related fair values.
SHORT TERM INVESTMENTS
Short term investments consist of time deposits which are stated at
amortized cost, adjusted for amortization of premiums and accretion of discounts
to maturity.
CONCENTRATION OF CREDIT RISK
The Company provides products and services to customers in a variety of
industries worldwide, including petrochemicals, utilities, manufacturing and
transportation. Concentration of credit risk with respect to trade receivables
is limited due to the geographic and industry dispersion of the Company's
customer base.
INVENTORY
Inventory consists of parts, supplies and subassemblies and is stated at
the lower of cost or market value. Cost is determined using the first-in,
first-out (FIFO) method. As of December 31, 1996 and 1995, the Company's
reserve against excess quantities totaled $552,000 and $2,119,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated by the
straight-line method over useful lives of two to seven years.
Leasehold improvements are amortized on a straight-line basis over the
shorter of their useful life or the term of the related lease. Expenditures for
ordinary repairs and maintenance are expensed as incurred while major additions
and improvements are capitalized.
28
<PAGE>
ALTRIS SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
GOODWILL
Goodwill represents the excess of cost of purchased businesses over the
fair value of tangible and identifiable intangible net assets acquired at the
date of acquisition. Goodwill is amortized over its estimated useful life of
seven years. Accumulated amortization of goodwill was $892,000 and $146,000 at
December 31, 1996 and 1995, respectively. The related amortization expense was
$746,000, $66,000 and $66,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
SOFTWARE DEVELOPMENT COSTS
Software development and purchased software costs are capitalized when
technological feasibility and marketability of the related product have been
established. Software development costs incurred solely in connection with a
specific contract are charged to cost of revenues. Capitalized software costs
are amortized on a product-by-product basis, beginning when the product is
available for general release to customers. Annual amortization expense is
calculated using the greater of the ratio of each product's current gross
revenues to the total of current and expected gross revenues or the straight
line method over the estimated useful life of three to four years. Accumulated
amortization of capitalized software costs was $970,000 and $470,000 at December
31, 1996 and 1995, respectively. The related amortization expense was $808,000,
$325,000 and $191,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. The Company evaluates the carrying value of unamortized
capitalized software costs at each balance sheet date to determine whether any
net realizable value adjustments are required (See Note 2).
LONG-LIVED ASSETS
The Company assesses potential impairments to its long-lived assets, on an
exception basis, when there is evidence that events or changes in circumstances
have made recovery of the asset's carrying value unlikely. An impairment loss
would be recognized when the sum of the expected future net cash flows is less
than the carrying amount of the asset. No such impairment losses have been
recorded by the Company.
INCOME TAXES
Current income tax expense is the amount of income taxes expected to be
payable for the current year. A deferred income tax asset or liability is
established for the expected future consequences resulting from the differences
in the financial reporting and tax bases of assets and liabilities. Deferred
income tax expense (benefit) is the change during the year in the deferred
income tax asset or liability. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be "more
likely than not" realized in the future based on the Company's current and
expected operating results (See Note 8).
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed on the basis of weighted average
shares and common stock equivalent shares outstanding for each period presented,
if dilutive.
REVERSE STOCK SPLIT
In October 1996, the shareholders of the Company approved an amendment to
the Company's Articles of Incorporation to effectuate a 1-for-2 reverse stock
split of all outstanding shares of common stock of the Company. All references
in the Consolidated Financial Statements and in these notes have been restated
to reflect the split.
29
<PAGE>
ALTRIS SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS
Cash and cash equivalents are comprised of cash on hand and short-term
investments with original maturities of less than 90 days.
In 1995, cash and non-cash investing and financing activities relating to
the acquisition of Trimco Group plc (See Note 2) were as follows:
Purchased research and development $ 10,595,000
Fair market value of assets acquired, excluding cash 8,195,000
Liabilities assumed (5,046,000)
Common stock issued (6,564,000)
Note payable issued (1,000,000)
Accrued acquisition costs (587,000)
-------------
Cash paid for acquisition of Trimco $ 5,593,000
-------------
-------------
For the year ended December 31,
-----------------------------------
1996 1995 1994
---- ---- ----
Supplemental cash flow information:
Interest paid $ 75,000 $ 86,000 $ 115,000
----------- --------- ---------
----------- --------- ---------
Schedule of noncash financing activity:
Conversion of Preferred Stock and
note payable to Common Stock $ 6,235,000 $ - $ -
----------- --------- ---------
----------- --------- ---------
Indemnification obligations applied
against notes payable to former
Optigraphics shareholders $ - $ 100,000 $ -
----------- --------- ---------
----------- --------- ---------
30
<PAGE>
ALTRIS SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACQUISITIONS AND RESTRUCTURING:
TRIMCO GROUP PLC:
On December 27, 1995, the Company entered into a Sale and Purchase
Agreement to acquire all of the outstanding stock of Trimco Group plc ("Trimco")
for total consideration of $14,165,000 before acquisition costs of $630,000.
The purchase price was comprised of $5,550,000 in cash, 857,394 shares of the
Company's common stock with a valuation of $6,564,000 and a convertible note
payable having a total principal amount of $1,000,000 due September 27, 1996.
The purchase price also included obligations assumed which were paid to Trimco
employees in connection with the acquisition, consisting of cash of $1,051,000.
During the third quarter of 1996, the Company completed the allocation of the
purchase price initially made at the time of the Trimco acquisition based on
preliminary information, which resulted in a decrease in goodwill and an
increase in purchased technology of $127,000. During 1996, the Company incurred
additional costs associated with the Trimco acquisition, which resulted in an
increase in goodwill of $900,000. The increase was due primarily to the
settlement of a contract dispute associated with certain claims on Trimco
projects performed in 1995, which resulted in a payment of $432,000 in September
1996. The additional goodwill is being amortized over the remaining useful life
of the goodwill.
The acquisition was accounted for using the purchase method. A portion of
the purchase price relates to research and development projects that Trimco had
undertaken, resulting in a charge of $10,595,000 to the Company's operations.
The technological feasibility of acquired technology had not yet been
established at the date of acquisition and the technology had no future
alternative uses. The Company anticipates expending a significant portion of
its own development resources on the completion of this technology for
anticipated new product offerings. The excess of the purchase price over the
fair value of the tangible and identifiable intangible assets acquired (after
allocation of the purchased research and development) totaled $5,413,000 which
was recorded as goodwill. The goodwill is being amortized over its estimated
useful life of seven years. Trimco's operating results have been included in
the consolidated financial statements from the date of acquisition.
The Company also reduced its forecast for future sales of certain software
development and purchased software costs. These costs were deemed not to be
recoverable due to the Company's plan to accelerate the introduction of its next
generation of software products as a result of the greater development resources
now available. In addition, the costs of certain software development tools
which will not be utilized in the development of the next generation of software
products and certain software products to be replaced were also written off to
net realizable value. Included in the Company's operating results is a
$1,664,000 charge related to these write offs.
The following unaudited pro forma summary presents the consolidated results
of operations as if the Trimco acquisition had occurred on January 1, 1994,
after giving effect to certain adjustments, including amortization of goodwill
and interest expense on the convertible note payable. The pro forma results
have been prepared for comparative purposes only and do not purport to indicate
the results of operations which may have actually occurred had the combination
been in effect during the periods presented, or which may occur in the future.
The pro forma results are as follows:
( Unaudited )
(000's except per share data)
For the year ended December 31,
-------------------------------
1995 1994
---- ----
Total revenue $ 20,752 $ 16,305
Net loss $ (1,117) $ (11,312)
Net loss per share $ (.14) $ (1.44)
Shares used in per share calculation 7,874 7,849
31
<PAGE>
ALTRIS SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - BALANCE SHEET INFORMATION:
December 31,
----------------------------
1996 1995
---- ----
Receivables, net:
----------------
Billed receivables $ 7,234,000 $ 4,287,000
Unbilled receivables 2,689,000 45,000
Less allowance for doubtful accounts (171,000) (125,000)
------------ ------------
$ 9,752,000 $ 4,207,000
------------ ------------
------------ ------------
Other current assets:
--------------------
Prepaid maintenance contracts $ 84,000 $ 92,000
Prepaid expenses and other 557,000 711,000
------------ ------------
$ 641,000 $ 803,000
------------ ------------
------------ ------------
Property and equipment, net:
---------------------------
Machinery and equipment $ 566,000 $ 574,000
Computer equipment 5,640,000 4,885,000
Furniture and fixtures 587,000 419,000
Leasehold improvements 466,000 177,000
------------ ------------
7,259,000 6,055,000
Less accumulated depreciation
and amortization (5,103,000) (4,410,000)
------------ ------------
$ 2,156,000 $ 1,645,000
------------ ------------
------------ ------------
Accrued liabilities:
-------------------
Employee compensation and related expenses $ 432,000 $ 1,333,000
Accrued vacation 217,000 233,000
Accrued acquisition costs - 447,000
Accrued loss on office closure 198,000 -
Other 796,000 1,198,000
------------ ------------
$ 1,643,000 $ 3,211,000
------------ ------------
------------ ------------
Other long term liabilities:
---------------------------
Accrual for unfavorable leases assumed $ 482,000 $ 622,000
Accrued loss on office closure 142,000 -
Other 139,000 323,000
------------ ------------
$ 763,000 $ 945,000
------------ ------------
------------ ------------
The Company assumed leases for certain facilities leased by Trimco for which
no future benefit is anticipated. The accrual for unfavorable leases assumed
relates to a liability for the minimum lease payments less estimated sublease
rental income on these leases.
32
<PAGE>
ALTRIS SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - NOTES PAYABLE:
In October 1996 and September 1995, the Company entered into revolving loan
and security agreements, each providing for borrowings of up to $1,000,000.
The maximum credit available under one facility declines by $200,000 in
September of each year beginning in 1996. The loan balance is payable in
monthly installments of $16,667. At December 31, 1996, $771,000 was
outstanding on this agreement. The loan balance for the other facility is
payable in monthly installments. At December 31, 1996, $632,000 was
outstanding and $368,000 was unused on this agreement. Total borrowings
under the revolving loan and security agreements are collateralized by the
Company's assets and interest is equal to the 30-day Commercial Paper Rate
plus 2.95% (8.91% at December 31, 1996). The revolving loan and security
agreements contain certain restrictive covenants including maintaining a
certain ratio of debt to tangible net worth.
In September 1996, the Company's United Kingdom subsidiary renewed a
$510,000 overdraft facility with a bank with interest payable quarterly at
2.5% per annum over the bank's base rate (8.5% at December 31, 1996). The
facility expires in August 1997 with any remaining balance due and payable.
At December 31, 1996, $510,000 was outstanding on the facility. Repayment of
borrowings under the facility are secured by the Company's property and
assets, and the Company has executed a guarantee of up to $500,000 in
connection with the facility.
At December 31, 1995, the Company had an outstanding payable for cash
advanced by a bank which acted as paying agent for the notes due to former
Optigraphics shareholders having a principal balance of $1,634,000 payable on
demand. The notes, which had an original maturity of September 1995 and
provided for interest payable quarterly at 6% per annum, were issued as part of
the total consideration paid in connection with the acquisition of Optigraphics
Corporation. The notes were paid in full in January 1996.
At December 31, 1995, the Company had an outstanding convertible note in
connection with the acquisition of Trimco having a principal balance of
$1,000,000 payable at 7% per annum, due on September 27, 1996. The note was
convertible into common stock at a rate of $8.00 per share, or an aggregate of
125,000 shares. The note was secured by a second-priority lien on the Company's
assets, subject to the first-priority lien held by the lender in connection with
the Company's existing revolving loan agreement. In February 1996, the note was
converted into 125,000 shares of the Company's common stock, and no further
obligations remain under the note.
Maturities of long-term debt for each of the five years after December 31,
1996 are as follows:
Year ending
December 31,
-----------
1997 $ 710,000
1998 326,000
1999 326,000
2000 299,000
2001 126,000
Thereafter 126,000
----------
$1,913,000
----------
----------
33
<PAGE>
ALTRIS SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PREFERRED STOCK:
In April 1996, the Company issued 100,000 shares of its Series C
Convertible Preferred Stock (the "Series C Preferred Stock") in an offshore
private placement to a purchaser who is not a resident of the United States,
in reliance on Regulation S promulgated under the Securities Act of 1933, as
amended. In consideration for the issuance and sale of the Series C
Preferred Stock, the Company received $2,000,000 in cash proceeds before
expenses. The Series C Preferred Stock bore a dividend of 8% per annum,
accruing quarterly, and was convertible into shares of the Company's common
stock after June 9, 1996, at the option of the holder, and after August 23,
1996, at the Company's option. In June 1996, 37,500 shares of Series C
Preferred Stock were converted into 72,726 shares of common stock. In July
1996, the remaining 62,500 shares of Series C Preferred Stock plus accrued
dividends were converted into 163,274 shares of common stock.
In December 1995, the Company issued 172,500 shares of its Series B
Convertible Preferred Stock (the "Series B Preferred Stock") for total proceeds
of $3,450,000 before expenses in reliance on Regulation S promulgated under the
Securities Act of 1933, as amended. The Series B Preferred Stock bore a
dividend of 8% per annum, accruing quarterly, and was convertible into shares of
the Company's common stock after February 10, 1996, at the option of the
holders, and after April 18, 1996, at the option of the Company. In
February 1996, the 172,500 shares of Series B Preferred Stock were converted
into 406,617 shares of common stock.
