<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-18090
------------------------
CAERE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN THE CHARTER:)
<TABLE>
<S> <C>
DELAWARE 94-2250509
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
100 COOPER COURT, LOS GATOS, CALIFORNIA 95030
(ADDRESS OF PRINCIPAL OFFICES)
------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 395-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on March
1, 1997, as reported by Nasdaq, was approximately $130,813,536.
The number of shares of the Registrant's Common Stock outstanding as of
March 1, 1997, was 12,692,097.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Definitive proxy statement filed with the Securities and Exchange
Commission relating to the Company's 1997 Annual Meeting of Stockholders to be
held May 13, 1997 (Part III of Form 10-K).
(2) Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1996 (Parts II and IV of Form 10-K).
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PART I
ITEM 1. BUSINESS.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this Item 1, the section
entitled "Risk Factors" and Item 7.
Caere(R) Corporation ("Caere" or the "Company") designs, develops,
manufactures, and markets optical character recognition (OCR) software and
hardware for converting scanned and faxed images into computer usable text, as
well as desktop forms and information management products. For many
applications, the Company's products provide a low cost accurate alternative to
manual data entry, which is slow, tedious, and error prone.
In December 1996, Caere acquired Recognita Rt. ("Recognita"), a Hungarian
corporation that provides OCR products. The acquisition was accounted for using
the purchase method of accounting, and, accordingly, the operating results of
Recognita are included in the consolidated results of the Company since the date
of acquisition.
TRANSITION OF BUSINESS MODEL
During 1996, Caere continued the transition of its business model due to
the changing dynamics of the marketplace. In the past, OCR was primarily a
"niche" market characterized by relatively high prices and low unit volumes.
Driven by the increased power of personal computers, new scanner products with
lower prices, continuing improvements in OCR accuracy, and the education of the
marketplace, scanning and OCR solutions continue to reach the mainstream.
In the fourth quarter of 1994, Caere began to "bundle" versions of its
OmniPage(R), OmniPage Limited Edition(TM), and WordScan(R) software recognition
products with scanner products from various manufacturers. The Company's
objective in bundling its software products with scanners was to expand the
overall market for OCR software by providing a larger number of scanner
purchasers with experience in the advantages of optical character recognition.
"Light" versions -- with limited capabilities -- are now bundled with most
scanners being sold. This aggressive seeding of the growing base of scanner
owners has greatly expanded the number of Caere product users. The success of
this business model, compared to Caere's former model of selling its software
primarily at higher prices with lower unit volumes, will depend upon a decision
by a significant proportion of customers who first receive OCR software in a
bundled form to upgrade to a newer or more fully featured version of the
Company's software. Such an upgrade is typically sold at a substantially lower
price than the price of a fully featured non-upgrade product.
The Company shipped more than 2,100,000 bundled units in 1996, compared to
approximately 1,200,000 bundled units in 1995. The "bundle and upgrade" business
model resulted in increased revenues and gross margin from software products in
1996 compared to 1995, and an increase of 67% in unit sales of combined software
products for the same comparison periods. The Company believes that bundles and
upgrades will become a larger portion of its total revenues and unit sales in
the future.
There can be no assurance that Caere's continued transition to the "bundle
and upgrade" business model will be successful and provide sufficient increases
in unit volume in the future to offset reduced per-unit revenue and gross
margin. In addition, customers using the bundled products may defer or forego
the purchase of Caere's more fully featured versions of OmniPage and WordScan
products if they find that the bundled products satisfy their recognition needs.
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PRODUCTS
The Company offers a product line designed to accommodate the diversity of
information and data entry requirements. Caere's products fall into two general
categories:
(1) SOFTWARE: Software products for the information management market that
offer a range of OCR, forms, and document management products that
provide personal computer users tools to manage, intelligently and
efficiently, the documents, images, forms and faxes that cross their
desktops.
(2) HARDWARE: Hardware products for the data capture market, which include
bar code scanners and OCR readers for transaction processing
applications such as high-volume data entry and check verification.
Customers of these products include retail establishments, government
agencies, banks, utility companies, and other organizations.
Additionally, the Millennium Series(R) provides both hardware and
software solutions for high-volume commercial OCR applications.
Caere's products can be used with a range of computer systems, such as IBM,
IBM-compatible, and Apple Macintosh personal computers. Each product is designed
to accomplish the same overall goal: to improve the speed, accuracy, and
simplicity of information management.
SOFTWARE PRODUCTS
OmniPage Professional(R)
Caere's flagship product, OmniPage Professional for Windows and Windows 95,
is a customizable, fully featured page recognition solution for power users.
OmniPage Pro(R) is designed for the text handling professional who needs more
than basic OCR capabilities. OmniPage Pro is an OCR product that allows the user
to recognize, edit, and save complex documents containing text and images in
their original, full page formats. Using Caere's True Page(R)technology, the
user can edit graphics contained on a recognized page simply by clicking on the
image. OmniPage Pro utilizes a combination of technologies, including neural
networks, linguistic analysis, character experts, and grayscale data to improve
accuracy on degraded documents.
OmniPage Professional for Macintosh includes all of the features found in
OmniPage Pro for Windows. It also offers many advanced System 7 capabilities,
including support of Publish, which allow users to scan a document once and
electronically publish it to subscribers on a network. The program also supports
Apple Events, which allows other software programs to access OmniPage Pro.
OmniPage Limited Edition
OmniPage Limited Edition is a limited feature version of OmniPage that
allows an end user to perform OCR on a scanned document and save the document to
a file. OmniPage Limited Edition is bundled with most scanners offered by the
Company's scanner partners. The product is designed to allow the scanner
purchaser to experience the advantages of optical character recognition in order
to encourage the purchaser to upgrade to a fully featured product.
OmniPage Direct(TM)
Rounding out the OmniPage product family is OmniPage Direct, a lower-cost,
easy to use version of OmniPage that scans text directly into a word processing
or spreadsheet program. OmniPage Direct offers direct access and input
capabilities from both Windows and Macintosh software, reducing the complexity
of scanning text and numbers into other applications.
WordScan Plus
WordScan Plus, developed by Calera, is a full-featured and accurate page
recognition product that integrates with the most popular products being used in
Windows. Features like OLE 2.0 support, drag and drop recognition capability,
and a Chameleon Toolbar(TM) that automatically takes on the look and feel of the
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user's office suite enable WordScan Plus to benefit from popular Windows
programs. WordScan Plus directly integrates with all leading office suites, word
processors, electronic mail systems, and facsimile applications.
Recognita Plus(R)
Recognita Plus, developed by Recognita, is a leading, full-featured,
multilingual, and font-independent OCR software product that integrates with
most popular word processing, desktop publishing, and spreadsheet applications
available for Windows. Recognita Plus includes Self Assertion Technology(TM),
which provides improved character recognition using a two-step reading process.
Recognita Plus also provides OCR training for use on severely degraded documents
or stylized typefaces. The product can also recognize text in more than 100
languages with the addition of its Language Enhancement(TM) Package.
PageKeeper(R)
PageKeeper, a document management software solution, incorporates leading
technology such as "weighted relevance searching" and "document similarity" as
it examines the content of the documents under review. PageKeeper takes
information from a local hard disk, network, or scanner and creates a
supercompressed database of both text and images. PageKeeper incorporates the
OmniPage AnyFont(R) recognition capability to convert scanned documents into
computerliterate files automatically. Because PageKeeper stores both text and
images, users can electronically file documents in their original format.
Magazine articles with charts and graphs, datasheets with illustrations, or
letters with signatures can be stored using minimal disk space. PageKeeper
automatically indexes the database, eliminating the need to manually index or
assign keywords to the information. It presents the results of search requests
in the order of relevance to original search requests using its weighted
relevance retrieval feature.
OmniForm(R)
OmniForm converts paper forms to electronic forms with the click of a
button. OmniForm creates an electronic version using some of Caere's OCR
technologies by simply scanning or faxing documents into a computer. OmniForm
users also can design their own forms, complete with fonts, graphics, and logos,
using the custom toolset and Form Assistant(TM). In addition, OmniForm allows
for efficient completion and processing of forms by accepting input, performing
calculations, validating entries and creating databases which can be searched,
sorted, imported, and exported to popular database applications.
OmniForm Internet Publisher(TM)
OmniForm Internet Publisher is the first paper-to-electronics forms
solution for intranets and the Internet. The product converts existing paper
forms to electronic versions, retaining and recognizing the various form
elements on the form, bridging the gap between the paper world and the
electronic world. The product allows users to save the forms to a variety of
Web-ready formats incorporating such form intelligence as field validation and
calculations, so that companies can collect and distribute data-associated
business transactions such as invoices, purchase orders, expense reports, or
questionnaires.
License of Technology
In addition to the application products described above, Caere continues to
license its OCR technology to a broad range of computer equipment manufacturers,
systems integrators, and developers for inclusion as components in more complex
end user products, including document management and retrieval systems, forms
processing systems, resume screening systems, and standalone systems.
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The chart below shows system requirements and suggested retail price for
the Company's significant software products.
SELECTED SOFTWARE PRODUCTS
<TABLE>
<CAPTION>
PRODUCT SYSTEM REQUIREMENTS SUGGESTED RETAIL PRICE*
- ---------------------------- -------------------------------------------- -----------------------
<S> <C> <C>
OmniPage Pro - Windows 80386 or above based personal computer, 8 MB
RAM, 20 MB disk space, Microsoft Windows 3.1
or later $ 695
OmniPage Pro - Mac Macintosh computer with 68020 processor or
above, 8 MB RAM, 8 MB disk space, System 7.0
or above $ 695
OmniPage Pro - Windows 80386 or above based personal computer, 8 MB
Retail Upgrade RAM, 20 MB disk space, Microsoft Windows 3.1
or later $ 129**
OmniPage Pro - Mac Macintosh computer with 68020 processor or
Retail Upgrade above, 8 MB RAM, 8 MB disk space, System 7.0
or above $ 149**
WordScan Plus - Windows 80386 or above based personal computer, 4 MB
RAM, 13 MB disk space, Microsoft Windows 3.1
or later $ 595
Recognita Plus - Windows 80386 or above based personal computer, 4 MB
RAM, 10 MB disk space, Microsoft Windows 3.1
or later $ 695
Recognita Plus - Windows 80386 or above based personal computer, 4 MB
Retail Upgrade RAM, 10 MB disk space, Microsoft Windows 3.1
or later $ 199**
PageKeeper Personal(TM) - 80386 or above based personal computer, 8 MB
Windows RAM, 15 MB disk space, Microsoft Windows 3.1
or later $ 195
OmniForm - Windows 80386 or above based personal computer, 8 MB
RAM, 8 MB disk space, Microsoft Windows 3.1
or later $ 349
OmniForm - Mac Power Macintosh or Macintosh computer with
68020 processor or above, 12 MB RAM, 10 MB
disk space, System 7.1 or above $ 199
OmniForm Internet Publisher 80486 or above based personal computer, 12
MB RAM, 8 MB disk space, Microsoft Windows
95 or NT 4.0 or later $ 895
</TABLE>
- ---------------
* Suggested Retail Price as of March 1, 1997.
** Estimated Retail Price as of March 1, 1997.
Note: All Caere products support a wide range of output file formats and
scanners. Output file formats include, but are not limited to: WordPerfect,
Microsoft Word for Windows, Lotus 1-2-3, and Microsoft Excel. Supported scanners
include, but are not limited to: Hewlett Packard, Microtek, Epson, Apple, Canon,
and Fujitsu.
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PAGE RECOGNITION PROCESS
The process by which Caere's recognition products recognize text involves
converting the electronic output of a scanner into computer usable files through
a series of complex software algorithms. The electronic image produced by the
scanner is comprised of white or black picture elements (pixels), usually 90,000
pixels per square inch, each rendered to the computer as a 0 or a 1,
representing either a white or a black pixel. Before the application of
recognition products such as OmniPage, a scanner's electronic output could be
displayed and manipulated only as an image on a computer's monitor; the computer
did not recognize that image as a data file usable in an application program
such as a word processor or spreadsheet.
The graphic below illustrates the process by which scanned text or numeric
data is converted into computer usable form by the Company's OmniPage, WordScan,
and Recognita products.
[ARTWORK HERE]
Caere's products recognize an image in two steps. First, they analyze the
image of the page to determine which parts are text and numeric data and
determine the structure of the page layout. Tables, columns, and paragraphs are
identified and located. They then examine and identify the characters and
produce a file of the character data contained in words, including page
formatting information such as tables, columns, paragraphs, spacing, bold,
italics, and underlines that are necessary to allow manipulation of the data as
a text file.
OmniPage Pro employs a combination of technologies, referred to as Caere's
3D OCR(TM) and AnyFont technologies, to achieve the highest degree of accuracy
on many different types of documents. OmniPage Pro is the first OCR product to
utilize grayscale information to analyze characters the way a human eye does.
Character experts view certain character attributes like a closed loop or
crossed downward stroke to identify the unique set of features inherent in each
character. Neural networks have been developed on powerful mainframe computers
to "learn" what makes up one character versus another, a methodology known as
"feature recognition." Caere's page recognition products analyze each character
image according to proprietary algorithms. Feature recognition enables the
OmniPage products to provide the AnyFont capability that recognizes text in
almost any type style and size.
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HARDWARE PRODUCTS
OCR Systems
Caere has produced high-quality handheld and slot-reader OCR systems since
1977. This line of data capture OCR systems reads single lines of characters.
These desktop systems --consisting of an input device, such as a wand,
slotreader or motorized slot-reader, a controller, and an interface cable-- are
designed for transaction processing applications that do not require variable
font recognition technology, but demand extremely high accuracy. Common
applications involve entering customer account numbers or data from billing
documents into a computer. Caere's systems accelerate transaction processing,
while reducing operator fatigue and key entry errors.
Caere's 800 Series Combo Reader, which works with a wide variety of
computers, integrates OCR, bar code, and magnetic stripe reading capabilities in
a single unit. This provides cost-effective and versatile functionality for a
wide range of applications in remittance processing, banking, and point-of-sale
environments. The 800 Series is also widely used by government organizations,
post offices, and the public utility industry. The U.S. Government, for example,
creates military rosters by reading social security numbers, post offices scan
certified mail article numbers, and Caere's electric, gas, and telephone utility
customers use the 800 Series to accelerate payment processing.
In 1996, Caere introduced the Model 1200 Travel Document Reader(TM), a
product designed specifically to read passports, identity cards, and other
machine readable travel documents that meet certain industry standards. The
Travel Document Reader employs Caere's exclusive Quadratic Neural Network(TM)
OCR technology, which improves recognition accuracy by plotting dozens of
properties of each character on a multidimensional map. Adding a 32-bit
microprocessor and programmable Flash memory, the Travel Document Reader offers
accuracy, speed, and program flexibility in a compact package.