NOTE 6 - WARRANTS:
In December 1991, the Company issued common stock and warrants through a
unit offering. The Company received net proceeds of approximately $2,600,000
upon issuing 750,000 units at a unit price of $4.25. In January 1992, the
underwriter exercised its over-allotment option and the Company sold an
additional 112,500 units for net proceeds of $365,000. In connection with this
offering, the underwriter received warrants to purchase 75,000 units at $5.10
per unit for a period of four years commencing one year from the date of the
offering. In November 1995, the underwriter exercised its option to purchase
the 75,000 units for net proceeds of $382,000. Also in 1995, warrants were
exercised for 459,446 shares of common stock for net proceeds of $3,848,000.
NOTE 7 - COMMON STOCK OPTIONS:
At December 31, 1996, the Company had two stock-based compensation plans
(the "Plans"), which are described below. The Company applies Accounting
Principles Board No. 25 and related Interpretations in accounting for its
plan. No compensation cost has been recognized for its employee stock option
grants, which are fixed in nature, as the options have been granted at fair
market value. Had compensation cost for the Company's stock-based
compensation plan been determined based on the fair value at the grant dates
for awards under that plan consistent with the method of Financial Accounting
Standards Board Statement No. 123, the Company's net income (loss) and pro
forma net income (loss) per share would have been adjusted to the pro forma
amounts indicated below:
For the year ended December 31,
------------------------------
1996 1995
---- ----
Net income (loss)
As reported $2,350,000 $(11,830,000)
Pro forma $1,776,000 $(12,285,000)
Pro forma net income (loss) per share
As reported $ .25 $ (1.68)
Pro forma $ .20 $ (1.75)
34
<PAGE>
ALTRIS SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants:
1996 1995
------ -----
Dividend yield 0% 0%
Expected volatility 68% 65%
Risk-free interest rate 6.2% 6.7%
Expected lives 4 yrs. 4 yrs.
In April 1996, the Company adopted its 1996 Stock Incentive Plan (the
"1996 Plan"). The 1996 Plan is administered by either the Board of Directors
or a committee designated by the Board to oversee the plan. The maximum number
of shares of Common Stock that may be issued pursuant to awards granted under
the 1996 Plan is 625,000. Under the Company's 1987 Stock Option Plan, the
maximum number of shares of Common Stock to be issued was 1,200,000 of which
there is 58,050 remaining authorized shares subject to grants but unissued.
The option vesting period for the Plans is determined by the Board of
Directors or a Stock Option Committee and usually provides that 25% of the
options granted can be exercised 90 days from the date of grant, and
thereafter, those options become exercisable in additional cumulative annual
installments of 25% commencing on the first anniversary of the date of grant.
Options granted are generally due to expire upon the sooner of ten years
from date of grant, thirty days after termination of services other than by
reason of convenience of the Company, disability or death, three months after
disability, or one year after the date of the option holder's death. The
option exercise price is equal to the fair market value of the common stock
on the date of grant.
Options granted to employees under the Plans may be either incentive stock
options or nonqualified options. Only nonqualified options may be granted to
nonemployee directors.
Year Ended December 31,
1996 1995
------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------- ----- --------- -----
Outstanding at beginning of year 656,775 $2.24 594,250 $ .31
Options granted 449,500 6.96 281,400 5.23
Options exercised (316,875) 4.01 (213,200) .88
Options forfeited (344,188) 7.03 (5,675) 2.08
--------- ---------
Outstanding at end of year 445,212 5.12 656,775 2.24
--------- ---------
--------- ---------
Options exercisable at end of year 166,950 380,412
Weighted average fair value of
options granted during the year $ 6.36 $ 3.73
The following tables summarizes information about employee stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- ---------------------------------
Number Weighted average Weighted Number Weighted
Range of outstanding at remaining average outstanding at average
exercise prices December 31, 1996 contractual life exercise price December 31, 1996 exercise price
- --------------- ----------------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$2.76 to $3.82 181,812 2.17 years $3.38 152,125 $3.39
$5.94 to $6.56 233,000 7.41 years $5.94 250 $6.44
$9.00 to $10.63 30,400 4.27 years $9.16 14,575 $9.16
------- -------
$2.76 to $10.63 445,212 5.05 years $5.12 166,950 $3.90
------- -------
------- -------
</TABLE>
35
<PAGE>
ALTRIS SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES:
Deferred tax assets and liabilities are comprised of the following at
December 31:
1996 1995
------------ ------------
Deferred tax liability:
Purchased technology $ (262,000) $ (425,000)
------------ ------------
Deferred tax assets:
Net operating loss carryforwards 11,994,000 13,804,000
Research and development costs 1,946,000 2,054,000
Depreciation and amortization 159,000 195,000
Inventory 451,000 1,175,000
Deferred revenue 283,000 105,000
Accruals 468,000 879,000
Other 695,000 113,000
------------ ------------
Total deferred tax assets 15,996,000 18,325,000
------------ ------------
Net deferred tax assets 15,734,000 17,900,000
Valuation allowance (15,734,000) (17,600,000)
------------ ------------
Deferred taxes $ - $ 300,000
------------ ------------
------------ ------------
The Company has recorded a valuation allowance amounting to the entire
net deferred tax asset balance due to its lack of a history of consistent
earnings, possible limitations on the use of carryforwards, and the
expiration of certain of the net operating loss carryforwards which give
rise to uncertainty as to whether the net deferred tax asset is realizable.
In connection with the acquisition of Trimco, the Company acquired $926,000
in deferred tax assets of which $626,000 was provided as a valuation allowance.
In the event that tax benefits acquired in the Trimco acquisition are realized,
$626,000 of such benefits will be used first to reduce any remaining goodwill
and other intangible assets related to the acquisition. Once those assets are
reduced to zero, the benefit will be included as a reduction of the Company's
income tax provision.
The Company has net operating loss carryforwards of $31,700,000 and
$7,000,000 for federal and state tax purposes, respectively, which expire over
the years 1997 through 2010. Net operating losses acquired from Optigraphics
are limited to offset against that entity's future taxable income, subject to
annual limitations. In addition, if certain substantial changes in the
Company's ownership should occur, there would be a limitation on the amount of
the consolidated net operating loss carryforwards and tax credits which can be
utilized. The Company has investment and research activity credit carryforwards
aggregating $500,000, which will substantially expire in the years 2000 through
2004.
NOTE 9 - SEGMENT AND GEOGRAPHIC INFORMATION:
The Company has one business segment which consists of the development and
sale of a suite of object-oriented, multi-tier client/server document management
software products. No single customer accounts for more than 10 percent of the
Company's revenues.
In 1994 and 1995 the Company operated principally in the United States and
international revenues were less than 10% of the Company's revenues. Revenue
for 1996 by customer location is as follows:
1996
----
United States $15,326,000
Europe 7,497,000
Other International 1,688,000
-----------
$24,511,000
-----------
-----------
36
<PAGE>
ALTRIS SOFTWARE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Subsequent to the acquisition of Trimco in December 1995, the Company's
primary operations for 1996 were conducted from the United States and Europe.
Segment and operations information by geographic location for the year
ended December 31, 1996 follows:
Corporate
United Research &
States Europe Development Consolidated
------ ------ ----------- ------------
Net sales $15,184,000 $9,327,000 - $24,511,000
Operating earnings 4,443,000 1,296,000 $(3,363,000) 2,376,000
Identifiable assets 13,081,000 9,810,000 - 22,891,000
Research and development is performed both in the United States and Europe
for the benefit of the entire Company and has not been separately allocated to
geographic regions.
NOTE 10 - COMMITMENTS:
The Company leases its principal facilities under a long-term operating
lease which includes rent escalations of 4% per annum. The lease expires in
March 2001. The Company also has a long-term operating lease for another
facility that includes rent escalations not to exceed 4% in any year. The
Company subleased this other facility in late 1996 and recognized a loss for the
difference in the lease and sublease rate along with other costs associated with
the office closure. The leases expire in April 2001. The Company recognizes
rental expense on a straight line basis over the term of the leases.
The Company's United Kingdom subsidiary leases a facility for a term
through March 2001 with an option to terminate the lease in March 1998 with
six months notice.
Future minimum lease payments under operating lease agreements, net of
noncancellable sublease payments, at December 31, 1996 are as follows:
Operating
Lease
----------
1997 $ 426,000
1998 409,000
1999 339,000
2000 348,000
2001 72,000
Thereafter 197,000
----------
Total minimum lease payments $1,791,000
----------
----------
Rent expense under operating leases was $779,000, $479,000 and $268,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
37
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position
---- --- --------
Jay V. Tanna 57 President and Chief Executive Officer
Roger H. Erickson 40 Vice President US Operations
John W. Low 40 Chief Financial Officer and Secretary
Steven D. Clark 44 Vice President North American Sales
Mr. Tanna has served as a Director of the Company since the Company's
acquisition of Trimco in December 1995. Mr. Tanna became the President and
Chief Executive Officer of the Company effective April 16, 1996. Prior to that
date, Mr. Tanna served as the Executive Vice President of the Company since
December 1995 and the Chief Operating Officer of the Company since February
1996. Prior to the Trimco acquisition, Mr. Tanna served as Managing Director of
Trimco, beginning in 1988. Prior to his employment with Trimco, Mr. Tanna held
the positions of Managing Director of Sorco Engineering Ltd., a construction
engineering firm, from 1985 to 1987, and Director of Projects of Lummus Co.
Ltd., a construction engineering firm, from 1979 to 1985. Mr. Tanna earned a
B.S.C. degree in Engineering with Honors from London University in 1963.
Mr. Erickson was appointed Vice President, Operations in June 1996. From
April 1995 to February 1996, Mr. Erickson was Vice President, Worldwide Channel
Sales, with responsibility for alternate channel and international sales. From
February 1996 to June 1996, he was Vice President, Alliances and General
Manager, PDM Business Unit. Prior to April 1995, Mr. Erickson served as
Executive Vice President, Marketing and Sales from September 1993. He was also
a Director of the Company from July 1990 to June 1995. From October 1991 to
August 1993, Mr. Erickson served as Chief Executive Officer and President of the
Company. From June 1990 to October 1991, Mr. Erickson served as Vice President,
Engineering. From March to May 1990, Mr. Erickson was Director of Technical
Marketing at West Coast Information Systems, Inc. From 1984 until March 1990,
Mr. Erickson served the Company in several positions including Senior Systems
Engineer and Director of Technical Projects. Mr. Erickson earned a M.S. degree
in Computer Science from the University of California, Santa Barbara in 1982 and
a B.A. degree in Mathematics from Westmont College in 1978.
Mr. Low has served as Chief Financial Officer and Secretary since June
1990. Previously, Mr. Low had served as Corporate Controller since joining the
Company in August 1987. From 1980 until joining the Company, Mr. Low was with
Price Waterhouse, most recently as a Manager working with middle-market and
growing companies. Mr. Low, who is a certified public accountant, earned a B.A.
degree in Economics from the University of California, Los Angeles in 1978.
Mr. Clark was appointed Vice President North American Sales in January
1997. From 1994 through the end of 1996, Mr. Clark was Director of U.S.
Sales. From 1992 to 1994, Mr. Clark served as the Vice President of West
Coast Operations at PRC, a systems integration firm. From 1987 to 1992, Mr.
Clark was Director of Marketing for Optigraphics Corporation. From 1983 to
1987, he was Vice President of Sales and Marketing at Energy Images in
Boulder, Colorado. From 1975 to 1983, Mr. Clark held several positions with
Dun & Bradstreet Petroleum Information. Mr. Clark earned a B.A. degree in
Geography from the University of Colorado in 1974.
All executive officers hold office at the pleasure of the Board of
Directors.
Information relating to Directors is set forth in the Company's definitive
proxy statement which is to be filed pursuant to Regulation 14A within 120 days
after the end of the Company's fiscal year ended December 31, 1996, and such
information is incorporated herein by reference.
38
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Information relating to Executive Compensation is set forth in the
Company's definitive proxy statement which is to be filed pursuant to Regulation
14A within 120 days after the end of the Company's fiscal year ended December
31, 1996, and such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to Security Ownership of Certain Beneficial Owners and
Management is set forth in the Company's definitive proxy statement which is to
be filed pursuant to Regulation 14A within 120 days after the end of the
Company's fiscal year ended December 31, 1996, and such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to Certain Relationships and Related Transactions is
set forth in the Company's definitive proxy statement which is to be filed
pursuant to Regulation 14A within 120 days after the end of the Company's fiscal
year ended December 31, 1996, and such information is incorporated herein by
reference.
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, SCHEDULES, AND EXHIBITS
(1) FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of December 31, 1996 and 1995
Consolidated Statement of Operations for the years ended December 31,
1996, 1995 and 1994
Consolidated Statement of Changes in Shareholders' Equity for the
years ended December 31, 1996, 1995 and 1994
Consolidated Statement of Cash Flows for the years ended December 31,
1996, 1995 and 1994
Notes to the Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
(3) EXHIBITS:
3.1* Registrant's Articles of Incorporation, as amended
3.2 Registrant's Bylaws, as amended
4.1* Specimen Certificate of Common Stock
4.2* Specimen Certificate of Redeemable Common Stock Purchase
Warrant
10.1* Purchase Agreement dated as of April 10, 1986, between
Registrant and Lockheed Corporation, including form of Cross
License Agreement and Shareholder Agreement
10.2* Purchase Agreement dated as of August 26, 1986, between
Registrant and Lockheed Corporation
10.3* 1987 Stock Option Plan, as amended April 27, 1994
10.4* Forms of Incentive Stock Option Agreement and Nonstatutory
Stock Option Agreement under 1987 Stock Option Plan
10.5 Amended and Restated 1996 Stock Incentive Plan
10.6 Form of Incentive Stock Option Agreement, Nonstatutory Stock
Option Agreement and Restricted Stock Agreement under
Amended and Restated 1996 Stock Incentive Plan
10.7* Form of Indemnification Agreement with officers and
directors
10.8* Warrant Agreement dated December 12, 1991 between the
Company and Security Pacific National Bank.
10.9* Sublease Agreement dated August 31, 1992 between the Company
and Unisys Corporation
40
<PAGE>
10.10* Agreement and Plan of Merger and Reorganization dated as of
July 7, 1993 by and among the Company, AO Acquisition
Corporation and Optigraphics Corporation
10.11* Amendment No. 1 to Agreement and Plan of Merger and
Reorganization dated as of September 15, 1993 by and among
the Company, AO Acquisition Corporation and Optigraphics
Corporation
10.12* WCMA and Term Loan Agreement dated July 6, 1994 between
Optigraphics Corporation and Merrill Lynch Business
Financial Services, Inc.
10.13* Standard Industrial Lease dated April 1, 1994 between the
Company and Utah State Retirement Fund, a common trust fund
10.14* Purchase and Sale Agreement dated December 27, 1995 by and
between the Company, Mr. Tanna and the shareholders of
Trimco Group plc (filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated December 27, 1995 and
incorporated herein by this reference).
10.15* Convertible Loan Note dated December 27, 1995 issued by the
Company (filed as Exhibit 2.2 to the Company's Current
Report on Form 8-K dated December 27, 1995 and incorporated
herein by this reference).
10.16* Convertible Preferred Stock Purchase Agreement dated
December 20, 1995 by and between the Company and Newsun
Limited (filed as Exhibit 4.2 to the Company's Current
Report on Form 8-K dated December 27, 1995 and incorporated
herein by this reference).
10.17* Convertible Preferred Stock Purchase Agreement dated
December 20, 1995 by and between the Company and THC, Inc.
(filed as Exhibit 4.3 to the Company's Current Report on
Form 8-K dated December 27, 1995 and incorporated herein by
this reference).
10.18* Convertible Preferred Stock Purchase Agreement, dated April
25, 1996, by and between the Company and Newsun Limited
(filed as Exhibit 4.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996 and
incorporated herein by this reference).
10.19* Letter Agreement dated January 2, 1996 by and among the
Company, Newsun Limited and THC, Inc. (filed as Exhibit 4.5
to the Company's Current Report on Form 8-K dated December
27, 1995 and incorporated herein by this reference).
10.20* WCMA and Term Loan Agreement dated October 22, 1996 between
Altris Software, Inc. and Merrill Lynch Business Financial
Services, Inc.
11 Statement Re Computation of Per Share Earnings
21 Subsidiaries of Registrant
23 Consent of Independent Accountants
27 Requirements for the Format and Input of Financial Data
Schedules
- ----------------------------
*Incorporated herein by this reference from previous filings with the Securities
and Exchange Commission.
41
<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, in the City of San
Diego, State of California, on March 28, 1997.
ALTRIS SOFTWARE, INC.
By: /s/Jay Tanna
--------------------------
Jay Tanna
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 in the capacities and on the dates indicated.
/s/D. Ross Hamilton Chairman of the Board of Directors March 28, 1997
- ----------------------- and Director
D. Ross Hamilton
/s/Jay Tanna President and Chief Executive Officer March 28, 1997
- ----------------------- (Principal Executive Officer) and
Jay Tanna Director
/s/John W. Low Chief Financial Officer and Secretary March 28, 1997
- ----------------------- (Principal Financial and Accounting
John W. Low Officer)
/s/Norwood H. Davis, Jr. Director March 28, 1997
- -----------------------
Norwood H. Davis, Jr.
/s/Michael J. McGovern Director March 28, 1997
- -----------------------
Michael J. McGovern
/s/Robert H. Smith Director March 28, 1997
- -----------------------
Robert H. Smith
/s/Larry D. Unruh Director March 28, 1997
- -----------------------
Larry D. Unruh
42
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ALTRIS SOFTWARE, INC.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- --------------------------------------------------------------------------------------------------------------------------------
Additions
----------------------------
Charged to
Description Balance at Charged to Other Balance at
Beginning Costs and Accounts - Deductions - End of
of Period Expenses Describe Describe Period
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $ 125,000 $ 140,000 $ (94,000)(a) $ 171,000
Excess inventory reserve $ 2,119,000 $(1,567,000)(b) $ 552,000
Tax benefit reserve $17,600,000 $(1,866,000)(d) $15,734,000
- --------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $ 162,000 $ 35,000 $ (72,000)(a) $ 125,000
Excess inventory reserve $ 2,323,000 $ (204,000)(b) $ 2,119,000
Tax benefit reserve $16,300,000 $ 1,300,000(c) $17,600,000
- --------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $ 161,000 $ 50,000 $ (49,000)(a) $ 162,000
Excess inventory reserve $ 2,540,000 $ (217,000)(b) $ 2,323,000
Tax benefit reserve $16,400,000 $ (100,000)(d) $16,300,000
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Amount written off
(b) Inventory scrapped or sold at less than cost
(c) Valuation allowance against benefit recorded
(d) Adjustment relating to tax provision or benefit expired
43
<PAGE>
BYLAWS
OF
ALTRIS SOFTWARE, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The board of directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office is
located outside the State of California, and the corporation has one or more
business offices in the State of California, the board of directors shall
likewise fix and designate a principal business office in the State of
California.
Section 2. OTHER OFFICES. The corporation may also establish offices at
such other places, both within and outside the State of California, as the board
of directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at
any place within or outside the State of California designated by the board of
directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETINGS. The annual meeting of shareholders shall be
held on the 2nd Thursday of April in each year at 2 o'clock, P.M., or such other
date or time as may be fixed by the board of directors; provided, however, that
should said day fall upon a legal holiday, such annual meeting of shareholders
shall be held at the same time on the next succeeding day which is a full
business day. At such meeting, directors shall be elected and any other proper
business may be transacted.
Section 3. SPECIAL MEETINGS. A special meeting of the shareholders may be
called at any time by the board of directors, the chairman of the board, the
president, or one or more shareholders holding in the aggregate shares entitled
to cast not less than 10% of the votes at any such meeting.
If a special meeting is called by anyone other than the board of directors,
the request shall be in writing, specifying the time of the meeting and the
general nature of the business proposed
<PAGE>
to be transacted, and shall be delivered personally or sent by registered mail
or by telegraphic or other facsimile transmission to the chairman of the board,
the president, any vice president or the secretary of the corporation. The
officer receiving such request forthwith shall cause notice to be given to the
shareholders entitled to vote, in accordance with the provisions of Sections 4
and 5 of this Article II, that a meeting will be held at the time requested by
the person or persons calling the meeting, not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. If the notice is
not given within twenty (20) days after receipt of the request, the person or
persons requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 3 shall be construed as limiting, fixing or affecting
the time when a meeting of shareholders called by action of the board of
directors may be held.
Section 4. NOTICE OF MEETINGS. All notices of meetings of shareholders
shall be sent or otherwise given in accordance with Section 3 of this Article II
not less than ten (10) nor more than sixty (60) days before the date of the
meeting being noticed. The notice shall specify the place, date and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, or (ii) in the case of the annual meeting, those
matters which the board of directors, at the time of giving the notice, intends
to be present for action by the shareholders. The notice of any meeting at
which directors are to be elected shall include the name of any nominee or
nominees whom at the time of the notice management intends to present for
election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the California Corporations Code (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to
Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to
Section 1201 of the Code, (iv) a voluntary dissolution of the corporation,
pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other
than in accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of the Code, the notice shall also state the general nature of such
proposal.
Section 5. MANNER OF GIVING NOTICE. Notice of any meeting of shareholders
shall be given personally or by first-class mail or telegraphic or other written
communication, charges prepaid, addressed to the shareholder at the
shareholder's address appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. If no such address
appears on the corporation's books or is given, notice shall be deemed to have
been given if sent to that shareholder by first-class mail or telegraphic or
other written communication to the corporation's principal executive office, or
if published at least once in a newspaper of general circulation in the county
in which the principal executive office is located. Notice shall be deemed to
have been given when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
If any notice addressed to a shareholder at the address of such shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the Service is unable to
deliver the notice to the shareholder at such address, all future notices or
reports shall be deemed to have been duly given without further mailing if the
same shall be available to the shareholder upon written demand at the principal
<PAGE>
executive office of the corporation for a period of one year from the date of
the giving of such notice or report to all other shareholders.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the secretary, assistant secretary or
any transfer agent or corporation, and shall be filed and maintained in the
minute book of the corporation.
Section 6. QUORUM. Unless otherwise provided in the articles of
incorporation, the presence in person or by proxy of the holders of a majority
of the shares entitled to vote at any meeting of shareholders shall constitute a
quorum for the transaction of business. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
Section 7. ADJOURNMENT. Any shareholders' meeting, annual or special,
whether or not a quorum is present, may be adjourned from time to time by the
vote of a majority of the shares represented at such meeting, either in person
or by proxy, but in the absence of a quorum, no other business may be transacted
at such meeting, except as provided in Section 6 of this Article II.
When any meeting of shareholders, annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at a meeting at which the adjournment is
taken, unless a new record date for the adjourned meeting is fixed, or unless
the adjournment is for more than forty-five (45) days from the date set for the
original meeting, in which case the board of directors shall set a new record
date. Notice of any such adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 4 and 5 of this Article II. At any adjourned meeting,
the corporation may transact any business which might have been transacted at
the original meeting.
Section 8. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section 2
of this Article II, subject to the provisions of Sections 702 to 704, inclusive,
of the Code (relating to voting shares held by a fiduciary, in the name of a
corporation or in the names of two or more persons). The vote may be by voice
vote or by ballot; provided, however, that any election for directors must be by
ballot if demanded by a shareholder at the meeting and before the voting begins.
Any shareholder entitled to vote on any matter (other than elections of
directors) may vote part of the shares in favor of the proposal and refrain from
voting remaining shares or vote them against the proposal, but, if the
shareholder fails to specify the number of shares such shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's approving
vote is with respect to all shares such shareholder is entitled to vote. If a
quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on any matter (other than the
election of directors) shall be the act of the shareholders, unless the vote of
a greater number or voting by classes is required by the Code or the articles of
incorporation.
<PAGE>
At a shareholders' meeting involving the elections of directors, no
shareholder shall be entitled to cumulate votes on behalf of any candidate for
director (i.e., each shareholder shall be entitled to cast for any one or more
candidates no greater number of votes than the number of shares held by such
shareholder) unless such candidate or candidates' names have been placed in
nomination prior to the voting and the shareholder has given notice prior to the
voting of the shareholder's intention to cumulate votes. If any shareholder has
given such notice, every shareholder entitled to vote may cumulate votes for
candidates in nomination and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
such shareholder's shares are entitled, or distribute the shareholder's votes on
the same principle among as many candidates as the shareholder thinks fit. The
candidates receiving the highest number of votes, up to the number of directors
to be elected, shall be elected.
Section 9. WAIVER OF NOTICE: CONSENT. The transactions of any meeting of
shareholders, annual or special, however called and noticed, and wherever held,
shall be as valid as though had at a meeting duly held after regular call and
notice, if a quorum is present either in person or by proxy, and if, either
before of after the meeting, each person entitled to vote, who was not present
in person or by proxy, signs a written waiver of notice, or a consent to a
holding of the meeting, or an approval of the minutes thereof. The waiver of
notice or consent need not specify either the business to be transacted or the
purpose of any annual or special meeting of shareholders, except that if action
is taken or proposed to be taken for approval of any matters specified in the
second paragraph of Section 4 of this Article II, the waiver of notice or
consent shall state the general nature of the proposal. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Attendance of a person at a meeting shall also constitute a waiver of
notice of such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of such meeting if such objection is expressly made at the meeting.
Section 10. ACTION WITHOUT MEETING. Unless otherwise provided in the
articles of incorporation, any action which may be taken at any annual or
special meeting of shareholders may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. In the case
of election of directors, such consent shall be effective only if signed by the
holders of all outstanding shares entitled to vote for the election of
directors; provided, however, that a director may be elected at any time to fill
a vacancy on the board of directors not filled by the directors, by the written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed with the
secretary of the corporation and shall be maintained in the corporate records.
Any shareholder giving a written consent, or the shareholder's proxy holder, or
a transferee of the shares or a personal representative of the shareholder or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation
<PAGE>
prior to the time that written consents of the number of shares required to
authorize the proposed action have been filed with the secretary.
Unless the consents of all shareholders entitled to vote have been
solicited in writing, the secretary shall give prompt notice of any corporate
action approved by the shareholders without a meeting by less than unanimous
written consent to those shareholders entitled to vote who have not consented in
writing. Such notice shall be given in the manner specified in Section 5 of
this Article II. In the case of approval of (i) contracts or transactions in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of agents of the corporation,
pursuant to Section 317 of the Code, (iii) a reorganization of the corporation,
pursuant to Section 1201 of the Code, or (iv) a distribution in dissolution
other than in accordance with the rights of outstanding preferred shares,
pursuant to Section 2007 of the Code, such notice shall be given at least ten
(10) days before the consummation of the action authorized by any such approval.