Caere's 1500 Series Document Processor has all the capabilities of the 800
Series, but processes documents in batches at a rate of over 3,000 per hour. It
is the smallest desktop reader/sorter of its type, with many features only found
on high-end machines.
Historically, a significant portion of Caere's OCR data capture business
has been the result of original equipment manufacturer (OEM) sales; that is,
sales to firms that purchase Caere's OCR data capture technology and then
integrate it into their own products.
Bar Code Systems
Bar code readers recognize documents printed with series of vertical bars
and spaces that represent data. They are used in high-volume transaction
processing applications, such as point-of-sale operations, where human
readability of data is not necessary. Bar code systems tolerate lower-quality
media than limited-font OCR systems, and are typically less expensive than OCR
systems. Caere's bar code product line, introduced in 1983, includes both
stand-alone decoders that can be attached externally to personal computers, and
internal board-level decoders used in personal computers for cost and space
savings.
Caere bar code products cater to the higher-end of the market with
feature-rich decoders and one of the industry's first five-year warranties.
Caere's decoders are used in manufacturing, retail point of sale, inventory,
asset tracking, and a myriad of applications where value added resellers need
more functionality from bar code readers than just decoding.
Caere's Easy-Scanner(TM) 1000 and 2000 Series bar code systems are
decoder/wedges that can accommodate several input devices and connect easily to
keyboard ports for simple interfacing to over 350 different types of computers
and terminals. With three input ports, these decoder/wedges can accept input
from a bar code wand, CCD, laser, badge reader, or magnetic stripe reader and/or
serial data from portable data terminals and scales. Any data received can be
filtered for acceptance, then transmitted, re-formatted, or rejected to fit the
host application with over 90 built-in data editing commands. The Easy-Scanner
also features multiple output ports to accommodate a variety of interfaces such
as RS-232, parallel, and over 350 keyboard wedge protocols.
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The Model 1731 Integrated Laser, one of the most versatile and effective
bar code scanners on the market today, combines most of Caere's interfacing and
data editing features with a high-performance handheld laser scanner from PSC,
Inc., a leading bar code laser manufacturer.
M/Series II OCR Accelerator Board
An OCR accelerator board available for Windows 3.1x and Windows 95 PC
users. Supported by the M/Series Professional application software and through
Caere's Professional Developer's Kit 6.1, the M/Series II OCR Accelerator Board
converts images into text at throughput rates of up to 750 pages per hour or
three times faster than the previous board from Caere. For even faster
throughput, multiple M/Series II OCR Accelerator Boards can be run in parallel
in the same PC. The M/Series II OCR Accelerator Board includes the new M/Text
OCR Engine, which reduces errors by as much as 50 percent from previous
releases.
M/Series Professional OCR Server for Windows NT
A software application that runs on a Windows NT Server and/or workstation
and manages M/Series Professional scan, zone, edit and export functions from
Windows 3.1x and Windows 95 clients on a network. Rapid image to text conversion
(OCR) is performed on the server, using highly accurate single or multiple
M/Text OCR software engines.
M/Series Professional Software-Windows 3.1 and Windows 95
Available for use with the M/Series II OCR Accelerator Board, the M/Series
Professional software allows users on a network to simultaneously capture
documents, zone fields or templates, edit text created by the OCR process and
export files to popular output file formats.
Professional Developer's Kit 6.1
Available as a set of DLLs, VBXs and OCXs for Microsoft Visual Basic and
Microsoft Visual C/C++ developers, the Professional Developer's Kit 6.1 uses a
similar API to previous Caere/Calera Developer's Kits, allowing programmers
commonality in function calls from previous releases. New features supported in
the 6.1 release include the ability to get character choices and recognition
confidence level values. Also included with the Professional Developer's Kit 6.1
is a copy of the new M/Text OCR engine, with support for 13 different languages.
The kit contains both 16-bit and 32-bit libraries.
Visual Developer's Kit 6.1
A subset of the Professional Developer's Kit 6.1, the Visual Developer's
Kit contains the VBXs and OCXs for developers who program in the Microsoft
Visual Basic environment.
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The chart below shows typical applications, features, available interfaces,
and input devices for selected Caere OCR and bar code transaction processing
products.
<TABLE>
<CAPTION>
AVAILABLE
PRODUCTS TYPICAL APPLICATIONS FEATURES INTERFACES INPUT DEVICES
- --------------------- --------------------------- ------------------ ------------------ --------------
<S> <C> <C> <C> <C>
OCR
800 Series OCR/Bar Point of sale Reads the Apple Macintosh Handheld wand
Code Combo, 1500 Remittance processing following fonts: AT&T Fixed slot
Series Document Document control OCR-A Full Burroughs Fixed mount
Processor Manufacturing applications Alphanumeric DEC CCD scanner
Hospitals OCR-A Eurobanking IBM Magnetic
Banking OCR-B ECMA11 IBM PC and stripe
Government OCR-B Eurobanking compatibles Bar code pen
Office file tracking E13B (MICR) ITT Badge reader
Postal PostNET Etc. (over 350)
Most one-
dimensional bar
code symbologies
Dual-track
magnetic stripe
Fully user
programmable
BAR CODE
1000 Series, Manufacturing applications Reads and Apple Macintosh Wand
1700 Series, Inventory control autodiscriminates AT&T Slot
2000 Series Work-in-process tracking the following DEC Laser scanner
Shop floor control symbologies: Code IBM CCD scanner
Warehousing 39, Code 128, IBM PC and Magnetic
Point of sale Codabar, compatibles stripe
Hospital health industry Interleaved 2 of ITT Badge reader
Video cassette rental 5, UPC, EAN and Memorex
Government MSI Plessey NCR
Document tracking Fully user UNISYS
programmable Wyse
Dual-track Etc. (over 300)
Magnetic stripe
</TABLE>
DISTRIBUTION AND SUPPORT
Domestically, the Company markets its software products through
distributors, including Ingram Micro, Merisel, Tech Data, computer superstores
such as Best Buy, CompUSA, Computer City, and Egghead, mail order houses
including PC Connection, MicroWarehouse, and Computer Discount Warehouse, and
office superstores such as OfficeMax and Office Depot. Caere also markets its
software products directly to end user customers by outsourcing telemarketing
and order fulfillment services to Softbank Services Group. High-speed and
integrator products are primarily sold through Law Cypress Distributing Company,
which works with the Company to serve value-added resellers and systems
integrators of imaging products.
Sales of software products to Ingram Micro represented approximately 28%,
22%, and 23% of the Company's net revenues during 1996, 1995, and 1994,
respectively. Sales of software products through Softbank Services Group
represented approximately 15%, 9%, and 2% of the Company's net revenues during
1996, 1995, and 1994, respectively. Should either of these customers have a
significant change in its quarterly buying pattern or its financial condition,
the Company could experience a material adverse impact on its business and
financial results. In addition, there are increasing numbers of companies
competing for access to distribution channels, and distributors and retailers
often carry competing products. Retailers of Caere's products typically have a
limited amount of shelf space and promotional resources for which there is
intense competition. There can be no assurance that distributors and retailers
will continue to provide the Company's products with adequate levels of shelf
space and promotional support. Failure to do so would have a material adverse
effect on the Company's results of operations.
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The Company markets its transaction processing OCR and bar code products
primarily through independent distributors, value-added resellers ("VARs"), and
hardware OEMs. The Company's agreements with OEMs typically grant an OEM the
right to distribute the Company's products with the OEMs' microcomputers and
other data collection equipment. VARs purchase the Company's products and
incorporate them into systems integrated with the products of other
manufacturers.
Internationally, the Company's products are sold through distributors. At
December 31, 1996, the Company had distributors servicing Western and Eastern
Europe, Canada, Australia, New Zealand, South Korea, Mexico, and Japan. The
Company's international revenues are subject to certain risks, such as export
controls, import restrictions, and other governmental regulations. The Company
is not currently affected adversely by such controls or regulations and is not
aware of pending changes in export regulations that would adversely affect its
international business or its ability to collect foreign receivables.
International revenues in 1996, 1995, and 1994 were approximately $16,391,000,
$15,154,000, and $18,125,000, respectively. In most cases, the Company bills its
international customers in U.S. dollars; therefore, such revenues are not
subject to foreign currency fluctuations. However, fluctuations in exchange
rates could affect demand for the Company's products by causing their prices to
be out of line with products priced in the local currency. The Company's
international revenues are subject to certain risks, such as export controls,
import restrictions, longer payment cycles, greater difficulties in accounts
receivable collections, and the requirement of complying with a wide variety of
foreign laws. Although Caere has not previously experienced any difficulties
under foreign law in exporting its products to other countries, there can be no
assurance that the Company will not experience such difficulties in foreign
countries in the future. Any such difficulties would have a material adverse
effect on the Company's international sales. The Company is not currently
affected adversely by such controls or regulations and is not aware of pending
changes in export regulations that would adversely affect its international
business or its ability to collect foreign receivables.
The Company's agreements with its distributors generally provide for a
limited right of return, with the distributor receiving full credit for the
product's purchase price, less any discounts, against a purchase order of equal
or greater value. The Company monitors its returns and records provisions for
estimated returns as shipments are made. During 1996, 1995, and 1994, returns
represented 3.2%, 3.7%, and 4.3% of revenues, respectively. Although Caere
believes that it provides adequate allowances for returns, there can be no
assurance that actual returns will not exceed the Company's allowances. Any
product returns in excess of recorded allowances could result in a material
adverse effect on operating results of the Company.
The Company has a domestic sales and support staff of 50 employees located
throughout the United States. During 1992, the Company established a European
sales office, Caere GmbH, in Munich, Germany. In December 1996, the Company
acquired Recognita Rt., a Hungarian provider of OCR and forms software
solutions. Domestically, information management customers who register with the
Company currently receive limited hotline technical support and product
information at no cost. Additional technical support services are available on a
"fee for support" basis thereafter. Outside of the U.S., information management
customers currently receive technical support from a variety of Caere partners
on a non-fee basis. The Company warrants to end users that software disks are
free from media defects for three months. OCR and bar code hardware customers
receive free telephone support, including assistance with installation,
programming, and trouble shooting. OCR hardware products are warranted for one
year, while bar code hardware products are warranted for between one and five
years. In addition, the Company provides hardware customers with spare parts and
repair services. OCR and bar code hardware customers also may purchase annual
service contracts under which the Company performs service work as needed for
the duration of the service contract.
COMPETITION
The information management market is highly competitive and subject to
rapid change along with constant pressure to reduce prices. The Company believes
that the principal competitive factors in the software products market include
accuracy, ease of understanding and use, product reliability, tolerance for poor
media, product features and functions, price/performance characteristics, brand
recognition, and quality of product support. Caere's competition within the
microcomputer software industry ranges from large
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corporations to small independent software vendors. Caere also expects to
encounter continued competition both from established companies and from new
companies that are now developing, or may develop, competing products.
Competition in the software products market can be grouped into the following
categories:
The OmniPage, WordScan, and Recognita families of page recognition products
contend with competition in two markets. First, several companies offer packaged
OCR application programs through the retail distribution channel. These include
Xerox Imaging Systems and several small independent software vendors. The
Company faces significant price competition in the retail channel. The second
competitive market for the OmniPage family of recognition products is the OEM
and reseller market in which companies license OCR technology to incorporate
into different application software products or "bundle" the technology with
related hardware products such as scanners or fax modems. Competitors include
Xerox Imaging Systems and several small independent software vendors. The
Company experiences significant price competition in the OEM market and expects
this to continue. In addition, the "bundled" OCR products themselves present
competition to the Company's fully featured shrinkwrap product.
PageKeeper has several direct competitors offering competing products in
the growing desktop document management market. These competing products
include, but are not limited to, PaperPort Deluxe by Visioneer, Paper Master by
Documagix, and Pagis by Xerox Imaging Systems. With decreasing scanner prices
driving affordable scanning solutions into the mainstream, Caere expects to face
increasing competition in this product category from a variety of software
developers in the future.
OmniForm competes against various products in the electronic forms market.
In the forms creation segment, where OmniForm's technology takes an existing
paper form and converts it into an electronic version, OmniForm has no
competition. In the forms design and print segment of the electronic forms
market, OmniForm competes with products such as Form Tool Gold by IMSI. In the
form filling and submit segment of the electronic forms market, OmniForm
competes with products including JetForm and FormFlow by JetForm. And finally,
in the Internet/intranet publish and submit segment of he electronic forms
market, OmniForm competes only with JetForm by JetForm.
The Company believes that the principal competitive factors in the hardware
products market include accuracy, tolerance for poor media, product features and
functions, and reliability. Price is also an important factor in the bar code
market. The major competition in the OCR segment of the Company's hardware
business is Siemens CGK. In the bar code segment of the hardware business there
are numerous competitors, including Symbol Technologies.
Many of the Company's competitors have substantially greater financial,
marketing, recruiting and training resources than the Company. There can be no
assurance that the Company will be successful in competing in the information
management market.
PRODUCT DEVELOPMENT
The development and enhancement of the Company's OCR and desktop document
management products have historically absorbed and are expected to continue to
consume the greatest part of the Company's development effort. The Company
believes that it must continue to upgrade and enhance its existing products to
ensure that its products remain competitive.
Certain products sold by the Company through its Caere Affiliate
Publishing(TM) (CAP) program are developed by and remain the property of third
parties. Caere maintains exclusive rights to market those products for the term
of the license agreement in exchange for a royalty. Currently, OmniForm is the
only Caere product being sold through the CAP program.
During 1996, 1995, and 1994, research and product development expenses were
approximately $7,069,000, $7,915,000, and $9,072,000, respectively. In addition
to internal product development, the Company incorporates software produced by
other companies into its products. All such incorporation or use is pursuant to
licensing agreements. See also "Product Protection." There can be no assurance
that the
10
<PAGE> 12
research and development expenses incurred will not exceed development budgets
or that new products will achieve market acceptance and generate sales
sufficient to offset development costs. There also can be no assurance that such
license agreements for incorporated third party software will continue to be
available to the Company on acceptable terms.
From time to time, the Company has experienced delays in product
development and "debugging" efforts, and could experience such delays in the
future. Significant delays in developing, completing, or shipping new or
enhanced products could materially adversely affect the Company's financial
results. Furthermore, as the Company's products become more complex, development
cycles become longer and more expensive. There can be no assurance that the
Company will be able to respond effectively to technological changes or new
product announcements by others, or that the Company's product development
efforts will be successful.
INVESTMENT IN ZYLAB INTERNATIONAL, INC.
In November, 1995, Caere invested $2.4 million for a 19.9% ownership stake
in ZyLAB International, Inc. ("ZyLAB") with an option to purchase the remaining
81.1%. ZyLAB is a developer of full text indexing and retrieval software that
simplifies the process of searching large volumes of information from a variety
of sources. Due to ZyLAB's failure to achieve its business plan, Caere recorded
a one-time charge of $2,616,000 to write-down its investment in ZyLAB in 1996.