Section 11. RECORD DATE. for purposes of determining the shareholders
entitled to notice of any meeting or to vote or entitled to give consent to
corporate action without a meeting, the board of directors may fix, in advance,
a record date, which shall not be more than sixty (60) days nor less than ten
(10) days prior to the date of the meeting nor more than sixty (60) days prior
to the action without a meeting, and in such case only shareholders of record on
the date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the
California General Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business day
next preceding the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first
written consent is given, or (ii) when prior action of the board has been
taken, shall be at the close of business on the day on which the board
adopts the resolution relating thereto, or the sixtieth (60th) day prior to
the date of such other action, whichever is later.
Section 12. PROXIES. Every person entitled to vote for directors or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless
(i) revoked by the person executing it, prior to the vote pursuant
<PAGE>
thereto, by a writing delivered to the corporation stating that the proxy is
revoked or by a subsequent proxy executed by, or attendance at the meeting and
voting in person by, the person executing the proxy; or (ii) written notice of
the death or incapacity of the maker of the proxy is received by the corporation
before the vote pursuant thereto is counted; provided, however, that no such
proxy shall be valid after the expiration of eleven (ii) months from the date of
the proxy, unless otherwise provided in the proxy. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 705(e) and (f) of the Code.
Section 13. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the board of directors may appoint any persons (other than nominees for office)
to act as inspectors of election at the meeting or any adjournments thereof. If
inspectors of election are not so appointed, the chairman of the meeting may,
and on the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request
of one or more shareholders or proxies, the majority of shares represented in
person or by proxy shall determine whether one (1) or three (3) inspectors are
to be appointed. If any person appointed as inspector fails to appear or
refuses to act, the chairman of the meeting may, and upon the request of any
shareholder or a shareholder's proxy shall, appoint a person to replace the one
who so failed or refused. If there are three (3) inspectors of election, the
decision, act or certificate of a majority of them is effective in all respects
as the decision, act or certificate of all. Any report or certificate made by
the inspectors of election is PRIMA FACIE evidence of the facts stated therein.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the California
Corporation Law and any limitations in the articles of incorporation and these
bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
Section 2. NUMBER. The authorized number of directors shall be not less
than 5 nor more than 9, with the exact number of directors to be fixed, within
the limits specified, by approval of the board of directors or the shareholders
of this corporation. The authorized number of directors of this corporation may
be changed by an amendment to the articles of incorporation, or, if permitted by
Section 212 of the California Corporations Code, by an amendment to this bylaw,
duly adopted by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote; provided, however, that an amendment
reducing the minimum number of directors to a number less than five (5) cannot
be adopted if the votes cast against its adoption at a meeting, or the shares
not consenting in the case of action by written consent, are equal to more than
16-23% of the outstanding shares entitled to vote.
Section 3. ELECTION AND TERM OF OFFICE. Directors shall be elected at
each annual meeting of the shareholders to hold office until the next annual
meeting. Each director,
<PAGE>
including a director elected to fill a vacancy, shall hold office until the
expiration of the term for which elected and until a successor has been elected
and qualified.
Section 4. REMOVAL. Any or all of the directors may be removed by order
of court pursuant to Section 304 of the Code, or by the shareholders pursuant to
the provisions of Section 303 of the Code.
Section 5. VACANCIES. Vacancies in the board of directors may be filled
by a majority of the remaining directors, though less than a quorum, or by a
sole remaining director, except that a vacancy created by the removal of a
director may be filled only by the vote of a majority of the shares entitled to
vote represented at a duly held meeting at which a quorum is present, or by the
written consent of holders of a majority of the outstanding shares entitled to
vote. Each director so elected shall hold office until the next annual meeting
of the shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist
in the case of the death, resignation or removal of any director, or if the
board of directors by resolution declares vacant the office of a director who
has been declared of unsound mind by an order of court or who has been convicted
of a felony, or if the authorized number of directors is increased, or if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the number of directors to be voted for at that
meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective upon giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a latter time for the effectiveness of such
resignation. If the resignation of a director is effective at a future time,
the board of directors may elect a successor to take office when the resignation
becomes effective.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of his or her term of office.
Section 6. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular meetings
of the board of directors may be held at any place within or outside the State
of California that has been designated from time to time by resolution of the
board. In the absence of such designation, the regular meetings shall be held
at the principal executive office of the corporation. Special meetings of the
board shall be held at any place within or outside the State of California that
has been designated in the notice of the meeting or, if not stated in the notice
or there is no notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or similar
communication equipment, so long as all directors participating can hear one
another, and all such directors shall be deemed to be present in person at such
meeting.
<PAGE>
Section 7. REGULAR MEETINGS. Immediately following each annual meeting of
shareholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired election of officers and the transaction of
other business. Other regular meetings of the board of directors shall be held
without call at such time as shall from time to time be fixed by the board of
directors. Notice of regular meetings shall not be required.
Section 8. SPECIAL MEETINGS. Special meetings of the board of directors
for any purpose or purposes may be called at any time by the chairman of the
board or the president or any vice president or the secretary or any two
directors.
Notice of the time and place of special meetings shall be delivered to each
director personally or by telephone or sent by first-class mail or telegram,
charges prepaid, addressed to each director at his or her address as it is shown
on the records of the corporation. In case the notice is mailed, it shall be
deposited in the United States mail at least four (4) days prior to the time of
the holding of the meeting. In case such notice is delivered personally or by
telephone or telegraph, it shall be delivered personally or to the telegraph
company at least forty-eight (48) hours prior to the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose of the meeting nor the
place if the meeting is to be held at the principal executive office of the
corporation.
Section 9. QUORUM. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as herein
provided. Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present shall be regarded as
the act of the board of directors, subject to the provisions of Section 310 of
the Code (approval of contracts or transactions which a director has a direct or
indirect material financial interest), Section 311 of the Code (appointment of
committees), and Section 317(e) of the Code (indemnification of directors). A
meeting at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for such meeting.
Section 10. WAIVER OF NOTICE; CONSENT. The transactions of any meeting of
the board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes thereof. The waiver of notice or consent
need not specify the purpose of the meeting. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of a meeting shall also be deemed given to any
director who attended the meeting without protesting, prior thereto or at its
commencement, the lack of notice to that director.
Section 11. ADJOURNMENT. A majority of the directors present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
Notice of the time and place of holding an adjourned meeting need not be given,
unless the meeting is adjourned for more than twenty-four (24) hours, in which
case notice of such time and place shall be given prior
<PAGE>
to the time of the adjourned meeting, in the manner specified in Section 8 of
this Article III, to the directors who were not present at the time of the
adjournment.
Section 12. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
such action. Such action by written consent shall have the same force and
effect as a unanimous vote of the board of directors. The written consent or
consents shall be filed with the minutes of the proceedings of the board.
Section 13. FEES AND COMPENSATION. Directors and members of committees
may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
board of directors. Nothing contained herein shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for such service.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any such committee, to the extent
provided in the resolution of the board, may have all the authority of the
board, except with respect to:
(a) the approval of any action which, under the California
General Corporation Law, also requires shareholders' approval or
approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on
the board or on any committee;
(d) the amendment or repeal of bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or
repealable;
(f) a distribution to the shareholders of the corporation,
except at a rate or in a periodic amount or within a price range
determined by the board of directors; or
<PAGE>
(g) the appointment of any other committees of the board of
directors or the members thereof.
Section 2. MEETINGS AND ACTION. Meetings and action of committees
shall be governed by, and held and taken in accordance with, the provisions of
Article III of these bylaws, Section 6 (place of meetings and meetings by
telephone), 7 (regular meetings), 8 (special meetings), 9 (quorum), 10 (waiver
of notice), 11 (adjournment) and 12 (action without meeting), with such changes
in the context of those bylaws as are necessary to substitute the committee and
its members for the board of directors and its members, except that the time of
regular meetings of committees may be determined by resolution of the board of
directors as well as the committee; special meetings of committees may also be
called by resolution of the board of directors; and notice of special meetings
of committees shall also be given to all alternate members, who shall have the
right to attend all meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with the provisions
of these bylaws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The offices of the corporation shall be a chairman
of the board, a president, a secretary and a chief financial officer. The
corporation may also have, at the discretion of the board of directors, one or
more vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 3 of this Article V. Any number of offices may be held by
the same person.
Section 2. ELECTION. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article V, shall be chosen by the board of directors, and each
shall serve at the pleasure of the board, subject to the rights, if any, of an
officer under any contract of employment.
Section 3. OTHER OFFICERS. The board of directors may appoint, and may
empower the chairman of the board or the president to appoint, such other
officers as the business of the corporation may require, each of whom shall hold
office for such period, have such authority and perform such duties as are
provided in the bylaws or as the board of directors may from time to time
determine.
Section 4. REMOVAL AND RESIGNATION. Subject to the rights, if any, of any
officer under any contract of employment, any officer may be removed, either
with or without cause, by the board of directors or, except in case of an
officer chosen by the board of directors, by any officer upon whom such power of
removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be
<PAGE>
necessary to make it effective. Any such resignation is without prejudice to
the rights, if any, of the corporation under any contract to which the officer
is a party.
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these bylaws for regular appointments so such office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an
officer be elected, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may be from
time to time assigned to him or her by the board of directors, the chief
executive officer or prescribed by the bylaws. If there is no president, the
chairman of the board shall in addition be the chief executive officer of the
corporation and shall have the powers and duties prescribed in Section 7 of this
Article V.
Section 7. PRESIDENT. The president shall be the chief operating officer
of the corporation and shall, in the absence of the chairman of the board,
preside at all meetings of the shareholders and of the board of directors. In
the absence or disability of the chairman of the board, the president shall
perform all the duties of the chairman of the board, and when so acting shall
have all the powers of, and be subject to all the restrictions upon, the
chairman of the board. Subject to the control of the board of directors, he or
she shall have the general powers and duties of management usually vested in the
office of chief operating officer of a corporation and shall have such other
power and duties as may be delegated by the chairman of the board or prescribed
by the board of directors or the bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors or, if not ranked, a vice president designated by the board
of directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or the bylaws and the president or the chairman of the board.
Section 9. SECRETARY. The secretary shall keep, or cause to be kept, at
the principal executive office or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and shareholders, with the time and place of holding, whether
regular or special, and, if special, how authorized, the notice thereof given,
the names of those present at directors' and committee meetings, the number of
shares present or represented at shareholders' meetings, and the proceedings
thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, a
share register, or a duplicate share register, showing the names of all
shareholders and their addresses, the number and classes of shares held by each,
the number and date of certificates issued for the same, and the number and date
of cancellation of every certificate surrendered for cancellation.
<PAGE>
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required by the bylaws or by law
to be given, and he or she shall keep the seal of the corporation, if one be
adopted, in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by the bylaws.
Section 10. CHIEF FINANCIAL OFFICER. The chief financial officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit, or cause to be deposited, all
moneys and other valuables in the name and to the credit of the corporation with
such depositories as may be designated by the board of directors. He or she
shall disburse, or cause to be disbursed, the funds of the corporation as may be
ordered by the board of directors, shall render to the president and directors,
whenever they request it, an account of all financial transactions and of the
financial condition of the corporation, and shall have such other powers and
perform such other duties as may be prescribed by the board of directors or the
bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
Section 1. INDEMNIFICATION. The corporation may, to the maximum extent
permitted by the California General Corporation Law, indemnify each of its
agents against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that any such person is or was an agent of the corporation.
For purposes of this Article VI, an "agent" of the corporation includes any
person who is or was a director, officer, employee or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or was a director, officer, employee or
agent of a corporation which was a predecessor corporation of the corporation or
of another enterprise at the request of such predecessor corporation.
Section 2. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this corporation prior to the final disposition of
such proceeding upon receipt of an undertaking by or on behalf of the agent to
repay such amount unless it shall be determined ultimately that the agent is
entitled to be indemnified as authorized in this Article.
Section 3. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than directors
and officers of this corporation or any subsidiary hereof may be entitled by
contract or otherwise.
<PAGE>
Section 4. INSURANCE. Upon and in the event of a determination by the
board of directors of this corporation to purchase such insurance, this
corporation shall purchase and maintain insurance on behalf of any agent of the
corporation against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such whether or not this
corporation would have the power to indemnify the agent against such liability.
ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The corporation
shall keep at its principal executive office or at the office of its transfer
agent or registrar, if either be appointed, a record of its shareholders giving
the names and addresses of all shareholders and the number and class of shares
held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours upon five (5) days'
prior written demand upon the corporation, or (ii) obtain from the transfer
agent of the corporation, upon written demand and upon the tender of the
transfer agent's usual charges for such list, a list of the shareholders' names
and addresses, who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which such list has been
compiled or as of a date specified by the shareholder subsequent to the date of
demand. The list shall be made available to that shareholder on or before the
later or five (5) days after the demand is received or the date specified
therein as the date as of which the list is to be compiled. The record of
shareholders shall also be open to inspection upon the written demand of any
shareholder or holder of a voting trust certificate, at any time during usual
business hours, for a purpose reasonably related to such holder's interests as a
shareholder or as the holder of a voting trust certificate. Any inspection and
copying under this Section may be made in person or by an agent or attorney of
the shareholder or holder of a voting trust certificate making such demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall
keep at its principal executive office, or if its principal executive office is
not in the State of California, at its principal business office in that State,
the original or a copy of the bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the State of
California and the corporation has no principal business office in that State,
the Secretary shall, upon the written request of any shareholder, furnish to
such shareholder a copy of the bylaws as amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The
accounting books and records and minutes of proceedings of the shareholders and
the board of directors and any committee or committees of the board or directors
shall be kept at such place or places designated by the board of directors, or,
in the absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in
<PAGE>
written form and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written form.