BACKLOG
The majority of the Company's net revenues in a particular quarter has
typically resulted from orders booked in that quarter. The Company considers
backlog to be orders received and due to be filled within six months. Orders
included in backlog typically may be canceled or rescheduled by customers
without significant penalty. The Company's backlog at December 31, 1996, was
approximately $694,000, as compared to backlog at December 31, 1995, of
approximately $449,000. Backlog primarily represents orders for the Company's
hardware products, which represented approximately 16% of net revenues during
each of 1996 and 1995. There is typically little or no backlog for the Company's
software products, as these products ship as soon as orders are received.
Backlog as of any particular date should not be relied upon as indicative of the
Company's net revenues for any future period.
MANUFACTURING AND SUPPLIERS
The Company's manufacturing operations for its OCR and bar code business
products and its M/Series Professional Card Systems consist of final assembly,
test, burn in, and quality control for its systems, subassemblies, and
components. Components for products are procured by the Company and then
supplied to third party contractors. Many of these components are tested and
burned in prior to delivery to contractors to reduce failure rates. Major
subassemblies such as printed circuit boards are contracted to third parties for
assembly and initial testing.
Most of the components used in the manufacture of the Company's products
are available from multiple sources of supply. Certain components used in the
manufacture of the Company's OCR products are currently available only from a
single source. Although the Company generally maintains a several-month
inventory level of these components, failure of a single-source supplier to
deliver required quantities of such materials could materially and adversely
affect the Company's operating results. The Company believes that, if necessary,
it could develop alternative sources of supply for these components and parts,
or re-engineer the products. However, any delays in developing such alternative
sources of supply or in the re-engineering of the products could have a material
adverse effect on the Company's results of operations.
11
<PAGE> 13
PRODUCT PROTECTION
The Company relies upon proprietary technology, trade secrets, know-how,
continuing technological innovations and licensing opportunities to maintain its
competitive position. The Company attempts to protect its technology and trade
secrets with patents, copyrights, trade secret laws, technical measures and non-
disclosure agreements. The Company's policy is to file patent and copyright
applications to protect technology, inventions and improvements that are
important to the development of its business. The Company has been issued a
series of patents which directly relate to its products. Assurance cannot be
given, however, that any patents issued to the Company will not be challenged,
invalidated or circumvented or that the rights granted by the patents will
provide competitive advantages to the Company.
In order to protect its ownership rights in its software products, the
Company licenses such products to OEMs and resellers on a non-exclusive basis
with contractual restrictions on reproduction, distribution and transferability.
In addition, the Company generally licenses its software in object code form
only. The Company licenses its software products to end users by use of a
"shrink-wrap" customer license that restricts the end user to personal use of
the product. Despite these contractual restrictions, it may be possible for
competitors or users to illegally copy the software or obtain information which
the Company regards as proprietary.
The Company also relies on trade secrets and proprietary know-how. The
Company has been, and will continue to be, required to disclose its trade
secrets and proprietary know-how to employees and consultants. Although the
Company seeks to protect its trade secrets and proprietary know how by entering
into confidentiality agreements with such persons, there can be no assurance
that these agreements will not be breached, that the Company would have an
adequate remedy for any breach, or that the Company's trade secrets will not
otherwise become known or be independently discovered by competitors.
Because of technological developments in the industry in which the Company
markets its products, it is possible that certain of the Company's products may
infringe third party proprietary rights. From time to time the Company has
received, and in the future may receive, notices of claims of infringement. In
response to these claims, the Company may have to obtain licenses for an
allegedly infringing product or stop selling such product and be liable for
damages. However, there can be no assurance that any required licenses or rights
could be obtained on commercially reasonable terms.
In addition, Caere has developed products in the past that incorporate
technology based on licenses received from third parties. The Company's ability
to continue to develop and commercialize its products will be affected by its
ability to renew existing technology licenses and to obtain technology licenses
from third parties in the future. There can be no assurance that the Company
will be able to renew its current licenses or obtain any necessary licenses in
the future. The failure to renew existing licenses or to obtain any licenses
that may be required in the future could have a material adverse effect on the
Company.
Policing unauthorized use of technology is difficult, especially in the
software industry. Software piracy can be expected to be a persistent problem
for the software industry for the foreseeable future. Such piracy can be
particularly egregious in international markets in which the Company distributes
its products. The Company believes that, due to the rapid pace of technological
change in the industry, factors such as knowledge, ability, frequent product
enhancements, timeliness and quality of product support and the experience of
the Company's employees are more significant as a means to protect the Company's
competitiveness than patent, copyright and trade secret protection.
EMPLOYEES
As of December 31, 1996, Caere employed 272 people. None of the Company's
employees is represented by a labor union. The Company has experienced no work
stoppages and believes that its employee relations are good. The Company has
utilized the services of consultants, third-party developers, and other vendors
extensively in its sales, development, and manufacturing activities.
12
<PAGE> 14
Competition in the recruiting of personnel in the computer and data
recognition industry is intense. The Company believes that its future success
will depend in part on its continued ability to hire and retain qualified
management, marketing, technical employees, and independent contractors. There
can be no assurance that the Company will be able to attract and retain enough
qualified employees. Caere does not carry any key person life insurance with
respect to any of its personnel.
RISK FACTORS
Fluctuating Revenues and Operating Results
Caere's revenues and operating results have fluctuated in the past and the
Company's future revenues and operating results are likely to do so in the
future, particularly on a quarterly basis.
Caere's experience has been that a disproportionately large percentage of
shipments has occurred in the third month of each fiscal quarter and that
shipments tend to be concentrated in the latter half of that month. Backlog
early in a quarter is not generally large enough to assure that Caere will meet
its revenue target for any particular quarter. A shortfall in shipments at the
end of any particular quarter may cause the results for that quarter to fall
significantly short of anticipated levels.
The Company's quarterly operating results may continue to fluctuate due to
numerous other factors. Some of these factors include the demand for the
Company's products, seasonality, customer order deferrals in anticipation of new
versions of the Company's products, the introduction of new products and product
enhancements by the Company or its competitors, including the effects of filling
the distribution channels following such introductions and of potential delays
in availability of announced or anticipated products, price changes by the
Company or its competitors, product sales mix, timing of acquisitions and
associated costs, and timing of significant marketing and sales promotions.
Lack of Product Revenue Diversification
Caere derived approximately 72% of sales in 1996 and 69% of sales in 1995
from the OmniPage and WordScan line of products. Caere expects that these
software products will continue to account for a majority of the Company's sales
in the future. A decline in demand for these products as a result of
competition, technological change or other factors would have a material adverse
effect on the Company's results of operations.
Mature Markets for Certain OCR Products
For fiscal years ended December 31, 1996, 1995, and 1994, Caere derived
approximately 14%, 23% and 15%, respectively, of its net revenues from sales of
its transaction processing OCR and bar code products. The market for both of
these sets of products is relatively mature and may not be subject to growth or
expansion by the Company in the future. There can be no assurance that Caere's
hardware-based transaction processing products will continue to be a significant
source of net revenues for the Company.
Possible Volatility of Caere Stock Price
The market prices for Caere's Common Stock have fluctuated widely in the
past. The management of Caere believes that such fluctuations may have been
caused by announcements of new products, quarterly fluctuations in the results
of operations, and other factors including, but not limited to, changes in
conditions of the personal computer industry in general. Stock markets have
experienced extreme price volatility in recent years. This volatility has had a
substantial effect on the market prices of securities issued by Caere and other
high technology companies, often for reasons unrelated to the operating
performance of the specific companies. Caere anticipates that the market price
for its Common Stock may continue to be volatile. Such future stock price
volatility for Caere Common Stock may provoke the initiation of securities
litigation, which may divert substantial management resources and have an
adverse effect on Caere and its results of operations.
13
<PAGE> 15
Effect of Antitakeover Provisions of Delaware Law and Caere's Charter
Documents
Caere is a corporation organized under the laws of the state of Delaware.
Certain provisions of the Delaware Law and the charter documents of Caere may
have the effect of delaying, deferring or preventing changes in control or
management of Caere. Caere is subject to the provisions of Section 203 of the
Delaware Law, which has the effect of restricting changes in control of a
company. In addition, Caere's Board of Directors is divided into three separate
classes. In addition, Caere's Board has the authority to issue up to 2,000,000
shares of Preferred Stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of such shares without any further vote
or action by its stockholders. Caere also has a Preferred Share Purchase Rights
Plan. The antitakeover protections of Delaware Law, the Caere charter documents,
and the Preferred Share Purchase Rights Plan could make it more difficult for a
third party to acquire, or could discourage a third party from acquiring, a
majority of the outstanding stock of the Company.
ITEM 2. PROPERTIES.
The Company's principal administrative, marketing, manufacturing, and
product development facilities consist of approximately 56,000 square feet in
two buildings in Los Gatos, California. The Company occupies this space under a
lease agreement that expires in 2002. In addition, the Company leases office and
storage space in four locations in the United States for use by its regional
field sales and support staff. Caere GmbH also leases office space in Munich,
Germany, for its operations, while Recognita leases office space in Budapest,
Hungary. The Company believes that its existing facilities are adequate for its
needs for at least the next twelve months.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in certain claims arising in the normal course of
business. The extent to which these matters will be pursued by the claimants or
the eventual outcome is not presently determinable. However, Company management,
after review and consultation with the Company's counsel, believes that the
ultimate resolution of these matters will not have a material adverse effect on
its consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Incorporated by reference to the section of the Company's 1996 Annual
Report to Stockholders entitled "Quarterly Results of Operations," page 31.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference to the section of the Company's 1996 Annual
Report to Stockholders entitled "Financial Highlights," on the inside front
cover.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference to the section of the Company's 1996 Annual
Report to Stockholders entitled "Management's Discussion and Analysis," pages 12
through 17.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated by reference to the sections of the Company's 1996 Annual
Report to Stockholders entitled "Financial Statements," pages 18 through 32.
14
<PAGE> 16
Supplementary data for the year ending December 31, 1995, is as follows:
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
1995, QUARTER ENDED YEAR
------------------------------------------- ENDED
MAR 31 JUN 30 SEP 30 DEC 31 DEC 31
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues............................. $12,224 $13,172 $13,057 $13,486 $51,939
Gross margin............................. 8,530 8,976 8,680 8,669 34,855
Earnings before income taxes............. 665 811 1,075 269 2,820
Net earnings............................. 499 756 914 228 2,397
Net earnings per share................... $ .04 $ .06 $ .07 $ .02 $ .18
Shares used in per share calculations.... 13,688 13,385 13,608 13,456 13,538
Common stock price per share:
High................................... $ 18.13 $ 10.06 $ 12.75 $ 10.50 $ 18.13
Low.................................... 9.25 8.00 8.50 7.13 7.13
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference to the sections of the Company's definitive proxy
statement for the 1997 Annual Meeting of Stockholders to be held May 13, 1997,
entitled "Election of Director" and "Management."
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the sections of the Company's definitive proxy
statement for the 1997 Annual Meeting of Stockholders entitled "Executive
Compensation" and "Compensation of Directors."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to the section of the Company's definitive proxy
statement for the 1997 Annual Meeting of Stockholders entitled "Security
Ownership of Management and Principal Stockholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to the section of the Company's definitive proxy
statement for the 1997 Annual Meeting of Stockholders entitled "Executive
Compensation," "Compensation of Directors," "Stock Option Grants and Exercises,"
and "Certain Transactions."
15
<PAGE> 17
PART IV
ITEM 14. BITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) 1. INDEX TO FINANCIAL STATEMENTS
The following documents are incorporated in Part II of this Annual Report
by reference to the 1996 Annual Report to Stockholders:
<TABLE>
<CAPTION>
ANNUAL REPORT TO
STOCKHOLDERS
-----------------
<S> <C>
Consolidated Balance Sheets as of December 31, 1996 and
1995..................................................... Page 18
Consolidated Statements of Earnings for each of the years
in the three-year period ended December 31, 1996......... Page 19
Consolidated Statements of Stockholders' Equity for each of
the years in the three-year period ended December 31,
1996..................................................... Page 20
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 31, 1996......... Page 21
Notes to Consolidated Financial Statements................. Pages 22-31
Independent Auditors' Report............................... Page 32
</TABLE>
With the exception of the information expressly incorporated by reference
into Items 5, 6, 7, and 8 of this Annual Report, the 1996 Annual Report to
Stockholders, attached as Exhibit 13.1, is not deemed filed as part of this
report.
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed as a part of this
Annual Report and should be read in conjunction with the Financial Statements:
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not required, or not
applicable, or because the required information is included in the 1996 Annual
Report to Stockholders, filed as Exhibit 13.1.
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of October 14, 1994, between the
Company and Calera Recognition Systems, Inc.
3.1 Certificate of Incorporation of the Company (exhibit 3.4)(1)
3.2 (i) Certificate of Amendment filed with the Delaware Secretary of State October 13,
1994(5)
3.3 (ii) Agreement of Merger between the Caere Acquisition Corporation and Calera
Recognition Systems, Inc. as filed with the California Secretary of State December
20, 1994(1) (Exhibit 3.5)(5)
3.4 By-laws of the Company
4.1 Reference is made to Exhibits 3.1 and 3.2
*10.1 1981 Incentive Stock Option Plan, as amended, and related form of incentive stock
option agreement
*10.2 1981 Supplemental Stock Option Plan, as amended, and related form of supplemental
stock option agreement
10.3 Lease Agreement for 100 Cooper Court, dated November 27, 1991 between the Company
and Vasona Business Park(6)
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <S>
10.4 Lease Agreement for 104 Cooper Court, dated November 27, 1991 between the Company
and Vasona Business Park(6)
10.5 Form of Indemnity Agreement between the Company and its officers and directors
(exhibit 10.12)(1)
*10.6 Employee Stock Purchase Plan
*10.7 1992 Officer Bonus Plan (exhibit 10.9)(3)
*10.8 1992 Non-Employee Directors' Stock Option Plan
10.9 Preferred Share Purchase Rights Plan (exhibit 1)(2)
*10.10 Executive Compensation and Benefits Continuation Agreement, Robert G. Teresi,
dated December 28, 1994. (4)
11.1 Statement regarding computation of net earnings (loss) per share
13.1 1996 Annual Report to Stockholders
21.1 Subsidiaries of the Company
Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney. Reference is made to the signature page
27 Financial Data Schedule
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Registration Statement on Form S-1, as amended (File No.
33-30842).
(2) Incorporated by reference to the indicated exhibit in the Company's Form 8-K
Current Report filed on April 18, 1991.
(3) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1991.
(4) Incorporated by reference to Caere's Registration Statement on Form S-4
(File No. 33-85840).
(5) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1994.
(6) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1995.
(B) REPORTS ON FORM 8-K.