Such minutes and accounting books and records shall be open to inspection upon
the written demand of any shareholder or holder of a voting trust certificate,
at any reasonable time during usual business hours, for a purpose reasonably
related to the holder's interests as a shareholder or as the holder of a voting
trust certificate. The inspection may be made in person or by an agent or
attorney, and shall include the right to copy and make extracts. The foregoing
rights of inspection shall extend to the records of each subsidiary of the
corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records and
documents of any kind and the physical properties of the corporation and each
subsidiary corporation. Such inspection by a director may be made in person or
by agent or attorney and the right of inspection includes the right to copy and
make extracts.
Section 5. ANNUAL REPORTS. The annual report to shareholders referred to
in Section 1501 of the Code is expressly dispensed with, but nothing herein
shall be interpreted as prohibiting the board of directors from issuing annual
or other periodic reports to the shareholders of the corporation as they deem
appropriate.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial statement
and any income statement of the corporation for each quarterly period of each
fiscal year, and any accompanying balance sheet of the corporation as of the end
of each such period, that has been prepared by the corporation shall be kept on
file in the principal executive office of the corporation for twelve (12) months
and each such statement shall be exhibited at all reasonable times to any
shareholder demanding examination of any such statement or a copy shall be
mailed to any such shareholder.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days prior to the date of the request, and a balance
sheet of the corporation as of the end of such period, the chief financial
officer shall cause such statement or statements to be prepared, if not already
prepared, and shall deliver personally or mail such statement or statements to
the person making the request within thirty (30) days after the receipt of such
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, this report shall likewise be delivered or mailed to
such shareholder or shareholders within thirty (30) days after such request.
The corporation also shall, upon the written request of any shareholder,
mail to the shareholder a copy of the last annual, semi-annual or quarterly
income statement which it has prepared and a balance sheet as of the end of such
period.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the
<PAGE>
corporation or the certificate of an authorized officer of the corporation that
such financial statements were prepared without audit from the books and records
of the corporation.
ARTICLE VIII
GENERAL MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For
purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
prior to any such action, and in such case only shareholders of record on the
date so fixed are entitled to receive the dividend, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date, the record date
for determining shareholders for any such purpose shall be at the close of
business on the date on which the board adopts the resolution relating thereto,
or the sixtieth (60th) day prior to the date of such action, whichever is later.
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts
or other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the corporation, shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the board of directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board
of directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any such shares are fully paid, and the board of directors may
authorize the issuance of certificates or shares as partly paid provided that
such certificates shall state the amount of the consideration to be paid
therefor and the amount paid thereon. All certificates shall be signed in the
name of the corporation by the chairman of the board or vice chairman of the
board or the president or vice president and by the chief financial officer or
an assistant treasurer or the secretary or any assistant secretary, certifying
the number of shares and the class or series of shares owned by the shareholder.
Any or all of the
<PAGE>
signatures on the certificate may be facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if such person were an officer, transfer agent or
registrar at the date of issue.
Section 5. LOST CERTIFICATES. Except as hereinafter in this Section
provided, no new certificates for shares shall be issued in lieu of an old
certificate unless the latter is surrendered to the corporation and canceled.
The board of directors may, in case any share certificate or certificate for any
other security is lost, stolen or destroyed, authorize the issuance of a new
certificate in lieu thereof, upon such terms and conditions as the board may
require, including provision for indemnification of the corporation secured by a
bond or other adequate security sufficient to protect the corporation against
any claim that may be made against it, including any expense or liability, on
account of the alleged loss, theft or destruction of such certificate or the
issuance of a replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman
of the board, the president, or any vice president, or any other person
authorized by resolution of the board of directors or by any of the forgoing
designated officers, is authorized to vote on behalf of the corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority granted to said officers
to vote or represent on behalf of the corporation any and all shares held by the
corporation in any other corporation or corporations may be exercised by any
such officer in person or by any person authorized to do so by a proxy duly
executed by said officer.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
California General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of the foregoing, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person. All references in
these bylaws to the California General Corporation Law or to sections of the
Code shall be deemed to be to such Law or sections as they may be amended and in
effect and, if renumbered, to such renumbered provisions at the time of any
action taken under the bylaws.
Section 8. LOANS AND GUARANTEES. Except as otherwise provided in
Section 315 of the Code, the corporation shall not make any loan of money or
property to, or guarantee the obligation of, any director or officer of the
corporation or of its parent corporation, if any, unless the transaction, or an
employee benefit plan authorizing the loan or guarantee after disclosure of the
right under such a plan to include officers or directors, is approved by a
majority of the shareholders entitled to act thereon (without counting any
shares owned by any officer or director eligible to participate in the plan or
transaction that is subject to approval). Notwithstanding the foregoing, a loan
or guarantee to an officer, whether or not a director, or an employee benefit
plan authorizing such a loan or guarantee to an officer, may be approved by the
board of directors alone by a vote sufficient without counting the vote of any
interested director or directors if the board determines that such loan or
guarantee or plan may reasonably be expected to benefit the corporation.
<PAGE>
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these
bylaws may be amended or repealed by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote; provided, however, that if
the articles of incorporation of the corporation set forth the number of
authorized directors of the corporation, the authorized number of directors may
be changed only by an amendment of the articles of incorporation.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
shareholders to adopt, amend or repeal bylaws as provided in Section 1 of this
Article IX, bylaws, other than a bylaw amendment changing the authorized number
of directors, may be adopted, amended or repealed by the board of directors.
<PAGE>
ALTRIS SOFTWARE, INC.
AMENDED AND RESTATED 1996 STOCK INCENTIVE PLAN
Section 1. PURPOSE OF PLAN
The purpose of this Amended and Restated 1996 Stock Incentive Plan
(the "Plan") of Altris Software, Inc., a California corporation (the "Company"),
is to enable the Company to attract, retain and motivate its directors,
officers, employees and consultants by providing for or increasing the
proprietary interests of such persons in the Company.
Section 2. PERSONS ELIGIBLE UNDER PLAN
Each of the following persons (each, a "Participant") shall be
eligible to be considered for the grant of Awards (as hereinafter defined)
hereunder: (1) any employee of the Company or any of its subsidiaries,
including any officer or director who is also such an employee (an "Employee"),
(2) any director of the Company or any of its subsidiaries, including any
director who is not an Employee and (3) any consultant of the Company or any of
its subsidiaries.
Section 3. AWARDS
(a) The Committee (as hereinafter defined), on behalf of the Company,
is authorized under this Plan to enter into any type of arrangement with a
Participant that is not inconsistent with the provisions of this Plan and that,
by its terms, involves or might involve the issuance of (i) shares of common
stock, no par value, of the Company (the "Common Shares") or (ii) a Derivative
Security (as such term is defined in Rule 16a-1 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as such rule may be
amended from time to time) with an exercise or conversion privilege at a price
related to the Common Shares or with a value derived from the value of the
Common Shares. The entering into of any such arrangement is referred to herein
as the "grant" of an "Award."
(b) Awards are not restricted to any specified form or structure and
may include, without limitation, sales or bonuses of stock, restricted stock,
stock options, reload stock options, stock purchase warrants, other rights to
acquire stock, securities convertible into or redeemable for stock, stock
appreciation rights, phantom stock, dividend equivalents, performance units or
performance shares, and an Award may consist of one such security or benefit, or
two or more of them in tandem or in the alternative.
(c) Awards may be issued, and Common Shares may be issued pursuant to
an Award, for any lawful consideration as determined by the Committee,
including, without limitation, services rendered by the recipient of such Award.
(d) Subject to the provisions of this Plan, the Committee, in its
sole and absolute discretion, shall determine all of the terms and conditions of
each Award granted under this Plan, which terms and conditions may include,
among other things:
<PAGE>
(i) a provision permitting the recipient of such Award, including
any recipient who is a director or officer of the Company, to pay the
purchase price of the Common Shares or other property issuable pursuant to
such Award, or such recipient's tax withholding obligation with respect to
such issuance, in whole or in part, by any one or more of the following:
(A) the delivery of cash;
(B) the delivery of other property deemed acceptable by the
Committee;
(C) the delivery of previously owned shares of capital stock of
the Company (including "pyramiding") or other property; or
(D) a reduction in the amount of Common Shares or other property
otherwise issuable pursuant to such Award.
(ii) a provision conditioning or accelerating the receipt of benefits
pursuant to such Award, either automatically or in the discretion of the
Committee, upon the occurrence of specified events, including, without
limitation, a change of control of the Company (as defined by the
Committee), an acquisition of a specified percentage of the voting power of
the Company, the dissolution or liquidation of the Company, a sale of
substantially all of the property and assets of the Company or an event of
the type described in Section 7 hereof; or
(iii) a provision required in order for such Award to qualify as an
incentive stock option (an "Incentive Stock Option") under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"); PROVIDED,
HOWEVER, that no Award issued to a consultant or any other person that is
not an Employee of the Company may qualify as an Incentive Stock Option.
Section 4. STOCK SUBJECT TO PLAN
(a) The aggregate number of Common Shares that may be issued pursuant
to all Incentive Stock Options granted under this Plan shall not exceed 625,000,
subject to adjustment as provided in Section 7 hereof (as adjusted to reflect
the one-for-two reverse stock split of the Company's Common Shares effective as
of October 25, 1996).
(b) At any time, the aggregate number of Common Shares issued and
issuable pursuant to all Awards (including all Incentive Stock Options) granted
under this Plan shall not exceed 625,000, subject to adjustment as provided in
Section 7 hereof (as adjusted to reflect the one-for-two reverse stock split of
the Company's Common Shares effective as of October 25, 1996).
2
<PAGE>
(c) For purposes of Section 4(b) hereof, the aggregate number of
Common Shares issued and issuable pursuant to Awards granted under this Plan
shall at any time be deemed to be equal to the sum of the following:
(i) the number of Common Shares that were issued prior to such time
pursuant to Awards granted under this Plan, other than Common Shares that
were subsequently reacquired by the Company pursuant to the terms and
conditions of such Awards and with respect to which the holder thereof
received no benefits of ownership such as dividends; plus
(ii) the number of Common Shares that were otherwise issuable prior
to such time pursuant to Awards granted under this Plan, but that were
withheld by the Company as payment of the purchase price of the Common
Shares issued pursuant to such Awards or as payment of the recipient's tax
withholding obligation with respect to such issuance; plus
(iii) the maximum number of Common Shares that are or may be issuable
at or after such time pursuant to Awards granted under this Plan prior to
such time.
(d) Subject to adjustment as provided in Section 7 hereof (as
adjusted to reflect the one-for-two reverse stock split of the Company's Common
Shares effective as of October 25, 1996), the aggregate number of Common Shares
subject to Awards granted during any calendar year to any one Participant
(including the number of shares involved in Awards having a value derived from
the value of Common Shares) shall not exceed 625,000 shares.
Section 5. DURATION OF PLAN
No Awards shall be made under this Plan on or after April 1, 2006.
Although Common Shares may be issued on or after April 1, 2006 pursuant to
Awards made prior to such date, no Common Shares shall be issued under this Plan
after April 1, 2016.
Section 6. ADMINISTRATION OF PLAN
(a) This Plan shall be administered by one or more committees of the
Board to which the Board has delegated any or all aspects of the administration
of the Plan (any such committee, the "Committee"). Without limitation of the
foregoing, the Board may delegate to a committee responsibility for determining
and recommending to the Board the Participants to receive Awards and the amount,
timing and terms of any such Award, in which event the Board may retain
authority for the ratification and approval of such Awards and administration of
the Plan. If any aspect of administration of the Plan has not been delegated by
the Board to a Committee, either generally or specifically, that aspect of the
Plan shall be administered by the Board and all references herein to the
Committee shall refer to the Board. The Board shall have the discretion to
appoint, add, remove or replace members of the Committee, and shall have the
sole authority to fill vacancies on the Committee. Unless otherwise provided by
the Board: (i) with respect to any Award for which such is necessary and
desired for such Award to be exempted by Rule 16b-3 of the Exchange Act, the
terms of the Award shall be approved by (A)
3
<PAGE>
the Board of Directors or (B) a Committee of two or more directors each of whom
is a "non-employee director" (as such term is defined in Rule 16b-3 promulgated
under the Exchange Act, as such Rule may be amended from time to time);
(ii) with respect to any Award that is intended to qualify as "performance based
compensation" under Section 162(m) of the Code, such Award shall be made by a
Committee consisting of two or more directors, each of whom is an "outside
director" (as such term is defined under Section 162(m) of the Code), which may
or may not be subject to ratification and approval by the Board; and (iii) with
respect to any other Award, the Committee shall consist of one or more directors
(any of whom also may be an Employee who has been granted or is eligible to be
granted Awards under the Plan).
(b) Subject to the provisions of this Plan, the Committee shall be
authorized and empowered to do all things necessary or desirable in connection
with the administration of this Plan with respect to Awards over which such
Committee has authority, including, without limitation, the following:
(i) adopt, amend and rescind rules and regulations relating to this
Plan;
(ii) determine which persons are Participants and to which of such
Participants, if any, Awards shall be granted hereunder;
(iii) grant Awards to Participants and determine the terms and
conditions thereof, including the number of Common Shares issuable pursuant
thereto;
(iv) determine whether, and the extent to which adjustments are
required pursuant to Section 7 hereof; and
(v) interpret and construe this Plan and the terms and conditions of
any Award granted hereunder.
Section 7. ADJUSTMENTS
If the outstanding securities of the class then subject to this Plan
are increased, decreased or exchanged for or converted into cash, property or a
different number or kind of securities, or if cash, property or securities are
distributed in respect of such outstanding securities, in either case as a
result of a reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, dividend (other than a regular, quarterly cash
dividend) or other distribution, stock split, reverse stock split or the like,
or if substantially all of the property and assets of the Company are sold,
then, unless the terms of such transaction shall provide otherwise, the
Committee shall make appropriate and proportionate adjustments in (a) the number
and type of shares or other securities or cash or other property that may be
acquired pursuant to Incentive Stock Options and other Awards theretofore
granted under this Plan, (b) the maximum number and type of shares or other
securities that may be issued pursuant to Incentive Stock Options and other
Awards thereafter granted under this Plan and (c) the maximum number of Common
Shares for which options may be granted during any one calendar year; PROVIDED,
HOWEVER, that no adjustment shall be made to the number of Common Shares that
may be acquired pursuant to
4
<PAGE>
outstanding Incentive Stock Options or the maximum number of Common Shares with
respect to which Incentive Stock Options may be granted under this Plan to the
extent such adjustment would result in such options being treated as other than
Incentive Stock Options; PROVIDED, FURTHER, that no such adjustment shall be
made to the extent the Committee determines that such adjustment would result in
the disallowance of a federal income tax deduction for compensation attributable
to Awards hereunder by causing such compensation to be other than
Performance-Based Compensation (as defined for purposes of Section 162(m) of the
Code).
Section 8. AMENDMENT AND TERMINATION OF PLAN
The Board may amend, alter or discontinue the Plan or any agreement
evidencing an Award made under the Plan, but no amendment or alteration shall be
made which would impair the rights of any Award holder, without such holder's
consent, under any Award theretofore granted, provided that no such consent
shall be required if the Committee determines in its sole discretion and prior
to the date of any change of control (as defined, if applicable, in the
agreement evidencing such Award) that such amendment or alteration is not
reasonably likely to significantly diminish the benefits provided under such
Award, or that any such diminishment has been adequately compensated. The
Committee may determine whether or not any amendment to a previously granted
Award is, for purposes of the Plan, deemed to be a cancellation and new grant of
the Award. Notwithstanding the foregoing, if an amendment to the Plan would
affect the ability of Awards granted under the Plan to comply with any law, rule
or regulation (including any rule of a self-regulatory organization), and if the
Committee determines that it is necessary or desirable for any Awards
theretofore or thereafter granted that are intended to comply with any such
provision to so comply, the amendment shall be approved by the Company's
shareholders to the extent required for such Awards to continue to comply with
such law, rule or regulation.
Section 9. EFFECTIVE DATE OF PLAN
This Plan shall be effective as of April 1, 1996, the date upon which
it was approved by the Board; PROVIDED, HOWEVER, that no Common Shares may be
issued under this Plan until it has been approved, directly or indirectly, by
the affirmative votes of the holders of a majority of the securities of the
Company present, or represented, and entitled to vote at a meeting duly held in
accordance with the laws of the State of California.
5
<PAGE>
ALTRIS SOFTWARE, INC.
AMENDED AND RESTATED 1996 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into as
of the Date of Grant indicated below by and between Altris Software, Inc., a
California corporation (the "Company"), and the person named below as Employee.
WHEREAS, Employee is an employee of the Company and/or one or more of
its subsidiaries; and
WHEREAS, pursuant to the Company's Amended and Restated 1996 Stock
Incentive Plan (the "Plan"), the committee of the Board of Directors of the
Company administering the Plan (the "Committee") has approved the grant to
Employee of an option to purchase shares of the common stock, no par value, of
the Company (the "Common Stock"), on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company
hereby grants to Employee, and Employee hereby accepts, as of the Date of Grant,
an option to purchase the number of shares of Common Stock indicated below (the
"Option Shares") at the Exercise Price per share indicated below, which option
shall expire at 5:00 o'clock p.m., California time, on the Expiration Date
indicated below and shall be subject to all of the terms and conditions set
forth in this Agreement (the "Option"). On each anniversary of the Date of
Grant, the Option shall become exercisable to purchase, and shall vest with
respect to, that number of Option Shares (rounded to the nearest whole share)
equal to the total number of Option Shares multiplied by the Annual Vesting Rate
indicated below.
Employee:
---------------------
Date of Grant:
-----------
Number of shares purchasable:
-----------
Exercise Price per share:
-----------
Expiration Date:
-----------
Annual Vesting Rate: %
-----------
<PAGE>
The Option is intended to qualify as an incentive stock option (an "Incentive
Stock Option") under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), and consequently:
(a) the Expiration Date shall not be more than 10 years after
the Date of Grant and the Exercise Price per share shall not be less than
the Fair Market Value (as defined in the Plan) per share on the Date of
Grant; PROVIDED, HOWEVER, that if, on the Date of Grant, Employee owns
(after application of the family and other attribution rules of Section
424(d) of the Internal Revenue Code) more than 10% of the total combined
voting power of all classes of stock of the Company or of its parent or
subsidiary corporations, then the Expiration Date shall not be more than
five years after the Date of Grant and the Exercise Price per share shall
not be less than 110% of the Fair Market Value per share on the Date of
Grant; and
(b) the aggregate Fair Market Value (determined as of the date
such options are granted) of the shares of Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by
Employee during any calendar year (under the Plan and all other stock
option plans of the Company and its parent and subsidiary corporations)
shall not exceed $100,000.
2. ACCELERATION AND TERMINATION OF OPTION.
(a) Termination of Employment.
(i) TERMINATION WITHIN ONE YEAR AFTER CHANGE OF CONTROL. In the
event that Employee shall cease to be an employee of the Company or any of
its subsidiaries (such event shall be referred to herein as the
"Termination" of Employee's "Employment") for any reason, or for no reason,
within one year after a Change of Control (as hereinafter defined), then
(A) the portion of the Option that has not vested on or prior to the date
of such Termination of Employment shall fully vest on such date and (B) the
Option shall terminate upon the earlier of the Expiration Date or the first
anniversary of the date of such Termination of Employment. "Change of
Control" shall mean the first to occur of the following events:
(X) the date of the first public announcement that any
person or entity, together with all Affiliates and Associates (as
such capitalized terms are defined in Rule 12b-2 promulgated
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of such person or entity, shall have become the
Beneficial Owner (as defined in Rule 13d-3 promulgated under the
Exchange Act) of voting securities of the Company representing
25% or more of the voting power of the Company (a "25%
Stockholder"); PROVIDED, HOWEVER, that the terms "person" and
"entity," as used in this clause (X), shall not include (1) the
Company or any of its subsidiaries, (2) any employee benefit plan
of the Company or any of its subsidiaries, (3) any entity holding
voting securities of the Company for or pursuant to
2
<PAGE>
the terms of any such plan, (4) any person or entity if the
transaction that resulted in such person or entity becoming a 25%
Stockholder was approved in advance by the Board or (5) any person or
entity who was a 25% Stockholder on the date of adoption of the Plan
by the Board; or
(Y) a reorganization, merger or consolidation of the
Company (other than a reorganization, merger or consolidation the
sole purpose of which is to change the Company's domicile solely
within the United States) the consummation of which results in
the outstanding securities of any class then subject to the
Option being exchanged for or converted into cash, property
and/or a different kind of securities.
(ii) RETIREMENT. If Employee's Employment is Terminated by
reason of Employee's retirement in accordance with the Company's
then-current retirement policy ("Retirement"), and a Change of Control
shall not have occurred within one year prior thereto, then (A) the portion
of the Option that has not vested on or prior to the date of such
Retirement shall terminate on such date and (B) the remaining vested
portion of the Option shall terminate 90 days after the date of such
Termination of Employment.
(iii) DEATH OR PERMANENT DISABILITY. If Employee's Employment
is Terminated by reason of the death or Permanent Disability (as
hereinafter defined) of Employee, and a Change of Control shall not have
occurred within one year prior thereto, then (A) the portion of the Option
that has not vested on or prior to the date of such Termination of
Employment shall terminate on such date and (B) the remaining vested
portion of the Option shall terminate upon the earlier of the Expiration
Date or the first anniversary of the date of such Termination of
Employment. "Permanent Disability" shall mean the inability to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or
that has lasted or can be expected to last for a continuous period of not
less than 12 months. Employee shall not be deemed to have a Permanent
Disability until proof of the existence thereof shall have been furnished
to the Board in such form and manner, and at such times, as the Board may
require. Any determination by the Board that Employee does or does not
have a Permanent Disability shall be final and binding upon the Company and
Employee.
(iv) OTHER TERMINATION. If Employee's Employment is Terminated
for no reason, or for any reason other than Retirement, death or Permanent
Disability, and a Change of Control shall not have occurred within one year
prior thereto, then (A) the portion of the Option that has not vested on or
prior to the date of such Termination of Employment shall terminate on such
date and (B) the remaining vested portion of the Option shall terminate 30
days after the date of such Termination of Employment.
(b) DEATH FOLLOWING TERMINATION OF EMPLOYMENT. Notwithstanding
anything to the contrary in this Agreement, if Employee shall die at any time
after the Termination of his or her Employment and prior to the Expiration Date,
then (i) the portion of the Option that has not
3
<PAGE>
vested on or prior to the date of such death shall terminate on such date and
(ii) the remaining vested portion of the Option shall terminate on the earlier
of the Expiration Date or the first anniversary of the date of such death.
(c) OTHER EVENTS CAUSING ACCELERATION OF OPTION. The Committee, in
its sole discretion, may accelerate the exercisability of the Option at any time
and for any reason.
(d) OTHER EVENTS CAUSING TERMINATION OF OPTION. Notwithstanding
anything to the contrary in this Agreement, the Option shall terminate upon the
consummation of any of the following events, or, if later, the thirtieth day
following the first date upon which such event shall have been approved by both
the Board and the stockholders of the Company:
(i) the dissolution or liquidation of the Company; or
(ii) a sale of substantially all of the property and assets of
the Company, unless the terms of such sale shall provide otherwise.
3. ADJUSTMENTS. Subject to the relevant provisions of the Plan, in
the event that the outstanding securities of the class then subject to the
Option are increased, decreased or exchanged for or converted into cash,
property and/or a different number or kind of securities, or cash, property
and/or securities are distributed in respect of such outstanding securities, in
either case as a result of a reorganization, merger, consolidation,
recapitalization, reclassification, dividend (other than a regular, quarterly
cash dividend) or other distribution, stock split, reverse stock split or the
like, or in the event that substantially all of the property and assets of the
Company are sold, then, unless such event shall cause the Option to terminate
pursuant to Section 2(d) hereof, the Committee shall make appropriate and
proportionate adjustments in the number and type of shares or other securities
or cash or other property that may thereafter be acquired upon the exercise of
the Option; PROVIDED, HOWEVER, that any such adjustments in the Option shall be
made without changing the aggregate Exercise Price of the then unexercised
portion of the Option; PROVIDED, FURTHER, that no adjustment shall be made to
the number of Option Shares that may be acquired pursuant to the Option or to
the extent such adjustment would result in the Option being treated as other
than an Incentive Stock Option or to the extent the Committee determines that
such adjustment would result in the disallowance of a federal income tax
deduction for compensation attributable to the Option by causing such
compensation to be other than Performance-Based Compensation (as defined in
Section 162(m) of the Internal Revenue Code and the regulations related
thereto).
4. EXERCISE.
(a) The Option shall be exercisable during Employee's lifetime only
by Employee or by his or her guardian or legal representative, and after
Employee's death only by the person or entity entitled to do so under Employee's
last will and testament or applicable intestate law. The Option may only be
exercised by the delivery to the Company of a written notice of such exercise,
which notice shall specify the number of Option Shares to be purchased (the
"Purchased Shares") and the aggregate Exercise Price for such shares (the
"Exercise Notice"),
4
<PAGE>
together with payment in full of such aggregate Exercise Price in cash or by
check payable to the Company; PROVIDED, HOWEVER, that payment of such aggregate
Exercise Price may instead be made, in whole or in part, by the delivery to the
Company of a certificate or certificates representing shares of Common Stock,
duly endorsed or accompanied by a duly executed stock powers, which delivery
effectively transfers to the Company good and valid title to such shares, free
and clear of any pledge, commitment, lien, claim or other encumbrance (such
shares to be valued on the basis of the aggregate Fair Market Value (as defined
in the Plan) thereof on the date of such exercise), provided that the Company is
not then prohibited from purchasing or acquiring such shares of Common Stock.
5. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated
to withhold an amount on account of any tax imposed as a result of the exercise
of the Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., state disability insurance tax or other employment
tax, then Employee shall, on the first day upon which the Company becomes
obligated to pay such amount to the appropriate taxing authority, pay such
amount to the Company in cash or by check payable to the Company.