None.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAERE CORPORATION
Dated: March 25, 1997 By: /s/ BLANCHE M. SUTTER
------------------------------------
Blanche M. Sutter
Executive Vice President,
Chief Financial Officer and
Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert G. Teresi and Blanche M. Sutter, or either
of them, his attorney in fact, each with the power of substitution, for him or
her, in any and all capacities, to sign any amendments to this Report, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys in fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<S> <C> <C>
/s/ ROBERT G. TERESI Chairman of the Board, Chief March 25, 1997
- --------------------------------------------- Executive Officer (Principal
Robert G. Teresi Executive Officer)
/s/ JAMES K. DUTTON Director March 25, 1997
- ---------------------------------------------
James K. Dutton
/s/ ROBERT J. FRANKENBERG Director March 25, 1997
- ---------------------------------------------
Robert J. Frankenberg
/s/ FREDERICK W. ZUCKERMAN Director March 25, 1997
- ---------------------------------------------
Frederick W. Zuckerman
/s/ BLANCHE M. SUTTER Executive Vice President, Chief March 25, 1997
- --------------------------------------------- Financial Officer and Secretary
Blanche M. Sutter (Principal Financial and
Accounting Officer)
</TABLE>
18
<PAGE> 20
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Caere Corporation:
Under date of January 28, 1997, we reported on the consolidated balance
sheets of Caere Corporation and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996, incorporated by reference in the annual report on Form 10-K for the year
ended December 31, 1996. In connection with our audit of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule in the Form 10-K as listed in the index under Item
14(a)(2). This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
San Jose, California
January 28, 1997
19
<PAGE> 21
SCHEDULE II
CAERE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING COSTS AND TO OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- --------------------------------------------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Allowance for returns, coop advertising, and
other customer credits..................... $ 1,763 $2,831 $ -- $2,321 $2,273
====== ====== === ====== ======
Accumulated amortization of software
development costs.......................... $ 2,068 $ 662 $ -- $ -- $2,730
====== ====== === ====== ======
YEAR ENDED DECEMBER 31, 1995
Allowance for returns, coop advertising, and
other customer credits..................... $ 2,273 $1,828 $ -- $2,399 $1,702
====== ====== === ====== ======
Accumulated amortization of software
development costs.......................... $ 2,730 $ 683 $ -- $ -- $3,413
====== ====== === ====== ======
YEAR ENDED DECEMBER 31, 1996
Allowance for returns, coop advertising, and
other customer credits..................... $ 1,702 $1,578 $ -- $1,765 $1,515
====== ====== === ====== ======
Accumulated amortization of software
development costs.......................... $ 3,413 $ 734 $ -- $ -- $4,147
====== ====== === ====== ======
</TABLE>
20
<PAGE> 22
CAERE CORPORATION
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------- -------------------------------------------------------------- ------------------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization dated as of October 14, (4)
1994, between the Company and Calera Recognition Systems, Inc.
3.1 Certificate of Incorporation of the Company (1)(exhibit 3.4)
3.2 Certificate of Amendment filed with the Delaware Secretary of (5)
State October 13, 1994
3.3 Agreement of Merger between the Caere Acquisition Corporation (5)
and Calera Recognition Systems, Inc. as filed with the
California Secretary of State December 20, 1994
3.4 By-laws of the Company
4.1 Reference is made to Exhibits 3.1 and 3.2
*10.1 1981 Incentive Stock Option Plan, as amended, and related form
of incentive stock option agreement
*10.2 1981 Supplemental Stock Option Plan, as amended, and related
form of supplemental stock option agreement
10.3 Lease Agreement for 100 Cooper Court, dated November 27, 1991 (6)
between the Company and Vasona Business Park
10.4 Lease Agreement for 104 Cooper Court, dated November 27, 1991 (6)
between the Company and Vasona Business Park
10.5 Form of Indemnity Agreement between the Company and its (1)(exhibit 10.12)
officers and directors
*10.6 Employee Stock Purchase Plan
*10.7 1992 Officer Bonus Plan (3)(exhibit 10.9)
*10.8 1992 Non-Employee Directors' Stock Option Plan
10.9 Preferred Share Purchase Rights Plan (2)(exhibit 1)
*10.10 Executive Compensation and Benefits Continuation Agreement, (5)
Robert G. Teresi, dated December 28, 1994.
11.1 Statement regarding computation of net earnings (loss) per
share
13.1 1996 Annual Report to Stockholders
21.1 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney. Reference is made to the signature page
27 Financial Data Schedule
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Registration Statement on Form S-1, as amended (File No.
33-30842).
(2) Incorporated by reference to the indicated exhibit in the Company's Form 8-K
Current Report filed on April 18, 1991.
(3) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1991.
(4) Incorporated by reference to Caere's Registration Statement on Form S-4
(File No. 33-85840).
(5) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1994.
(6) Incorporated by reference to the corresponding or indicated exhibit to the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1995.
21
<PAGE> 1
EXHIBIT 3.4
AMENDED BYLAWS
OF
CAERE CORPORATION
(A DELAWARE CORPORATION)
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C> <C>
ARTICLE I - Offices....................................................................... 1
Section 1. Registered Office................................................ 1
Section 2. Other Offices.................................................... 1
ARTICLE II - Corporate Seal................................................................ 1
Section 3 Corporate Seal................................................... 1
ARTICLE III - Stockholders' Meetings........................................................ 1
Section 4 Place of Meetings................................................ 1
Section 5. Annual Meeting................................................... 2
Section 6. Special Meetings................................................. 3
Section 7. Notice of Meetings............................................... 4
Section 8. Quorum........................................................... 4
Section 9. Adjournment and Notice of Adjourned Meetings..................... 5
Section 10. Voting Rights.................................................... 5
Section 11. Joint Owners of Stock............................................ 5
Section 12. List of Stockholders............................................. 6
Section 13. Action Without Meeting........................................... 6
Section 14. Organization..................................................... 6
ARTICLE IV - Directors...................................................................... 7
Section 15. Number and Term of Office........................................ 7
Section 16. Powers........................................................... 7
Section 17. Classes of Directors............................................. 7
Section 18. Newly Created Directorships and Vacancies........................ 7
Section 19. Resignation...................................................... 8
Section 20. Removal.......................................................... 8
Section 21. Meetings......................................................... 8
Section 22. Quorum and Voting................................................ 9
Section 23. Action Without Meeting........................................... 9
Section 24. Fees and Compensation............................................ 10
Section 25. Committees....................................................... 10
Section 26. Organization..................................................... 11
ARTICLE V - Officers........................................................................ 11
Section 27. Officers Designated.............................................. 11
Section 28. Tenure and Duties of Officers.................................... 12
</TABLE>
i.
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 29. Delegation of Authority.......................................... 13
Section 30. Resignations..................................................... 13
Section 31. Removal.......................................................... 13
ARTICLE VI - Execution of Corporate Instruments and Voting of Securities
Owned by the Corporation........................................................... 14
Section 32. Execution of Corporate Instruments............................... 14
Section 33. Voting of Securities Owned by the Corporation.................... 14
ARTICLE VII - Shares of Stock............................................................... 15
Section 34. Form and Execution of Certificates............................... 15
Section 35. Lost Certificates................................................ 15
Section 36. Transfers........................................................ 16
Section 37. Fixing Record Dates.............................................. 16
Section 38. Registered Stockholders.......................................... 16
ARTICLE VIII - Other Securities of the Corporation.......................................... 17
Section 39. Execution of Other Securities.................................... 17
ARTICLE IX - Dividends...................................................................... 17
Section 40. Declaration of Dividends......................................... 17
Section 41. Dividend Reserve................................................. 17
ARTICLE X - Fiscal Year..................................................................... 18
Section 42. Fiscal Year...................................................... 18
ARTICLE XI - Indemnification................................................................ 18
Section 43. Indemnification of Directors, Officers, Employees
and Other Agents................................................. 18
ARTICLE XII - Notices....................................................................... 21
Section 44. Notices.......................................................... 21
ARTICLE XIII - Amendments................................................................... 22
Section 45. Amendments....................................................... 22
ARTICLE XIV - Loans to Officers............................................................. 23
Section 46. Loans to Officers................................................ 23
</TABLE>
ii.
<PAGE> 4
AMENDED BYLAWS
OF
CAERE CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
Offices
Section 1. Registered Office. The registered office of the
corporation in the State of Delaware shall be in the City of Dover, County of
Kent. (Del. Code Ann., tit. 8, ss. 131)
Section 2. Other Offices. The corporation shall also have and
maintain an office or principal place of business in Los Gatos, California, at
such place as may be fixed by the Board of Directors, and may also have offices
at such other places, both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the corporation
may require. (Del. Code Ann., tit. 8, ss.122(8))
ARTICLE II
Corporate Seal
Section 3. Corporate Seal. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
Stockholders' Meetings
Section 4. Place of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, ss. 211(a))
1.
<PAGE> 5
Section 5. Annual Meeting.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of Directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors. (Del. Code Ann., tit. 8,
ss. 211(b))
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day prior to the first anniversary of the
preceding year's annual meeting of stockholders; provided, however, that in the
event that no annual meeting was held in the previous year or the date of the
annual meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received not later than the close of
business on the later of the sixtieth (60th) day prior to such annual meeting
or, in the event public announcement of the date of such annual meeting is first
made by the corporation fewer than seventy (70) days prior to the date of such
annual meeting, the close of business on the tenth (10th) day following the day
on which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business, and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholders' meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted. (Del. Code Ann., tit. 8: ss.211(b))
2.
<PAGE> 6
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of Directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 5. Such stockholder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a Director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the corporation
which are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a Director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (b) of this Section 5. At the request of the Board of Directors, any
person nominated by a stockholder for election as a Director shall furnish to
the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting
and the defective nomination shall be disregarded. (Del. Code Ann., tit. 8,
ss.ss. 212, 214).
(d) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board, (ii)
the Chief Executive Officer, or (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board for adoption), and
shall be held at such place, on such date, and at such time as they or he shall
fix.
3.
<PAGE> 7
(b) If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed 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 Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting. Upon the
Board of Directors' determination of the time and the place of the meeting, the
officer receiving the request shall cause notice to be given to the stockholders
entitled to vote, in accordance with the provisions of Section 7 of these
Bylaws, that a meeting will be held not less than thirty-five (35) nor more than
one hundred twenty (120) days after the receipt of the request. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons requesting the meeting may set the time and place of the meeting and
give the notice. Nothing contained in this paragraph (b) shall be construed as
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
Section 7. Notice of Meetings. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given. (Del. Code Ann., tit. 8, ss.ss. 222, 229)
Section 8. Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the votes cast, excluding
abstentions, at any meeting at which a quorum is present shall be valid and
binding upon the corporation; provided, however, that Directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of Directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by statute or by the Certificate of Incorporation or these
Bylaws, a majority of the
4.
<PAGE> 8
outstanding shares of such class or classes or series, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and, except where otherwise provided by
statute or by the Certificate of Incorporation or these Bylaws, the affirmative
vote of the majority (plurality, in the case of the election of Directors) of
the votes cast, including abstentions, by the holders of such class or classes
or series shall be the act of such class or classes or series. (Del. Code Ann.,
tit. 8, ss. 216)
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting 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 the meeting at which the adjournment is taken;
provided, however, that if the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. At the adjourned meeting, the corporation may
transact any business which might have been transacted at the original meeting.
(Del. Code Ann., tit. 8, ss. 222(c))
Section 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Except
as may be otherwise provided in the Certificate of Incorporation or these
Bylaws, each stockholder shall be entitled to one vote for each share of capital
stock held by such stockholder. Every person entitled to vote shall have the
right to do so either in person or by an agent or agents authorized by a proxy
executed by such person or his duly authorized agent, granted in accordance with
Delaware law, which proxy shall be filed with the Secretary at or before the
meeting at which it is to be used. An agent so appointed need not be a
stockholder. No proxy shall be voted after three (3) years from its date of
creation unless the proxy provides for a longer period. All elections of
Directors shall be by written ballot, unless otherwise provided in the
Certificate of Incorporation. (Del. Code Ann., tit. 8, ss.ss. 211(e), 212(b))
Section 11. Joint Owners of Stock.
(a) If shares or other securities having voting power stand of
record in the names of two (2) or more persons, whether fiduciaries, members of
a partnership, joint tenants, tenants in common, tenants by the entirety, or
otherwise, or if two (2) or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing them
or creating the relationship wherein it is so provided, their acts with respect
to voting shall have the following effect: (a) if only one (1) votes, his act
binds all; (b) if more than one (1) votes, the act of the majority so voting
binds all; (c) if more than one (1) votes, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionally, or may apply to the Delaware Court of Chancery for relief as
provided in the General Corporation Law of Delaware, Section 217(b). If the
instrument filed with the Secretary shows that any such
5.
<PAGE> 9
tenancy is held in unequal interests, a majority or even-split for the purpose
of this subsection (c) shall be a majority or even-split in interest. (Del. Code
Ann., tit. 8, ss. 217(b))
(b) Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
corporation he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent such stock and vote thereon.
(Del. Code Ann., tit. 8, ss. 217(a)).
Section 12. List of Stockholders. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present. (Del. Code
Ann., tit. 8, ss. 219(a))
Section 13. Action Without Meeting. No action shall be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Bylaws, and no action shall be taken by the stockholders
by written consent.
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the Chief
Executive Office, or if the Chief Executive Officer is absent, the President,
or, if the President is absent, the most senior Vice President present, or in
the absence of any such officer, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies, and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted
6.
<PAGE> 10
to questions or comments by participants and regulation of the opening and
closing of the polls for balloting on matters which are to be voted on by
ballot. Unless, and to the extent determined by the Board of Directors or the
chairman of the meeting, meetings of stockholders shall not be required to be
held in accordance with rules of parliamentary procedure.
ARTICLE IV
Directors
Section 15. Number and Term of Office. The authorized number of
directors of the corporation shall be fixed from time to time by the Board of
Directors either by a resolution or a bylaw duly adopted by the Board of
Directors. The number of directors presently authorized is four (4). Directors
need not be stockholders unless so required by the Certificate of Incorporation.
If for any cause, the Directors shall not have been elected at an annual
meeting, they may be elected as soon thereafter as convenient at a special
meeting of the stockholders called for that purpose in the manner provided in
these Bylaws. No reduction of the authorized number of Directors shall have the
effect of removing any Director before the Director's term of office expires,
unless such removal is made pursuant to the provisions of Section 20 hereof.