6. NOTICES. All notices and other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed given if delivered personally or five days after mailing by certified
or registered mail, postage prepaid, return receipt requested, to the Company at
9339 Carroll Park Drive, San Diego, California 92121, Attention: Chief
Financial Officer, or to Employee at the address set forth beneath his or her
signature on the signature page hereto, or at such other addresses as they may
designate by written notice in the manner aforesaid.
7. STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS. Notwithstanding
anything to the contrary in this Agreement, no shares of stock purchased upon
exercise of the Option, and no certificate representing all or any part of such
shares, shall be issued or delivered if (a) such shares have not been admitted
to listing upon official notice of issuance on each stock exchange upon which
shares of that class are then listed or (b) in the opinion of counsel to the
Company, such issuance or delivery would cause the Company to be in violation of
or to incur liability under any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which the Company is a
party, or any other requirement of law or of any administrative or regulatory
body having jurisdiction over the Company. Employee hereby authorizes the
Company to place an appropriate legend on any certificate representing the
Option Shares or to take such other action as the Company may deem appropriate
to allow the Company to comply with applicable laws and regulation for the
issuance and transfer of any Option Shares, including, but not limited to, those
applicable to incentive stock options and so-called "disqualifying dispositions"
thereof.
8. NONTRANSFERABILITY. Neither the Option nor any interest therein
may be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise
transferred in any manner other than by will or the laws of descent and
distribution
5
<PAGE>
9. PLAN. The Option is granted pursuant to the Plan, as in effect
on the Date of Grant, and is subject to all the terms and conditions of the
Plan, as the same may be amended from time to time; PROVIDED, HOWEVER, that no
such amendment shall deprive Employee, without his or her consent, of the Option
or of any of Employee's rights under this Agreement. The interpretation and
construction by the Committee of the Plan, this Agreement, the Option and such
rules and regulations as may be adopted by the Committee for the purpose of
administering the Plan shall be final and binding upon Employee. Until the
Option shall expire, terminate or be exercised in full, the Company shall, upon
written request therefor, send a copy of the Plan, in its then-current form, to
Employee or any other person or entity then entitled to exercise the Option.
10. STOCKHOLDER RIGHTS. No person or entity shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement.
11. EMPLOYMENT RIGHTS. No provision of this Agreement or of the
Option granted hereunder shall (a) confer upon Employee any right to continue in
the employ of the Company or any of its subsidiaries, (b) affect the right of
the Company and each of its subsidiaries to terminate the employment of
Employee, with or without cause, or (c) confer upon Employee any right to
participate in any employee welfare or benefit plan or other program of the
Company or any of its subsidiaries other than the Plan.
6
<PAGE>
12. GOVERNING LAW. This Agreement and the Option granted hereunder
shall be governed by and construed and enforced in accordance with the laws of
the State of California without reference to choice or conflict of law
principles.
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the Date of Grant.
ALTRIS SOFTWARE, INC.
By
--------------------------------
Title:
EMPLOYEE
----------------------------------
Signature
----------------------------------
Street Address
----------------------------------
City, State and Zip Code
----------------------------------
Social Security Number
7
<PAGE>
ALTRIS SOFTWARE, INC.
AMENDED AND RESTATED 1996 STOCK INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into as
of the Date of Grant indicated below by and between Altris Software, Inc., a
California corporation (the "Company"), and the person named below as
Participant.
WHEREAS, Participant is an employee or consultant of the Company
and/or one or more of its subsidiaries; and
WHEREAS, pursuant to the Company's Amended and Restated 1996 Stock
Incentive Plan (the "Plan"), the committee of the Board of Directors of the
Company administering the Plan (the "Committee") has approved the grant to
Participant of an option to purchase shares of the common stock of the Company
(the "Common Stock"), on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company
hereby grants to Participant, and Participant hereby accepts, as of the Date of
Grant, an option to purchase the number of shares of Common Stock indicated
below (the "Option Shares") at the Exercise Price per share indicated below,
which option shall expire at 5:00 o'clock p.m., California time, on the
Expiration Date indicated below and shall be subject to all of the terms and
conditions set forth in this Agreement (the "Option"). On each anniversary of
the Date of Grant, the Option shall become exercisable to purchase, and shall
vest with respect to, that number of Option Shares (rounded to the nearest whole
share) equal to the total number of Option Shares multiplied by the Annual
Vesting Rate indicated below.
Participant:
---------------------
Date of Grant:
-------
Number of shares purchasable:
-------
Exercise Price per share:
-------
Expiration Date:
-------
Annual Vesting Rate: %
-------
<PAGE>
The Option is not intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code (an "Incentive Stock Option").
2. ACCELERATION AND TERMINATION OF OPTION.
(a) Termination of Employment.
(i) TERMINATION WITHIN ONE YEAR AFTER CHANGE OF CONTROL. In the
event that Participant shall cease to be an employee or consultant of the
Company or any of its subsidiaries (such event shall be referred to herein
as the "Termination" of Participant's "Employment") for any reason, or for
no reason, within one year after a Change of Control (as hereinafter
defined), then (A) the portion of the Option that has not vested on or
prior to the date of such Termination of Employment shall fully vest on
such date and (B) the Option shall terminate upon the earlier of the
Expiration Date or the first anniversary of the date of such Termination of
Employment. "Change of Control" shall mean the first to occur of the
following events:
(X) the date of the first public announcement that any person or
entity, together with all Affiliates and Associates (as such
capitalized terms are defined in Rule 12b-2 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
such person or entity, shall have become the Beneficial Owner (as
defined in Rule 13d-3 promulgated under the Exchange Act) of voting
securities of the Company representing 25% or more of the voting power
of the Company (a "25% Stockholder"), provided, however, that the
terms "person" and "entity," as used in this clause (X), shall not
include (1) the Company or any of its subsidiaries, (2) any employee
benefit plan of the Company or any of its subsidiaries, (3) any entity
holding voting securities of the Company for or pursuant to the terms
of any such plan, (4) any person or entity if the transaction that
resulted in such person or entity becoming a 25% Stockholder was
approved in advance by the Board or (5) any person or entity who was a
25% Stockholder on the date of adoption of the Plan by the Board; or
(Y) a reorganization, merger or consolidation of the Company
(other than a reorganization, merger or consolidation the sole purpose
of which is to change the Company's domicile solely within the United
States) the consummation of which results in the outstanding
securities of any class then subject to the Option being exchanged for
or converted into cash, property and/or a different kind of
securities.
(ii) RETIREMENT. If Participant's Employment is Terminated by
reason of Participant's retirement in accordance with the Company's
then-current retirement policy ("Retirement"), and a Change of Control
shall not have occurred within one year prior thereto, then (A) the portion
of the Option that has not vested on or prior to the date of such
Retirement shall terminate on such date and (B) the remaining vested
2
<PAGE>
portion of the Option shall terminate 90 days after the date of such
Termination of Employment.
(iii) DEATH OR PERMANENT DISABILITY. If Participant's
Employment is Terminated by reason of the death or Permanent Disability (as
hereinafter defined) of Participant, and a Change of Control shall not have
occurred within one year prior thereto, then (A) the portion of the Option
that has not vested on or prior to the date of such Termination of
Employment shall terminate on such date and (B) the remaining vested
portion of the Option shall terminate upon the earlier of the Expiration
Date or the first anniversary of the date of such Termination of
Employment. "Permanent Disability" shall mean the inability to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or
that has lasted or can be expected to last for a continuous period of not
less than 12 months. Participant shall not be deemed to have a Permanent
Disability until proof of the existence thereof shall have been furnished
to the Board in such form and manner, and at such times, as the Board may
require. Any determination by the Board that Participant does or does not
have a Permanent Disability shall be final and binding upon the Company and
Participant.
(iv) OTHER TERMINATION. If Participant's Employment is
Terminated for no reason, or for any reason other than Retirement, death or
Permanent Disability, and a Change of Control shall not have occurred
within one year prior thereto, then (A) the portion of the Option that has
not vested on or prior to the date of such Termination of Employment shall
terminate on such date and (B) the remaining vested portion of the Option
shall terminate 30 days after the date of such Termination of Employment.
(b) DEATH FOLLOWING TERMINATION OF EMPLOYMENT. Notwithstanding
anything to the contrary in this Agreement, if Participant shall die at any time
after the Termination of his or her Employment and prior to the Expiration Date,
then (i) the portion of the Option that has not vested on or prior to the date
of such death shall terminate on such date and (ii) the remaining vested portion
of the Option shall terminate on the earlier of the Expiration Date or the first
anniversary of the date of such death.
(c) OTHER EVENTS CAUSING ACCELERATION OF OPTION. The Committee, in
its sole discretion, may accelerate the exercisability of the Option at any time
and for any reason.
(d) OTHER EVENTS CAUSING TERMINATION OF OPTION. Notwithstanding
anything to the contrary in this Agreement, the Option shall terminate upon the
consummation of any of the following events, or, if later, the thirtieth day
following the first date upon which such event shall have been approved by both
the Board and the stockholders of the Company:
(i) the dissolution or liquidation of the Company; or
(ii) a sale of substantially all of the property and assets of
the Company, unless the terms of such sale shall provide otherwise.
3
<PAGE>
3. ADJUSTMENTS. Subject to the relevant provisions of the Plan, in
the event that the outstanding securities of the class then subject to the
Option are increased, decreased or exchanged for or converted into cash,
property and/or a different number or kind of securities, or cash, property
and/or securities are distributed in respect of such outstanding securities, in
either case as a result of a reorganization, merger, consolidation,
recapitalization, reclassification, dividend (other than a regular, quarterly
cash dividend) or other distribution, stock split, reverse stock split or the
like, or in the event that substantially all of the property and assets of the
Company are sold, then, unless such event shall cause the Option to terminate
pursuant to Section 2(d) hereof, the Committee shall make appropriate and
proportionate adjustments in the number and type of shares or other securities
or cash or other property that may thereafter be acquired upon the exercise of
the Option; PROVIDED, HOWEVER, that any such adjustments in the Option shall be
made without changing the aggregate Exercise Price of the then unexercised
portion of the Option; PROVIDED, FURTHER, that no adjustment shall be made to
the number of Option Shares that may be acquired pursuant to the Option to the
extent the Committee determines that such adjustment would result in the
disallowance of an otherwise allowable federal income tax deduction for
compensation attributable to the Option by causing such compensation to be other
than Performance-Based Compensation (as defined in Section 162(m) of the
Internal Revenue Code and the regulations related thereto).
4. EXERCISE. The Option shall be exercisable during Participant's
lifetime only by Participant or by his or her guardian or legal representative,
and after Participant's death only by the person or entity entitled to do so
under Participant's last will and testament or applicable intestate law. The
Option may only be exercised by the delivery to the Company of a written notice
of such exercise, which notice shall specify the number of Option Shares to be
purchased (the "Purchased Shares") and the aggregate Exercise Price for such
shares (the "Exercise Notice"), together with payment in full of such aggregate
Exercise Price in cash or by check payable to the Company; PROVIDED, HOWEVER,
that payment of such aggregate Exercise Price may instead be made, in whole or
in part, by the delivery to the Company of a certificate or certificates
representing shares of Common Stock, duly endorsed or accompanied by a duly
executed stock powers, which delivery effectively transfers to the Company good
and valid title to such shares, free and clear of any pledge, commitment, lien,
claim or other encumbrance (such shares to be valued on the basis of the
aggregate Fair Market Value (as defined in the Plan) thereof on the date of such
exercise), provided that the Company is not then prohibited from purchasing or
acquiring such shares of Common Stock.
5. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated
to withhold an amount on account of any tax imposed as a result of the exercise
of the Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., state disability insurance tax or other employment
tax, then Participant shall, on the first day upon which the Company becomes
obligated to pay such amount to the appropriate taxing authority, pay such
amount to the Company in cash or by check payable to the Company.
6. NOTICES. All notices and other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed given if delivered personally or five days after mailing by certified
or registered mail, postage prepaid, return receipt requested, to the Company at
9229 Carroll Park Drive, San Diego, California 92121,
4
<PAGE>
Attention: Chief Financial Officer, or to Participant at the address set forth
beneath his or her signature on the signature page hereto, or at such other
addresses as they may designate by written notice in the manner aforesaid.
7. STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS. Notwithstanding
anything to the contrary in this Agreement, no shares of stock purchased upon
exercise of the Option, and no certificate representing all or any part of such
shares, shall be issued or delivered if (a) such shares have not been admitted
to listing upon official notice of issuance on each stock exchange upon which
shares of that class are then listed or (b) in the opinion of counsel to the
Company, such issuance or delivery would cause the Company to be in violation of
or to incur liability under any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which the Company is a
party, or any other requirement of law or of any administrative or regulatory
body having jurisdiction over the Company.
8. NONTRANSFERABILITY. Neither the Option nor any interest therein
may be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise
transferred in any manner other than by will or the laws of descent and
distribution
9. PLAN. The Option is granted pursuant to the Plan, as in effect
on the Date of Grant, and is subject to all the terms and conditions of the
Plan, as the same may be amended from time to time; PROVIDED, HOWEVER, that no
such amendment shall deprive Participant, without his or her consent, of the
Option or of any of Participant's rights under this Agreement. The
interpretation and construction by the Committee of the Plan, this Agreement,
the Option and such rules and regulations as may be adopted by the Committee for
the purpose of administering the Plan shall be final and binding upon
Participant. Until the Option shall expire, terminate or be exercised in full,
the Company shall, upon written request therefor, send a copy of the Plan, in
its then-current form, to Participant or any other person or entity then
entitled to exercise the Option.