(Del. Code Ann., tit. 8, ss.ss. 141(b), 211(b), (c))
Section 16. Powers. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation (Del. Code Ann., tit. 8, ss. 141(a))
Section 17. Classes of Directors. The Board of Directors shall be
divided into three classes: Class I, Class II and Class III. Directors shall be
assigned to each class in accordance with a resolution or resolutions adopted by
the Board of Directors. Each director shall serve for a term ending on the date
of the third annual meeting of stockholders following the annual meeting at
which the director was elected; provided, however, that each initial director in
Class I shall hold office until the annual meeting of stockholders in 1990; each
initial director in Class II shall hold office until the annual meeting of
stockholders in 1991; and each initial director in Class III shall hold office
until the annual meeting of stockholders in 1992. Notwithstanding the foregoing
provisions of this section, each director shall serve until his successor is
duly elected and qualified or until his death, resignation or removal. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director. (Del. Code Ann., tit. 8, ss.141(d))
Section 18. Newly Created Directorships and Vacancies. Newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled either (i) by the
affirmative vote of the holders of a majority of the voting power of the then
outstanding shares of the Company's capital stock; or (ii) by the affirmative
vote of a majority of the remaining directors then in office, even though less
than a quorum of the authorized Board of Directors. Any director elected in
accordance with the preceding sentence
7.
<PAGE> 11
shall hold office for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred and until such
director's successor shall have been elected and qualified.
Section 19. Resignation. Any Director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more Directors shall resign from the Board of Directors, effective at a
future date, a majority of the Directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8,
ss.ss. 141(b), 223(d))
Section 20. Removal. Any director, or the entire Board of Directors,
may be removed from office, (a) with cause by the affirmative vote of the
holders of a majority of the voting power of all of the then-outstanding shares
of the Company's capital stock, voting together as a single class; or (b)
without cause, by the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of the Company's capital stock.
(Del. Code Ann., tit. 8, ss. 141(k))
Section 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of
Directors shall be held immediately after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) Regular Meetings. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been determined by the Board of Directors. (Del. Code
Ann., tit. 8, ss. 141(g))
(c) Special Meetings. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the Chief Executive Officer or a majority
of the Directors. (Del. Code Ann., tit. 8, ss. 141(g))
(d) Telephone Meetings. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar
8.
<PAGE> 12
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting. (Del. Code Ann., tit. 8, ss.
141(i))
(e) Notice of Meetings. Notice of the time and place of all
special meetings of the Board of Directors shall be given orally or in writing,
by telephone, facsimile, telegraph or telex, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
Director by attendance thereat, except when the Director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. (Del. Code Ann., tit. 8, ss. 229)
(f) Waiver of Notice. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
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. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in any
written waiver of notice unless so required by the Certificate of Incorporation
or these Bylaws. (Del. Code Ann., tit. 8, ss. 229) All such waivers shall be
filed with the corporate records or made a part of the minutes of the meeting.
Section 22. Quorum and Voting.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
Directors fixed from time to time in accordance with Section 15 hereof, but not
less than one (1), a quorum of the Board of Directors shall consist of a
majority of the exact number of Directors fixed from time to time in accordance
with Section 15 of these Bylaws, but not less than one (1); provided, however,
at any meeting whether a quorum be present or otherwise, a majority of the
Directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting. (Del. Code Ann., tit. 8, ss. 141(b))
(b) At each meeting of the Board of Directors at which a quorum
is present all questions and business shall be determined by a vote of a
majority of the Directors present, unless a different vote be required by law,
the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8, ss.
141(b))
Section 23. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all
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members of the Board of Directors or committee, as the case may be, consent
thereto in writing, and such writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee. (Del. Code Ann., tit. 8, ss.
141(f))
Section 24. Fees and Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained 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 therefor. (Del. Code
Ann., tit. 8, ss. 141(h))
Section 25. Committees.
(a) Executive Committee. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors, appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and
specifically granted by the Board of Directors, shall have and may exercise when
the Board of Directors is not in session all powers of the Board of Directors in
the management of the business and affairs of the corporation, including,
without limitation, the power and authority to declare a dividend or to
authorize the issuance of stock, except such committee shall not have the power
or authority to amend the Certificate of Incorporation, to adopt an agreement of
merger or consolidation, to recommend to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
to recommend to the stockholders of the corporation a dissolution of the
corporation or a revocation of a dissolution or to amend these Bylaws. (Del.
Code Ann., tit. 8, ss. 141(c))
(b) Other Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors, and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees, but
in no event shall such committee have the powers denied to the Executive
Committee in these Bylaws. (Del. Code Ann., tit. 8, ss. 141(c))
(c) Term. The members of all committees of the Board of
Directors shall serve a one (1) year term. The Board of Directors, subject to
the provisions of subsections (a) or (b) of this Section 25, may at any time
increase or decrease the number of members of a committee or terminate the
existence of a committee. The membership of a committee member shall terminate
on the date of his death or voluntary resignation from the committee or from the
Board of Directors. The Board of Directors may at any time for any reason remove
any individual committee member and the Board of Directors may fill any
committee vacancy created by death, resignation, removal or increase in the
number of members of the committee. The Board of Directors may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the
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committee, and, in addition, in the absence or disqualification of any member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. (Del. Code Ann.,
tit. 8, ss.141(c))
(d) Meetings. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any Director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any Director by attendance thereat, except when the Director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8,
ss.ss. 141(c), 229)
Section 26. Organization. At every meeting of the Directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the Chief Executive Officer, or if the Chief Executive Officer is
absent, the most senior Vice President, or, in the absence of any such officer,
a chairman of the meeting chosen by a majority of the Directors present, shall
preside over the meeting. The Secretary, or in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE V
Officers
Section 27. Officers Designated. The officers of the corporation shall
be, if and when designated by the Board of Directors, the Chairman of the Board
of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one
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person may hold any number of offices of the corporation at any one time unless
specifically prohibited therefrom by law. The salaries and other compensation of
the officers of the corporation shall be fixed by or in the manner designated by
the Board of Directors. (Del. Code Ann., tit. 8, ss.ss. 122(5), 142(a), (b))
Section 28. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors. (Del. Code Ann., tit. 8, ss. 141(b), (e))
(b) Duties of Chairman of the Board of Directors. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28. (Del. Code Ann., tit. 8, ss. 142(a))
(c) Duties of President. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time. (Del. Code Ann., tit.
8, ss. 142(a))
(d) Duties of Vice Presidents. The Vice Presidents, in the
order of their seniority, may assume and perform the duties of the President in
the absence or disability of the President or whenever the office of President
is vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
(Del. Code Ann., tit. 8, ss. 142(a))
(e) Duties of Secretary. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors, and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders, and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other duties
given him in these Bylaws and other duties commonly incident to his office and
shall also perform such
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other duties and have such other powers as the Board of Directors shall
designate from time to time. The President may direct any Assistant Secretary to
assume and perform the duties of the Secretary in the absence or disability of
the Secretary, and each Assistant Secretary shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. (Del. Code Ann., tit. 8, ss. 142(a))
(f) Duties of Chief Financial Officer or Treasurer. The Chief
Financial Officer or Treasurer shall keep or cause to be kept the books of
account of the corporation in a thorough and proper manner, and shall render
statements of the financial affairs of the corporation in such form and as often
as required by the Board of Directors or the President. The Chief Financial
Officer or Treasurer, subject to the order of the Board of Directors, shall have
the custody of all funds and securities of the corporation. The Chief Financial
Officer or Treasurer shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time. The President
may direct any Assistant Treasurer or the Controller or any Assistant Controller
to assume and perform the duties of the Chief Financial Officer or Treasurer in
the absence or disability of the Chief Financial Officer or Treasurer, and each
Assistant Treasurer and each Controller and Assistant Controller shall perform
other duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time. (Del. Code Ann., tit. 8, ss. 142(a))
Section 29. Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.(Del. Code Ann., tit. 8, ss. 142(b))
Section 31. Removal. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
Directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
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ARTICLE VI
Execution of Corporate Instruments and Voting
of Securities Owned by the Corporation
Section 32. Execution of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation. (Del. Code
Ann., tit. 8, ss.ss. 103(a), 142(a), 158)
Unless otherwise specifically determined by the Board of Directors
or otherwise required by law, promissory notes, deeds of trust, mortgages and
other evidences of indebtedness of the corporation, and other corporate
instruments or documents requiring the corporate seal, and certificates of
shares of stock owned by the corporation, shall be executed, signed or endorsed
by the Chairman of the Board of Directors, or the President or any Vice
President, and by the Secretary or Chief Financial Officer or Treasurer or any
Assistant Secretary or Assistant Treasurer. All other instruments and documents
requiring the corporate signature, but not requiring the corporate seal, may be
executed as aforesaid or in such other manner as may be directed by the Board of
Directors. (Del. Code Ann., tit. 8, ss.ss. 103(a), 142(a), 158)
All checks and drafts drawn on banks or other depositaries on funds
to the credit of the corporation or in special accounts of the corporation shall
be signed by such person or persons as the Board of Directors shall authorize so
to do.
Unless 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.
(Del. Code Ann., tit. 8, ss.ss. 103(a), 142(a), 158).
Section 33. Voting of Securities Owned by the Corporation. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the President, or any Vice President.
(Del. Code Ann., tit. 8, ss. 123)
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ARTICLE VII
Shares of Stock
Section 34. Form and Execution of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. 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 with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical. (Del. Code Ann., tit. 8, ss. 158)
Section 35. Lost Certificates. A new certificate or certificates may be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
(Del. Code Ann., tit. 8, ss. 167)
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Section 36. Transfers.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares. (Del. Code Ann., tit.
8, ss. 201, tit. 6, ss. 8-401(1))
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware. (Del. Code Ann., tit.
8, ss. 160 (a))
Section 37. Fixing Record Dates.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. (Del. Code Ann., tit. 8, ss. 213)
Section 38. Registered Stockholders. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware. (Del. Code Ann., tit. 8, ss.ss. 213(a), 219)
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ARTICLE VIII
Other Securities of the Corporation
Section 39. Execution of Other Securities. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 33), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature of a trustee under an indenture pursuant to which such bond, debenture
or other corporate security shall be issued, the signatures of the persons
signing and attesting the corporate seal on such bond, debenture or other
corporate security may be the imprinted facsimile of the signatures of such
persons. Interest coupons appertaining to any such bond, debenture or other
corporate security, authenticated by a trustee as aforesaid, shall be signed by
the Treasurer or an Assistant Treasurer of the corporation or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have signed or
attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or on any such interest coupon, shall have ceased
to be such officer before the bond, debenture or other corporate security so
signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the corporation and issued and
delivered as though the person who signed the same or whose facsimile signature
shall have been used thereon had not ceased to be such officer of the
corporation.
ARTICLE IX
Dividends
Section 40. Declaration of Dividends. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation. (Del. Code Ann., tit. 8, ss.ss. 170, 173)
Section 41. Dividend Reserve. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created. (Del.
Code Ann., tit. 8, ss. 171)
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ARTICLE X
Fiscal Year
Section 42. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of directors.
ARTICLE XI
Indemnification
Section 43. Indemnification of Directors, Officers, Employees and Other
Agents.
(a) Directors and Executive Officers. The corporation shall
indemnify its Directors and executive officers to the fullest extent not
prohibited by the Delaware General Corporation Law; provided, however, that the
corporation may limit the extent of such indemnification by individual contracts
with its Directors and executive officers; and, provided, further, that the
corporation shall not be required to indemnify any Director or executive officer
in connection with any proceeding (or part thereof) initiated by such person or
any proceeding by such person against the corporation or its Directors,
officers, employees or other agents unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized by the Board of
Directors of the corporation, (iii) such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law, or (iv) such
indemnification is required to be made under subsection (d).
(b) Other Officers, Employees and Other Agents. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law.
(c) Expenses. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any Director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant
to paragraph (d) of this Bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made (1) by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to the
proceeding, or (2) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith
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or in a manner that such person did not believe to be in or not opposed to the
best interests of the corporation.
(d) Enforcement. Without the necessity of entering into an
express contract, all rights to indemnification and advances to Directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the Director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a Director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. Neither the failure of the corporation (including its
Board of Directors, independent legal counsel or its stockholders) to have made
a determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.
(e) Non-Exclusivity of Rights. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its Directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(f) Survival of Rights. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a Director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) Amendments. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged
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occurrence of any action or omission to act that is the cause of any proceeding
against any agent of the corporation.
(i) Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as a
director, executive officer, officer, employee, trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries
20.
<PAGE> 24
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Bylaw.
ARTICLE XII
Notices
Section 44. Notices.
(a) Notice to Stockholders. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent. (Del. Code Ann., tit. 8,
ss. 222)
(b) Notice to Directors. Any notice required to be given to any
Director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such Director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such Director.
(c) Affidavit of Mailing. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall, in the absence of fraud, be prima
facie evidence of the facts therein contained. (Del. Code Ann., tit. 8, ss. 222)
(d) Time Notices Deemed Given. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing and
all notices given by facsimile, telex or telegram shall be deemed to have been
given as of the sending time recorded at time of transmission.
(e) Methods of Notice. It shall not be necessary that the same
method of giving notice be employed in respect of all Directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) Failure to Receive Notice. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any Director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such Director to receive such
notice.
21.
<PAGE> 25
(g) Notice to Person with Whom Communication Is Unlawful.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) Notice to Person with Undeliverable Address. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his address as shown on the records of the Corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph. (Del. Code Ann, tit. 8, ss. 230 )
ARTICLE XIII
Amendments
Section 45. Amendments. Except as otherwise set forth in paragraph (i)
of Section 43 of these Bylaws, these Bylaws may be amended or repealed and new
Bylaws adopted by the stockholders entitled to vote. The Board of Directors
shall also have the power to adopt, amend or repeal these Bylaws (including,
without limitation, the amendment of any Bylaw setting forth the number of
Directors which shall constitute the whole Board of Directors). (Del. Code Ann.,
tit. 8, ss.ss. 109(a), 122(6))
22.
<PAGE> 26
ARTICLE XIV
Loans to Officers
Section 46. Loans to Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in this Section 46 shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute. (Del. Code Ann., tit. 8, ss. 143)
23.
<PAGE> 1
EXHIBIT 10.1
CAERE CORPORATION
1981 INCENTIVE STOCK OPTION PLAN
Adopted December 17, 1981
Approved by the Shareholders February 24, 1982
Amended July 12, 1983
Amendment Approved by the Shareholders September 21, 1983
Amended June 25, 1985
Amendment Approved by the Shareholders June 24, 1986
Amended October 21, 1986 and February 17, 1987
Amendments Approved by the Shareholders October 20, 1987
Amended April 19, 1989
Amendment Approved by the Stockholders September 26, 1989
Amended February 15, 1990
Amendment Approved by the Stockholders May 3, 1990
Amended February 27, 1992
Amendment Approved by the Stockholders May 5, 1992
Amended February 18, 1993
Amendment Approved by the Stockholders May 4, 1993
Amended February 10, 1994
Amendment Approved by the Stockholders May 25, 1994
Amended October 14, 1994
Amendment Approved by the Stockholders December 20, 1994
Amended February 21, 1996
Amendment Approved by the Stockholders May 14, 1996
Amended August 19, 1996
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which
selected key employees of Caere Corporation (the "Company") and its Affiliates,
as defined in subparagraph l(b), may be given an opportunity to purchase stock
of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are
defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code
of 1986, as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the
services of persons now holding key positions, to secure and retain the
services of persons capable of filling such
1.
<PAGE> 2
positions, and to provide incentives for such persons to exert maximum
efforts for the success of the Company.
(d) The Company intends that the options issued under the Plan be
incentive stock options as that term is used in Section 422 of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to
a committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted options; when and how the option shall
be granted; the provisions of each option granted (which need not be
identical), including the time or times during the term of each option within
which all or portions of such option may be exercised; and the number of shares
for which an option shall be granted to each such person.
(2) To construe and interpret the Plan and options
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any option agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
2.
<PAGE> 3
(3) To amend the Plan as provided in paragraph 10.
(4) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company.
(c) The Board may delegate administration of the Plan to a
committee composed of one (1) or more members of the Board, all of the members
of which committee may (but need not) be, in the discretion of the Board,
non-employee directors and/or outside directors, as defined by the provisions
of subparagraphs 2(d) and 2(e), respectively. If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, including the power
to delegate to a subcommittee of two or more outside directors any of the
administrative powers the committee is authorized to exercise, subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan.
Additionally, prior to the date of the first registration of an equity security
of the Company under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and notwithstanding anything to the contrary
contained herein, the Board may delegate administration of the Plan to any
person or persons and the term "Committee" shall apply to any person or persons
to whom such authority has been delegated.
(d) The term "non-employee director," as used in this Plan, shall
mean a director who either (i) is not a current employee or officer of the
Company or its parent or subsidiary, does not receive compensation (directly or
indirectly) from the Company or its parent or subsidiary for services rendered
as a consultant or in any capacity other than as a director (except for an
3.
<PAGE> 4
amount as to which disclosure would not be required under Item 404(a) of
Regulation S-K ("Regulation S-K") promulgated pursuant to the Securities Act of
1933 (the "Securities Act"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(e) The term "outside director," as used in this Plan, shall mean
a director who either (i) is not a current employee of the Company or an
"affiliated corporation" (within the meaning of Treasury regulations
promulgated under Section 162(m) of the Code), is not a former employee of the
Company or an "affiliated corporation" receiving compensation for prior
services (other than benefits under a tax qualified pension plan), was not an
officer of the Company or an "affiliated corporation" at any time, and is not
currently receiving direct or indirect remuneration from the Company or an
"affiliated corporation" for services in any capacity other than as a director,
or (ii) is otherwise considered an "outside director" for purposes of Section
162(m) of the Code.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 9 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
options granted under the Plan shall not exceed in the aggregate three million
five hundred ninety-five thousand (3,595,000) shares of the Company's common
stock; provided, however, that such aggregate number of shares shall be reduced
to reflect the number of shares of the Company's common stock that have been
sold
4.
<PAGE> 5
pursuant to, or may be sold pursuant to outstanding options granted under, the
Company's 1981 Supplemental Stock Option Plan to the same extent as if such
sales had been made or options had been granted pursuant to this Plan. If any
option granted under the Plan shall for any reason expire or otherwise
terminate without having been exercised in full, the stock not purchased under
such option shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
(c) An option may be granted to an eligible person under the Plan
only if the aggregate fair market value (determined at the time the option is
granted) of the stock with respect to which incentive stock options (as defined
in the Code) granted after 1986 are exercisable for the first time by such
optionee during any calendar year under all incentive stock option plans of the
Company and its Affiliates does not exceed one hundred thousand dollars
($100,000). Should it be determined that an option granted under the Plan
exceeds such maximum for any reason other than the failure of a good faith
attempt to value the stock subject to the option, such option shall be
considered a nonstatutory stock option to the extent, but only to the extent,
of such excess; provided, however, that should it be determined that an entire
option or any portion thereof does not qualify for treatment as an incentive
stock option by reason of exceeding such maximum, such option or the applicable
portion shall be considered a nonstatutory stock option.
(d) Subject to the provisions of paragraph 9 relating to
adjustments upon changes in stock, no person shall be eligible to be granted in
any calendar year options under this Plan covering more than an aggregate of
three hundred thousand (300,000) shares of the Company's
5.
<PAGE> 6
common stock, when combined with options granted in the same calendar year
under the Company's 1981 Supplemental Stock Option Plan. Shares subject to an
option that is canceled shall continue to be counted against the maximum number
of shares that may be covered by options granted to a person pursuant to this
subparagraph 3(c). If an option is amended, exchanged or otherwise altered in
a manner that results in a reduction of the exercise price, such transaction
shall be deemed to be a cancellation of the original option and the grant of a
new option for purposes of this subparagraph. In such event, both the original
option and the new option shall be counted in the applicable year against the
maximum limitation specified by this subparagraph in accordance with
regulations promulgated under Section 162(m) of the Code.
4. ELIGIBILITY.
(a) Options may be granted only to key employees (including
officers) of the Company or its Affiliates. A director of the Company shall
not be eligible for the benefits of the Plan unless such director is also a key
employee (including an officer) of the Company or any Affiliate.
(b) No person shall be eligible for the grant of an option under
the Plan if, at the time of grant, such person owns (or is deemed to own
pursuant to the attribution rules of Section 424(d) of the Code) stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or of any of its Affiliates unless the
option price is at least one hundred ten percent (110%) of the fair market
value of such stock at the date of grant and the term of the option does not
exceed five (5) years from the date of grant.
6.
<PAGE> 7
5. OPTION PROVISIONS.
Each option shall be in such form and shall contain such terms and
conditions as the Board or the Committee shall deem appropriate. The
provisions of separate options need not be identical, but each option shall
include (through incorporation of provisions hereof by reference in the option
or otherwise) the substance of each of the following provisions:
(a) The term of any option shall not be greater than ten (10)
years from the date it was granted.
(b) The exercise price of each option shall be not less than one
hundred percent (100%) of the fair market value of the stock subject to the
option on the date the option is granted.
(c) The purchase price of stock acquired pursuant to an option
shall be paid, to the extent permitted by applicable statutes and regulations,
either (i) in cash at the time the option is exercised, or (ii) at the
discretion of the Board or the Committee, either at the time of grant or
exercise of the option (A) by delivery to the Company of other common stock of
the Company, (B) according to a deferred payment or other arrangement (which
may include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the option is granted or
to whom the option is transferred pursuant to subparagraph 5(d), or (C) in any
other form of legal consideration that may be acceptable to the Board or
Committee in their discretion.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment
7.
<PAGE> 8
as interest, under any applicable provisions of the Code, of any amounts other
than amounts stated to be interest under the deferred payment arrangement.
(d) An option shall not be transferable except by will or by the
laws of descent and distribution, and shall be exercisable during the lifetime
of the person to whom the option is granted only by such person.
Notwithstanding the foregoing, the person to whom an option is granted may, by
delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
optionee, shall thereafter be entitled to exercise the option.
(e) The total number of shares of stock subject to an option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). From time to time during each of such installment periods, the option
may be exercised with respect to some or all of the shares allotted to that
period, and/or with respect to some or all of the shares allotted to any prior
period as to which the option was not fully exercised. During the remainder of
the term of the option (if its term extends beyond the end of the installment
periods), the option may be exercised from time to time with respect to any
shares then remaining subject to the option. The provisions of this
subparagraph 5(e) are subject to any option provisions governing the minimum
number of shares as to which an option may be exercised.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 5(d), as a condition of exercising any
such option: (1) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters and/or
to employ a purchaser representative reasonably satisfactory to the Company who
is knowledgeable and experienced in financial and business
8.
<PAGE> 9
matters, and that he or she is capable of evaluating, alone or together with
the purchaser representative, the merits and risks of exercising the option;
and (2) to give written assurances satisfactory to the Company stating that
such person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then currently effective
registration statement under the Securities Act, or (ii) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws.
(g) An option shall terminate three (3) months after termination
of the optionee's employment with the Company or an Affiliate, unless (i) the
termination of employment of the optionee is due to such person's permanent and
total disability, within the meaning of Section 422(c)(6) of the Code, in which
case the option may, but need not, provide that it may be exercised at any time
within one (l) year following such termination of employment; or (ii) the
optionee dies while in the employ of the Company or an Affiliate, or within not
more than three (3) months after termination of such employment, in which case
the option may, but need not, provide that it may be exercised at any time
within eighteen (18) months following the death of the optionee by the person
or persons to whom the optionee's rights under such option pass by will or by
the laws of descent and distribution; or (iii) the option by its terms
specifies either (a) that it shall terminate sooner than three (3) months after
termination of the optionee's employment, or (b) that it may be exercised more
than three (3) months after termination of the
9.
<PAGE> 10
optionee's employment with the Company or an Affiliate. This subparagraph 5(g)
shall not be construed to extend the term of any option or to permit anyone to
exercise the option after expiration of its term, nor shall it be construed to
increase the number of shares as to which any option is exercisable from the
amount exercisable on the date of termination of the optionee's employment.
(h) The option may, but need not, include a provision whereby the
optionee may elect at any time during the term of his or her employment with
the Company or any Affiliate to exercise the option as to any part or all of
the shares subject to the option prior to the stated vesting date of the option
or of any installment or installments specified in the option. Any shares so
purchased from any unvested installment or option may be subject to a
repurchase right in favor of the Company or to any other restriction the Board
or the Committee determines to be appropriate.
(i) To the extent provided by the terms of an option, the optionee
may satisfy any federal, state or local tax withholding obligation relating to
the exercise of such option by any of the following means or by a combination
of such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold from the shares of the common stock otherwise issuable to the
participant as a result of the exercise of the stock option a number of shares
having a fair market value less than or equal to the amount of the withholding
tax obligation; or (3) delivering to the Company owned and unencumbered shares
of the common stock having a fair market value less than or equal to the amount
of the withholding tax obligation.
10.
<PAGE> 11
6. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the
Company shall keep available at all times the number of shares of stock
required to satisfy such options.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the options granted
under the Plan; provided, however, that this undertaking shall not require the
Company to register under the Securities Act either the Plan, any option
granted under the Plan or any stock issued or issuable pursuant to any such
option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority that counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell
stock upon exercise of such options unless and until such authority is
obtained.
7. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock
pursuant to options granted under the Plan shall constitute general funds of
the Company.
8. MISCELLANEOUS.
(a) The Board or the Committee shall have the power to accelerate
the time during which an option may be exercised, or the time during which an
option or any portion thereof will vest pursuant to subparagraph 5(e),
notwithstanding the provisions in the option stating the time during which it
may be exercised or the time during which it will vest.
11.
<PAGE> 12
(b) Neither an optionee nor any person to whom an option is
transferred under subparagraph 5(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
option unless and until such person has satisfied all requirements for exercise
of the option pursuant to its terms.
(c) Throughout the term of any option granted pursuant to the
Plan, the Company shall make available to the holder of such option, not later
than one hundred twenty (120) days after the close of each of the Company's
fiscal years during the option term, upon request, such financial and other
information regarding the Company as comprises the annual report to the
shareholders of the Company provided for in the bylaws of the Company.
(d) Nothing in the Plan or any instrument executed or option
granted pursuant thereto shall confer upon any eligible employee or optionee
any right to continue in the employ of the Company or any Affiliate or shall
affect the right of the Company or any Affiliate to terminate the employment of
any eligible employee or optionee with or without cause.
9. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or otherwise), appropriate adjustments
will be made in the class(es) and maximum number of shares subject to the Plan
pursuant to subparagraph 3(a), the class(es) and maximum number of shares that
may be subject to options pursuant to subparagraph 3(d) and the class(es) and
number of shares and price per share of stock subject to outstanding options.
12.
<PAGE> 13
(b) In the event of: (l) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4)
any other capital reorganization in which more than fifty percent (50%) of the
shares of the Company entitled to vote are exchanged then, at the sole
discretion of the Board to the extent permitted by law, (i) any surviving
corporation shall assume options outstanding under the Plan or substitute
similar options for those outstanding under the Plan, (ii) the time during
which options outstanding under the Plan may be exercised shall be accelerated
and the options terminated if not exercised prior to such event, or (iii)
options outstanding under the Plan shall continue in full force and effect.
10. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in paragraph 9 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for options
under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of
the Code); or
13.
<PAGE> 14
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act.
(b) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide optionees with
the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to employee incentive
stock options and/or to bring the Plan and/or options granted under it into
compliance therewith.
(c) Rights and obligations under any option granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless (i) the Company requests the consent of the person to whom the
option was granted and (ii) such person consents in writing.
(d) The Board may in its sole discretion submit any other
amendment to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m)
of the Code and the regulations promulgated thereunder regarding the exclusion
of performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
11. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on January 31, 2000. No
options may be granted under the Plan while the Plan is suspended or after it
is terminated.
14.
<PAGE> 15
(b) Rights and obligations under any option granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the consent of the person to whom the option was granted.
12. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
options granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders and, if required, an appropriate permit has
been issued by the Commissioner of Corporations of the State of California.
15.
<PAGE> 1
EXHIBIT 10.20
CAERE CORPORATION
1981 SUPPLEMENTAL STOCK OPTION PLAN
Adopted December 17, 1981
Approved by the Shareholders February 24, 1982
Amended June 25, 1985
Amended October 21, 1986
Amendment Approved by the Shareholders October 20, 1987
Amended April 19, 1989
Amendment Approved by the Stockholders September 26, 1989
Amended February 15, 1990
Amendment Approved by the Stockholders May 3, 1990
Amended February 27, 1992
Amendment Approved by the Stockholders May 5, 1992
Amended February 18, 1993
Amendment Approved by the Stockholders May 4, 1993
Amended February 10, 1994
Amendment Approved by the Stockholders May 25, 1994
Amended October 14, 1994
Amendment Approved by the Stockholders December 20, 1994
Amended February 21, 1996
Amendment Approved by the Stockholders May 14, 1996
Amended August 19, 1996
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which
selected key employees and directors of and consultants to Caere Corporation, a
California corporation (the "Company"), and its affiliates, as defined in
subparagraph 1(b), may be given an opportunity to purchase stock of the
Company.
(b) The word "affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the
services of persons now holding key positions, to secure and retain the
services of persons capable of filling such
1.
<PAGE> 2
positions, and to provide incentives for such persons to exert maximum efforts
for the success of the Company.
(d) The Company intends that the options issued under the Plan not
be incentive stock options as that term is used in Section 422 of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to
a committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted options; when and how the option shall
be granted; the provisions of each option granted (which need not be
identical), including the time or times during the term of each option within
which all or portions of such option may be exercised; and the number of shares
for which an option shall be granted to each such person.
(2) To construe and interpret the Plan and options
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any option agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(3) To amend the Plan as provided in paragraph 10.