10. STOCKHOLDER RIGHTS. No person or entity shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement.
11. EMPLOYMENT OR CONTRACT RIGHTS. No provision of this Agreement or
of the Option granted hereunder shall (a) confer upon Participant any right to
continue in the employ of or contract with the Company or any of its
subsidiaries, (b) affect the right of the Company and each of its subsidiaries
to terminate the employment or contract of Participant, with or without cause,
or (c) confer upon Participant any right to participate in any employee welfare
or benefit plan or other program of the Company or any of its subsidiaries other
than the Plan.
12. GOVERNING LAW. This Agreement and the Option granted hereunder
shall be governed by and construed and enforced in accordance with the laws of
the State of California without reference to choice or conflict of law
principles.
5
<PAGE>
IN WITNESS WHEREOF, the Company and Participant have duly executed
this Agreement as of the Date of Grant.
ALTRIS SOFTWARE, INC.
By
-----------------------------
Title:
PARTICIPANT
--------------------------------
Signature
--------------------------------
Street Address
--------------------------------
City, State and Zip Code
--------------------------------
Social Security Number
6
<PAGE>
ALTRIS SOFTWARE, INC.
AMENDED AND RESTATED 1996 STOCK INCENTIVE PLAN
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement ("Agreement") is made and entered into
as of the Date of Award indicated below by and between Altris Software, Inc., a
California corporation (the "Company"), and the person named below as
Participant.
WHEREAS, Participant is an employee or consultant of the Company
and/or one or more of its subsidiaries; and
WHEREAS, pursuant to the Company's Amended and Restated 1996 Stock
Incentive Plan (the "Plan"), the committee of the Board of Directors of the
Company administering the Plan (the "Committee") has approved the award to
Participant of the right to purchase shares of the common stock of the Company
(the "Common Stock"), on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. AWARD; CERTAIN TERMS AND CONDITIONS. The Company hereby awards
to Participant, and Participant hereby accepts, as of the Date of Award, the
right to purchase the number of shares of Common Stock indicated below (the
"Restricted Shares") for the Cash Purchase Price per share indicated below
(which shall be either $0 or at least par value). THE AGGREGATE CASH PURCHASE
PRICE MUST BE PAID TO THE COMPANY ON OR PRIOR TO 5:00 O'CLOCK P.M. (LOCAL TIME
AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICE) UPON THE SIXTIETH DAY FOLLOWING THE
DATE OF AWARD. The Restricted Shares shall be subject to all of the terms and
conditions set forth in this Agreement, including the restrictions imposed
pursuant to Section 3 hereof; provided, however, that on each anniversary of the
Date of Award, such restrictions shall terminate with respect to that number of
Restricted Shares (rounded to the nearest whole share) equal to the total number
of Restricted Shares multiplied by the Annual Vesting Rate indicated below (the
termination of such restrictions with respect to any Restricted Share, for any
reason, shall be referred to herein as the "vesting" of such share).
Participant:
------------------------
Date of Award:
-------------------
Number of shares purchasable:
----------
Cash Purchase Price per share: $
--------
Annual Vesting Rate: %
-------
<PAGE>
2. CONSIDERATION FOR SHARES; METHOD OF PAYMENT.
(a) The consideration for the issuance and sale of Restricted Shares
contemplated hereby may include, in addition to the Cash Purchase Price per
share indicated in Section 1 hereof, consideration in the form of past services
to the Company and/or one or more of its subsidiaries. If the Cash Purchase
Price per share is $0, then (i) the total consideration for the issuance and
sale of the Restricted Shares shall be equal to the aggregate par value thereof
on the Date of the Award and (ii) such consideration shall be deemed to have
been received by the Company, on or prior to the Date of Award, in the form of
past services.
(b) The aggregate Cash Purchase Price must be paid to the Company in
cash or by check payable to the Company. Upon payment to the Company in full of
the aggregate Cash Purchase Price as provided herein on or prior to 5:00 o'clock
p.m. (local time at the Company's principal executive office) on the sixtieth
day following the Date of Award, Participant shall be deemed to have purchased
the Restricted Shares effective as of the Date of Award.
3. RESTRICTIONS. Until a Restricted Share vests, it may not be
sold, assigned, conveyed, gifted, pledged, hypothecated, or otherwise
transferred in any manner.
4. ACCELERATION OF VESTING.
(a) Notwithstanding anything to the contrary in this Agreement, in
the event that Participant shall cease to be an employee or consultant of the
Company or any of its subsidiaries for any reason, or for no reason, within one
year after a Change of Control (as hereinafter defined), all then unvested
Restricted Shares shall vest upon the date of such event.
(b) "Change of Control" shall mean the first to occur of the
following events:
(i) the date of the first public announcement that any person or
entity, together with all Affiliates and Associates (as such capitalized
terms are defined in Rule 12b-2 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) of such person or entity,
shall have become the Beneficial Owner (as defined in Rule 13d-3
promulgated under the Exchange Act) of voting securities of the Company
representing 25% or more of the voting power of the Company (a "25%
Stockholder"), provided, however, that the terms "person" and "entity," as
used in this clause (i), shall not include (A) the Company or any of its
subsidiaries, (B) any employee benefit plan of the Company or any of its
subsidiaries, (C) any entity holding voting securities of the Company for
or pursuant to the terms of any such plan, (D) any person or entity if the
transaction that resulted in such person or entity becoming a 25%
Stockholder was approved in advance by the Board or (E) any person or
entity who was a 25% Stockholder on the date of adoption of the Plan by the
Board; or
2
<PAGE>
(ii) a reorganization, merger or consolidation of the Company
(other than a reorganization, merger or consolidation the sole purpose of
which is to change the Company's domicile solely within the United States)
the consummation of which results in the outstanding securities of any
class then comprising the Restricted Shares being exchanged for or
converted into cash, property and/or a different kind of securities.
(c) In addition, the Committee, in its sole discretion, may
accelerate the vesting of any or all of the Restricted Shares at any time.
5. REPURCHASE OF RESTRICTED SHARES. Notwithstanding anything to the
contrary in this Agreement, if Participant shall cease to be an employee or
independent sales representative of the Company or any of its subsidiaries for
any reason, or for no reason, then, unless the Committee shall determine
otherwise, the Company shall repurchase each then unvested Restricted Share at a
purchase price equal to the Cash Purchase Price per share.
6. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated to
withhold an amount on account of any federal, state or local tax imposed as a
result of the sale of the Restricted Shares to Participant pursuant to this
Agreement or the termination of the restrictions imposed upon the Restricted
Shares hereunder, including, without limitation, any federal, state or other
income tax, or any F.I.C.A., state disability insurance tax or other employment
tax (the date upon which the Company becomes so obligated shall be referred to
herein as the "Withholding Date"), then Participant shall pay such amount (the
"Withholding Liability") to the Company on the Withholding Date in cash or by
check payable to the Company.
7. ESCROW.
(a) Until a Restricted Share vests, (i) the record address of the
holder of record of such Restricted Share shall be c/o the Secretary of the
Company at the address of the Company's principal executive office, (ii) the
stock certificate representing such Restricted Share (together with any cash,
property and/or securities comprising all or any part of such Restricted Share
as provided in Section 8 hereof) shall be held in escrow in the custody of the
Secretary of the Company, duly endorsed in blank or accompanied by a duly
executed stock power, and (iii) such stock certificate shall contain the
following legend:
"THE TRANSFER AND REGISTRATION OF TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS AS PROVIDED IN A RESTRICTED STOCK AGREEMENT DATED AS
OF [DATE OF AWARD TO BE INSERTED] BY AND BETWEEN THE CORPORATION
AND [NAME OF PARTICIPANT TO BE INSERTED]."
(b) From and after the date upon which a Restricted Share vests, the
holder of record of such Restricted Share shall be entitled (provided that
Participant shall have
3
<PAGE>
paid the Withholding Liability to the Company pursuant to Section 6 hereof) to
receive the stock certificate representing such Restricted Share (together with
any cash, property and/or securities comprising all or any part of such
Restricted Share as provided in Section 8 hereof), which stock certificate shall
not contain the legend set forth in subsection (a)(iii) above.
8. VOTING; DIVIDENDS; CERTAIN CORPORATE TRANSACTIONS. The holder of
record of any Restricted Share shall be entitled to exercise all voting rights
with respect to such share and to receive all regular, quarterly cash dividends
paid with respect thereto. In the event that the outstanding securities of any
class then comprising the Restricted Shares are increased, decreased or
exchanged for or converted into cash, property and/or a different number or kind
of securities, or cash, property and/or securities are distributed in respect of
such outstanding securities, in either case as a result of a reorganization,
merger, consolidation, recapitalization, reclassification, stock split, reverse
stock split or the like, then, unless the Committee shall determine otherwise,
the term "Restricted Shares" shall, from and after the date of such event,
include such cash, property and/or securities so distributed in respect of the
Restricted Shares, or into or for which the Restricted Shares are so increased,
decreased, exchanged or converted.
9. PLAN. The Restricted Shares are being sold pursuant to the Plan,
as in effect on the Date of Award, and are subject to all the terms and
conditions of the Plan, as the same may be amended from time to time; provided,
however, that no such amendment shall deprive Participant, without his or her
consent, of the Restricted Shares or of any of Participant's rights under this
Agreement. The interpretation and construction by the Committee of the Plan,
this Agreement and such rules and regulations as may be adopted by the Committee
for the purpose of administering the Plan shall be final and binding upon
Participant. Until the Restricted Shares shall vest or be forfeited, the
Company shall, upon written request therefor, send a copy of the Plan, in its
then current form, to the holder of record of the Restricted Shares.
10. EMPLOYMENT OR CONTRACT RIGHTS. No provision of this Agreement
shall (a) confer upon Participant any right to continue in the employment of or
contract with the Company or any of its subsidiaries, (b) affect the right of
the Company and each of its subsidiaries to terminate the employment or contract
of Participant, with or without cause, or (c) confer upon Participant any right
to participate in any employee welfare or benefit plan or other program of the
Company or any of its subsidiaries other than the Plan.
11. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of California without
reference to choice or conflict of law principles.
4
<PAGE>
IN WITNESS WHEREOF, the Company and Participant have duly executed
this Agreement as of the Date of Award.
ALTRIS SOFTWARE, INC.
By
------------------------------
Title:
PARTICIPANT
--------------------------------
Signature
--------------------------------
Street Address
--------------------------------
City, State and Zip Code
--------------------------------
Social Security Number
5
<PAGE>
Exhibit 11
ALTRIS SOFTWARE, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income (loss) per consolidated
financial statements $ 2,350,000 $(11,830,000) $ 275,000
----------- ------------ -----------
----------- ------------ -----------
Primary net income (loss) per share:
Weighted average common shares 9,250,000 7,026,000 6,857,000
Common stock equivalents:
Common stock options 257,000 - 135,000
----------- ------------ -----------
Weighted average shares outstanding 9,507,000 7,026,000 6,992,000
----------- ------------ -----------
----------- ------------ -----------
Fully diluted net income (loss) per share:
Weighted average common shares 9,250,000 7,026,000 6,857,000
Common stock equivalents:
Common stock options 257,000 - 135,000
Non-common stock equivalents 223,000 - -
----------- ------------ -----------
Weighted average shares outstanding 9,730,000 7,026,000 6,992,000
----------- ------------ -----------
----------- ------------ -----------
Net income (loss) per share:
Primary $ .247 $ (1.68) $ .04
Fully diluted $ .242 $ (1.68) $ .04
</TABLE>
44
<PAGE>
Exhibit 21
LIST OF SUBSIDIARIES OF REGISTRANT
Altris Group, Ltd.
Altris Software Enterprises, Ltd
Trimco International, Ltd
Altris International, Ltd
Imagen Enterprises Ltd
Altris Software (Florida), Inc.
Micro Synergy Associates, Inc., a Florida corporation
Trimco Document Management, Inc.
Optigraphics Corporation, a California corporation
Optigraphics International Corporation, a California
corporation (a subsidiary of Optigraphics Corporation)
Alphamation Incorporated, a California corporation
45
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-43451, No. 33-77224 and No. 33-83330) of Altris
Software, Inc. of our report dated February 25, 1997, appearing on page 22 of
this Form 10-K.
/s/ PRICE WATERHOUSE LLP
San Diego, California
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON PAGES 23 AND 24
OF THE COMPANY'S FORM 10-K FOR THE YEAR ENDED 12/31/96 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,200
<SECURITIES> 0
<RECEIVABLES> 9,752
<ALLOWANCES> 0
<INVENTORY> 443
<CURRENT-ASSETS> 13,126
<PP&E> 7,259
<DEPRECIATION> 5,103
<TOTAL-ASSETS> 22,891
<CURRENT-LIABILITIES> 6,155
<BONDS> 0
0
0
<COMMON> 61,583
<OTHER-SE> (46,925)
<TOTAL-LIABILITY-AND-EQUITY> 22,891
<SALES> 24,511
<TOTAL-REVENUES> 24,511
<CGS> 9,704
<TOTAL-COSTS> 9,704
<OTHER-EXPENSES> 3,363
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (114)
<INCOME-PRETAX> 2,350
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,350
<EPS-PRIMARY> .247
<EPS-DILUTED> .242
</TABLE>