2.
<PAGE> 3
(4) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company.
(c) The Board may delegate administration of the Plan to a
committee composed of one (1) or more members of the Board, all of the members
of which committee may (but need not) be, in the discretion of the Board,
non-employee directors and/or outside directors, as defined by the provisions
of subparagraphs 2(d) and 2(e), respectively. If administration is delegated
to a committee, the committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, including the power
to delegate to a subcommittee of two or more outside directors any of the
administrative powers the committee is authorized to exercise, subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the
committee at any time and revest in the Board the administration of the Plan.
(d) The term "non-employee director," as used in this Plan, shall
mean a director who either (i) is not a current employee or officer of the
Company or its parent or subsidiary, does not receive compensation (directly or
indirectly) from the Company or its parent or subsidiary for services rendered
as a consultant or in any capacity other than as a director (except for an
amount as to which disclosure would not be required under Item 404(a) of
Regulation S-K ("Regulation S-K") promulgated pursuant to the Securities Act of
1933 (the "Securities Act"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
3.
<PAGE> 4
(e) The term "outside director," as used in this Plan, shall mean
a director who either (i) is not a current employee of the Company or an
"affiliated corporation" (within the meaning of Treasury regulations
promulgated under Section 162(m) of the Code), is not a former employee of the
Company or an "affiliated corporation" receiving compensation for prior
services (other than benefits under a tax qualified pension plan), was not an
officer of the Company or an "affiliated corporation" at any time, and is not
currently receiving direct or indirect remuneration from the Company or an
"affiliated corporation" for services in any capacity other than as a director,
or (ii) is otherwise considered an "outside director" for purposes of Section
162(m) of the Code.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 9 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
options granted under the Plan shall not exceed in the aggregate three million
five hundred ninety-five thousand (3,595,000) shares of the Company's common
stock; provided, however, that such aggregate number of shares shall be reduced
to reflect the number of shares of the Company's common stock that have been
sold pursuant to, or may be sold pursuant to outstanding options granted under,
the Company's 1981 Incentive Stock Option Plan to the same extent as if such
sales had been made or options had been granted pursuant to this Plan. If any
option granted under the Plan shall for any reason expire or otherwise
terminate without having been exercised in full, the stock not purchased under
such option shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
4.
<PAGE> 5
(c) Subject to the provisions of paragraph 9 relating to
adjustments upon changes in stock, no person shall be eligible to be granted in
any calendar year options under this Plan covering more than an aggregate of
three hundred thousand (300,000) shares of the Company's common stock, when
combined with options granted in the same calendar year under the Company's
1981 Incentive Stock Option Plan. Shares subject to an option that is canceled
shall continue to be counted against the maximum number of shares that may be
covered by options granted to a person pursuant to this subparagraph 3(c). If
an option is amended, exchanged or otherwise altered in a manner that results
in a reduction of the exercise price, such transaction shall be deemed to be a
cancellation of the original option and the grant of a new option for purposes
of this subparagraph. In such event, both the original option and the new
option shall be counted in the applicable year against the maximum limitation
specified by this subparagraph in accordance with regulations promulgated under
Section 162(m) of the Code.
4. ELIGIBILITY.
Options may be granted only to key employees (including officers),
directors of or consultants to the Company or its affiliates.
5. OPTION PROVISIONS.
Each option shall be in such form and shall contain such terms and
conditions as the Board or the committee shall deem appropriate. The
provisions of separate options need not be identical, but each option shall
include (through incorporation of provisions hereof by reference in the option
or otherwise) the substance of each of the following provisions:
(a) The term of any option shall not be greater than ten (10)
years from the date it was granted.
5.
<PAGE> 6
(b) The exercise price of each option shall be not less than
eighty-five percent (85%) of the fair market value of the stock subject to the
option on the date the option is granted.
(c) The purchase price of stock acquired pursuant to an option
shall be paid, as specified in the option, either (i) in cash at the time the
option is exercised, or (ii) at the discretion of the Board or the committee,
(A) by delivery to the Company of other common stock of the Company, (B)
according to a deferred payment or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other common stock
of the Company) with the person to whom the option is granted or to whom the
option is transferred pursuant to subparagraph 5(d), or (C) in any other form
of legal consideration that may be acceptable to the Board or the committee in
their discretion, either at the time of grant or exercise of the option.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions
of the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) An option shall not be transferable except by will or by the
laws of descent and distribution, and shall be exercisable during the lifetime
of the person to whom the option is granted only by such person, unless
otherwise specified in the option, in which case the option may be transferred
upon such terms and conditions as are set forth in the option, as the Board or
the committee shall determine in its discretion, including (without limitation)
pursuant to a "domestic relations order" within the meaning of such rules,
regulations or interpretations of the Securities and Exchange Commission as are
applicable for purposes of Section 16 of the Exchange Act. Notwithstanding the
foregoing, the person to whom an option is granted may,
6.
<PAGE> 7
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
optionee, shall thereafter be entitled to exercise the option.
(e) The total number of shares of stock subject to an option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). From time to time during each of such installment periods, the option
may be exercised with respect to some or all of the shares allotted to that
period, and/or with respect to some or all of the shares allotted to any prior
period as to which the option was not fully exercised. During the remainder of
the term of the option (if its term extends beyond the end of the installment
periods), the option may be exercised from time to time with respect to any
shares then remaining subject to the option. The provisions of this
subparagraph 5(e) are subject to any option provisions governing the minimum
number of shares as to which an option may be exercised.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 5(d), as a condition of exercising any
such option to give written assurances satisfactory to the Company stating that
such person is acquiring the stock subject to the option for such person's own
account not with any present intention of selling or otherwise distributing the
stock. The requirement of providing written assurances and any assurances
given pursuant to the requirement, shall be inoperative if (i) the issuance of
the shares upon the exercise of the option has been registered under a then
currently effective registration statement under the Securities Act, or (ii) a
determination is made by counsel for the Company that such written assurances
are not required in the circumstances under the then applicable federal
securities laws.
7.
<PAGE> 8
(g) An option shall terminate three (3) months after termination
of the optionee's employment with the Company or an affiliate, unless (i) the
termination of employment of the optionee is due to such person's permanent and
total disability, within the meaning of Section 422(c)(6) of the Code, in which
case the option may, but need not, provide that it may be exercised at any time
within one (l) year following such termination of employment; or (ii) the
optionee dies while in the employ of the Company or an affiliate, or within not
more than three (3) months after termination of such employment, in which case
the option may, but need not, provide that it may be exercised at any time
within eighteen (18) months following the death of the optionee by the person
or persons to whom the optionee's rights under such option pass by will or by
the laws of descent and distribution; or (iii) the option by its terms
specifies either (a) that it shall terminate sooner than three (3) months after
termination of the optionee's employment, or (b) that it may be exercised more
than three (3) months after termination of the optionee's employment with the
Company or an affiliate. This subparagraph 5(g) shall not be construed to
extend the term of any option or to permit anyone to exercise the option after
expiration of its term, nor shall it be construed to increase the number of
shares as to which any option is exercisable from the amount exercisable on the
date of termination of the optionee's employment.
(h) The option may, but need not, include a provision whereby the
optionee may elect at any time during the term of his or her employment with
the Company or any affiliate to exercise the option as to any part or all of
the shares subject to the option prior to the stated vesting date of the option
or of any installment or installments specified in the option. Any shares so
purchased from any unvested installment or option may be subject to a
repurchase right
8.
<PAGE> 9
in favor of the Company or to any other restriction the Board or the committee
determines to be appropriate.
(i) To the extent provided by the terms of an option, the optionee
may satisfy any federal, state or local tax withholding obligation relating to
the exercise of such option by any of the following means or by a combination
of such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold from the shares of the common stock otherwise issuable to the
participant as a result of the exercise of the stock option a number of shares
having a fair market value less than or equal to the amount of the withholding
tax obligation; or (3) delivering to the Company owned and unencumbered shares
of the common stock having a fair market value less than or equal to the amount
of the withholding tax obligation.
6. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the
Company shall keep available at all times the number of shares of stock
required to satisfy such options.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the options granted
under the Plan; provided, however, that this undertaking shall not require the
Company to register under the Securities Act either the Plan, any option
granted under the Plan or any stock issued or issuable pursuant to any such
option. If the Company is unable to obtain from any such regulatory commission
or agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
options unless and until such authority is obtained.
9.
<PAGE> 10
7. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
8. MISCELLANEOUS.
(a) The Board or the committee shall have the power to accelerate
the time during which an option may be exercised, or the time during which an
option or any portion thereof will vest pursuant to subparagraph 5(e),
notwithstanding the provisions in the option stating the time during which it
may be exercised.
(b) Neither an optionee nor any person to whom an option is
transferred under subparagraph 5(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
option unless and until such person has satisfied all requirements for exercise
of the option pursuant to its terms.
9. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or otherwise), appropriate adjustments
will be made in the class(es) and maximum number of shares subject to the Plan
pursuant to subparagraph 3(a), the class(es) and maximum number of shares that
may be subject to options pursuant to subparagraph 3(c) and the class(es) and
number of shares and price per share of stock subject to outstanding options.
(b) In the event of: (l) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; (3) a reverse merger in
10.
<PAGE> 11
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) any other capital reorganization in which more than
fifty percent (50%) of the shares of the Company entitled to vote are exchanged
then, at the sole discretion of the Board to the extent permitted by law, (i)
any surviving corporation shall either assume options outstanding under the
Plan or substitute similar options for those outstanding under the Plan, (ii)
the time during which options outstanding under the Plan may be exercised shall
be accelerated and the options terminated if not exercised prior to such event,
or (iii) options outstanding under the Plan shall continue in full force and
effect.
10. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in paragraph 9 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for options
under the Plan; or
(ii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(b) Rights and obligations under any option granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan, except with the consent of the person to whom the option was granted.
11.
<PAGE> 12
(c) The Board may in its sole discretion submit any other
amendment to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m)
of the Code and the regulations promulgated thereunder regarding the exclusion
of performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
11. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on January 31, 2000. No
options may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) Rights and obligations under any option granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the consent of the person to whom the option was granted.
12. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
options granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders and, if required, an appropriate permit has
been issued by the Commissioner of Corporations of the State of California.
12.
<PAGE> 13
<PAGE> 1
CAERE CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
Adopted February 15, 1990
Approved by the Stockholders May 3, 1990
Amended December 9, 1993
Amendment Approved by the Stockholders May 25, 1994
Amended December 4, 1995
Amendment Approved by the Stockholders January 23, 1996
Amended August 19, 1996
Amended February 13, 1997
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which employees
of Caere Corporation, a Delaware corporation (the "Company"), and its
Affiliates, as defined in subparagraph 1(b), which are designated as provided in
subparagraph 2(b), may be given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 425(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services
of its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an "employee
stock purchase plan" as that term is defined in Section 423(b) of the Code.
1.
<PAGE> 2
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of
the Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company.
(c) The Board may delegate administration of the Plan to a Committee
composed of one (1) or more members of the Board (the "Committee"), all of the
members of
2.
<PAGE> 3
which Committee may (but need not) be, in the discretion of the Board,
"non-employee directors" within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate one million (1,000,000) shares
of the Company's common stock (the "Common Stock"). If any right granted under
the Plan shall for any reason terminate without having been exercised, the
Common Stock not purchased under such right shall again become available for the
Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate. If an employee has more than one right outstanding
3.
<PAGE> 4
under the Plan, unless he or she otherwise indicates in agreements or notices
delivered hereunder: (1) each agreement or notice delivered by that employee
will be deemed to apply to all of his or her rights under the Plan, and (2) a
right with a lower exercise price (or an earlier-granted right, if two rights
have identical exercise prices), will be exercised to the fullest possible
extent before a right with a higher exercise price (or a later-granted right, if
two rights have identical exercise prices) will be exercised. The provisions of
separate Offerings need not be identical, but each Offering shall include
(through incorporation of the provisions of this Plan by reference in the
Offering or otherwise) the substance of the provisions contained in paragraphs 5
through 8, inclusive.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee and set forth in the terms of the applicable Offering, no employee of
the Company or any Affiliate shall be eligible to be granted rights under the
Plan, unless, on the Offering Date, such employee's customary employment with
the Company or such Affiliate is at least twenty (20) hours per week and at
least five (5) months per calendar year.
4.
<PAGE> 5
(b) The Board or the Committee may provide that each person who,
during the course of an Offering, first becomes an eligible employee of the
Company or designated Affiliate will, on a date or dates specified in the
Offering which coincides with the day on which such person becomes an eligible
employee or occurs thereafter, receive a right under that Offering, which right
shall thereafter be deemed to be a part of that Offering. Such right shall have
the same characteristics as any rights originally granted under that Offering,
as described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the Purchase Period (as defined below) for such right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board or the Committee may provide that if such
person first becomes an eligible employee within a specified period of time
before the end of the Purchase Period (as defined below) for such Offering, he
or she will not receive any right under that Offering.
(c) No employee shall be eligible for the grant of any rights under
the Plan if, immediately after any such rights are granted, such employee owns
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company or of any Affiliate. For purposes
of this subparagraph 5(c), the rules of Section 425(d) of the Code shall apply
in determining the stock ownership of any employee, and stock which such
employee may purchase under all outstanding rights and options shall be treated
as stock owned by such employee.
5.
<PAGE> 6
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
(e) Officers of the Company shall be eligible to participate in
Offerings under the Plan, provided, however, that the Board may provide in an
Offering that officers who are highly compensated employees within the meaning
of Section 423(b)(4)(D) of the Code shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase the number
of shares of Common Stock of the Company purchasable with up to fifteen percent
(15%) of such employee's Earnings (as defined in Section 7(a)) during the period
which begins on the Offering Date (or such later date as the Board determines
for a particular Offering) and ends on the date stated in the Offering, which
date shall be no more than twenty-seven (27) months after the Offering Date (the
"Purchase Period"). In connection with each Offering made under the Plan, the
Board or the Committee shall specify a maximum number of shares which may be
purchased by any employee as well as a maximum aggregate number of shares which
may be purchased by all eligible employees pursuant to such Offering. In
addition, in connection with each Offering
6.
<PAGE> 7
which contains more than one Exercise Date (as defined in the Offering), the
Board or the Committee may specify a maximum aggregate number of shares which
may be purchased by all eligible employees on any given Exercise Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(b) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the
fair market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the
fair market value of the stock on the date of purchase.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in an Offering by
delivering a participation agreement to the Company within the time specified in
the Offering, in such form as the Company provides. Each such agreement shall
authorize payroll deductions of up to fifteen percent (15%) of such employee's
Earnings during the Purchase Period. "Earnings" is defined as the total
compensation paid to an employee, including all salary, wages (including amounts
elected to be deferred by the employee, that would otherwise have been paid,
under any cash or deferred arrangement established by the Company), overtime
pay, commissions, bonuses, and other remuneration paid directly to the employee,
but excluding
7.
<PAGE> 8
profit sharing, the cost of employee benefits paid for by the Company, education
or tuition reimbursements, imputed income arising under any Company group
insurance or benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options, contributions
made by the Company under any employee benefit plan, and similar items of
compensation. The payroll deductions made for each participant shall be credited
to an account for such participant under the Plan and shall be deposited with
the general funds of the Company. A participant may reduce, increase or begin
such payroll deductions after the beginning of any Purchase Period only as
provided for in the Offering. A participant may make additional payments into
his or her account only if specifically provided for in the Offering and only if
the participant has not had the maximum amount withheld during the Purchase
Period.
(b) At any time during a Purchase Period a participant may withdraw
from the Offering and terminate his or her payroll deductions under the Plan by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Purchase Period, subject to the terms of the Offering. Upon such withdrawal from
the Offering by a participant, the Company shall distribute to such participant
all of his or her accumulated payroll deductions (reduced to the extent, if any,
such deductions have been used to acquire stock for the participant) under the
Offering, without interest, and such participant's interest in that Offering
shall be automatically terminated. A participant's withdrawal from an Offering
will have no effect upon such participant's eligibility to participate in any
other Offerings under the Plan but such participant
8.
<PAGE> 9
will be required to deliver a new participation agreement in order to
participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company or an Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable, other
than by will or the laws of descent and distribution, and shall be exercisable
during the lifetime of the person to whom such rights are granted only by such
person.
8. EXERCISE.
(a) On each exercise date, as defined in the relevant Offering (an
"Exercise Date"), each participant's accumulated payroll deductions (without any
increase for interest) will be applied to the purchase of whole shares of stock
of the Company, up to the maximum number of shares permitted pursuant to the
terms of the Plan and the applicable Offering, at the purchase price specified
in the Offering. No fractional shares shall be issued upon the exercise of
rights granted under the Plan. The amount, if any, of accumulated payroll
deductions remaining in each participant's account after the purchase of shares
which is less than the amount required to purchase one share of stock on the
final Exercise Date of an Offering shall be held in each such participant's
account for the purchase of shares under the next Offering under the Plan,
unless such participant withdraws from such next Offering, as provided in
subparagraph 7(b), or is not eligible to participate in such Offering, as
provided in paragraph 5, in which case such
9.
<PAGE> 10
amount shall be distributed to the participant after said final Exercise Date,
without interest. The amount, if any, of accumulated payroll deductions
remaining in any participant's account after the purchase of shares which is
equal to the amount required to purchase whole shares of stock on the final
Exercise Date of an Offering shall be distributed in full to the participant
after such Exercise Date, without interest.
(b) No rights granted under the Plan may be exercised to any
extent unless the Plan (including rights granted thereunder) is covered by an
effective registration statement pursuant to the Securities Act of 1933, as
amended (the "Securities Act"). If on an Exercise Date of any Offering hereunder
the Plan is not so registered, no rights granted under the Plan or any Offering
shall be exercised on said Exercise Date and all payroll deductions accumulated
during the purchase period (reduced to the extent, if any, such deductions have
been used to acquire stock) shall be distributed to the participants, without
interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the
Company shall keep available at all times the number of shares of stock required
to satisfy such rights.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the rights granted under the
Plan. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such rights unless and until such authority is obtained.
10.
<PAGE> 11
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until certificates representing such shares shall have
been issued.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
rights will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding rights.
(b) In the event of: (1) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then, as determined by the Board in its
sole discretion (i) any
11.
<PAGE> 12
surviving corporation may assume outstanding rights or substitute similar rights
for those under the Plan, (ii) such rights may continue in full force and
effect, or (iii) participants' accumulated payroll deductions may be used to
purchase Common Stock immediately prior to the transaction described above and
the participants' rights under the ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for rights under
the Plan;
(ii) Modify the provisions as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to obtain employee stock purchase plan treatment
under Section 423 of the Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
12.
<PAGE> 13
(b) Rights and obligations under any rights granted before amendment
of the Plan shall not be altered or impaired by any amendment of the Plan,
except with the consent of the person to whom such rights were granted.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No rights may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom such rights were granted.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
rights granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company.
13.
<PAGE> 1
EXHIBIT 10.8
CAERE CORPORATION
1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Adopted on February 27, 1992
Approved by the Stockholders May 5, 1992
Amended by the Board of Directors August 25, 1994
Amended by the Board of Directors March 2, 1995
Approved by the Stockholders May 5, 1995
Amended by the Board of Directors February 21, 1996
Approved by the Stockholders May 14, 1996
Amended August 19, 1996
1. PURPOSE.
(a) The purpose of the 1992 Non-Employee Directors' Stock Option
Plan (the "Plan") is to provide a means by which each director of Caere
Corporation, a Delaware corporation (the "Company"), who is not otherwise an
employee of the Company or of any Affiliate of the Company (each such person
being hereafter referred to as a "Non-Employee Director") will be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the
services of persons now serving as Non-Employee Directors of the Company, to
secure and retain the services of persons capable of serving in such capacity,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
(d) The Company intends that the options issued under the Plan not
be incentive stock options as that term is used in Section 422 of the Code.
1.
<PAGE> 2
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To construe and interpret the Plan and options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any option agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(2) To amend the Plan as provided in paragraph 11.
(3) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company.
(c) The Board may delegate administration of the Plan to a
committee composed of one (1) or more members of the Board (the "Committee"),
all of the members of which Committee may (but need not) be, in the discretion
of the Board, "non-employee directors" within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, subject, however, to such resolutions, not
inconsistent with the provisions of the
2.
<PAGE> 3
Plan, as may be adopted from time to time by the Board. The Board may abolish
the Committee at any time and revest in the Board the administration of the
Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
options granted under the Plan shall not exceed in the aggregate Two Hundred
Thirty Thousand (230,000) shares of the Company's common stock. If any option
granted under the Plan shall for any reason expire or otherwise terminate
without having been exercised in full, the stock not purchased under such
option shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the
Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is, after March 2, 1996 (the "Amendment
Effective Date"), elected for the first time to be a Non-Employee Director of
the Company shall, upon the date of his or her initial election to be a
Non-Employee Director by the Board or stockholders of the Company, be
automatically granted an option to purchase Thirty Thousand (30,000) shares of
common stock of the Company on the terms and conditions set forth herein.
Thereafter, so long as any such person remains a Non-Employee Director of the
Company and the Plan remains in effect, he or she shall, on each three-year
anniversary of such initial grant, be automatically
3.
<PAGE> 4
granted an option to purchase Thirty Thousand (30,000) shares of common stock
of the Company on the terms and conditions set forth herein.
(b) Each person who is, as of the Amendment Effective Date, a
Non-Employee Director of the Company shall, on each three-year anniversary of
such person's receipt of an option grant covering shares of common stock of the
Company that most recently preceded the Amendment Effective Date (the
"Preceding Option"), be automatically granted an option to purchase Thirty
Thousand (30,000) shares of common stock of the Company on the terms and
conditions set forth herein.
(c) Each person who is, on the Amendment Effective Date, a
Non-Employee Director of the Company shall, on the Amendment Effective Date, be
automatically granted an option to purchase, on the terms and conditions set
forth herein, the number of shares of common stock of the Company (rounded to
the nearest whole share) determined by multiplying Three Thousand Three Hundred
Thirty-Three (3,333) shares by a fraction (which may exceed one), the numerator
of which is the number of days remaining, as of the Amendment Effective Date,
until the third anniversary of such person's receipt of his or her Preceding
Option and the denominator of which is 365.
6. OPTION PROVISIONS.
Each option (including options outstanding on the Amendment Effective
Date) shall contain the following terms and conditions, to the extent
applicable:
(a) No option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
4.
<PAGE> 5
(b) The exercise price of each option shall be one hundred percent
(100%) of the fair market value of the stock subject to such option on the date
such option is granted.
(c) The purchase price of stock acquired pursuant to an option
shall be paid, to the extent permitted by applicable statutes and regulations,
either (1) in cash at the time the option is exercised, or (2) by delivery to
the Company of shares of common stock of the Company that have been held for
the requisite period necessary to avoid a charge to the Company's reported
earnings and valued at the fair market value on the date of exercise, or (3) by
a combination of such methods of payment.
(d) An option shall not be transferable except by will or by the
laws of descent and distribution, and shall be exercisable during the lifetime
of the person to whom the option is granted only by such person or by his or
her guardian or legal representative, unless otherwise specified in the option,
in which case the option may be transferred upon such terms and conditions as
are set forth in the option, as the Board or the Committee shall determine in
its discretion, including (without limitation) pursuant to a "domestic
relations order" within the meaning of such rules, regulations or
interpretations of the Securities and Exchange Commission as are applicable for
purposes of Section 16 of the Exchange Act. Notwithstanding the foregoing, the
person to whom an option is granted may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the optionee, shall thereafter be entitled to
exercise the option.
(e) Except as otherwise provided in this subparagraph 6(e), an
option shall vest with respect to each optionee in three (3) equal annual
installments commencing on the date one year after the date of grant of the
option, provided that the optionee has, during the entire one year
5.
<PAGE> 6
period prior to such vesting date, continuously served as a Non-Employee
Director of the Company whereupon such option shall become fully exercisable in
accordance with its terms with respect to that portion of the shares
represented by that installment. Notwithstanding the foregoing:
(1) An option granted on the Amendment Effective Date
pursuant to subparagraph 5(c) shall vest, subject to the service conditions
specified above, on the third anniversary of the optionee's Preceding Option as
to 3,333 shares and on the second anniversary of the optionee's Preceding
Option as to the remaining balance of the shares in excess of 3,333.
(2) In the event of the voluntary resignation from the
Board of Directors or the death of a Non-Employee Director, his or her options
shall vest in full and shall be exercisable in their entirety, provided that
the optionee has, during the entire five-year period prior to such voluntary
resignation or death, continuously served as a Non-Employee Director of the
Company.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (1) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then-currently-effective
registration statement under the Securities Act of 1933, as amended (the
6.
<PAGE> 7
"Securities Act"), or (ii), as to any particular requirement, a determination
is made by counsel for the Company that such requirement need not be met in the
circumstances under the then-applicable securities laws.
(g) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the
Company shall keep available at all times the number of shares of stock
required to satisfy such options.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the options granted
under the Plan; provided, however, that this undertaking shall not require the
Company to register under the Securities Act either the Plan, any option
granted under the Plan, or any stock issued or issuable pursuant to any such
option. If the Company is unable to obtain from any such regulatory commission
or agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
options.
7.
<PAGE> 8
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is
transferred under subparagraph 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
option unless and until such person has satisfied all requirements for exercise
of the option pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant
thereto shall confer upon any Non-Employee Director any right to continue in
the service of the Company or any Affiliate or shall affect any right of the
Company, its Board or stockholders or any Affiliate to terminate the service of
any Non-Employee Director with or without cause.
(c) No Non-Employee Director, individually or as a member of a
group, and no beneficiary or other person claiming under or through him or her,
shall have any right, title or interest in or to any option reserved for the
purposes of the Plan except as to such shares of common stock, if any, as shall
have been reserved for him or her pursuant to an option granted to him or her.
(d) In connection with each option made pursuant to the Plan, it
shall be a condition precedent to the Company's obligation to issue or transfer
shares to a Non-Employee Director, or an affiliate of such Non-Employee
Director, or to evidence the removal of any restrictions on transfer, that such
Non-Employee Director make arrangements satisfactory to the Company
8.
<PAGE> 9
to insure that the amount of any federal or other withholding tax required to
be withheld with respect to such sale or transfer, or such removal or lapse, is
made available to the Company for timely payment of such tax.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or otherwise), the Plan and
outstanding options will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan and the class(es) and number of shares and
price per share of stock subject to outstanding options.
(b) In the event of: (1) a dissolution or liquidation of the
Company or sale of all or substantially all of the assets of the Company; (2) a
reorganization, merger or consolidation with respect to which persons who were
the stockholders of the Company immediately prior to such reorganization,
merger or consolidation do not, immediately thereafter, own more than 50% of
the Combined Voting Power (as defined below) of the reorganized, merged or
consolidated company's then outstanding voting securities; (3) the acquisition
(other than from the Company) by any person, entity or "group," within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (excluding for this
purpose, the Company or its Affiliates, or any employee benefit plan of the
Company or its Affiliates), of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 50% or more of either (i) the then
9.
<PAGE> 10
outstanding shares of common stock of the Company or (ii) the Combined Voting
Power; or (4) individuals who, as of the Amendment Effective Date constitute
the Board (the "Incumbent Board") ceasing for any reason to constitute at least
a majority of the Board, then the time during which such options may be
exercised shall be automatically accelerated and such options shall be
exercisable in their entirety immediately prior to such event. In addition, in
the case of a dissolution or liquidation of the Company, or a reorganization,
merger or consolidation in which the Company is not the surviving corporation
or in which more than fifty percent (50%) of the shares of the Company's common
stock outstanding immediately preceding such transaction are converted into
other property (whether in the form of securities, cash or otherwise), at the
sole discretion of the Board and to the extent permitted by applicable law, any
surviving corporation may elect to assume such options outstanding under the
Plan or may substitute similar options for those outstanding under the Plan,
and any options outstanding hereunder will terminate if not exercised or
assumed prior to such event. For purposes of this subparagraph 10(b),
"Combined Voting Power" means the combined voting power of the Company's then
outstanding securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of directors; and any
person who becomes a director subsequent to the Amendment Effective Date whose
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the Company, as
such terms are used
10.
<PAGE> 11
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be
considered as though such person were a member of the Incumbent Board.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. Except as provided in paragraph 10 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders
of the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for options
under the Plan;
(2) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act); or
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(b) Rights and obligations under any option granted before any
amendment of the Plan shall not be altered or impaired by such amendment of the
Plan unless (i) the Company requests the consent of the person to whom the
option was granted and (ii) such person consents in writing.
11.
<PAGE> 12
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on February 27, 2002. No
options may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) Rights and obligations under any option granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the consent of the person to whom the option was granted.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board of
Directors, subject to the condition subsequent that the Plan is approved by the
stockholders of the Company.
(b) No option granted under the Plan shall be exercised or
exercisable unless and until the condition of subparagraph 13(a) above has been
met.
12.
<PAGE> 1
EXHIBIT 11.1
CAERE CORPORATION
STATEMENT REGARDING COMPUTATION
OF NET EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net earnings $ 396 $ 2,397 $ 2,384
============== =============== ===============
Shares used in per share computation:
Weighted average common shares outstanding 13,120 13,172 12,649
Common stock equivalents 199 366 487
-------------- --------------- ---------------
13,319 13,538 13,136
============== =============== ===============
Primary earnings per share $ 0.03 $ 0.18 $ 0.18
============== =============== ===============
</TABLE>
<PAGE> 1
EXHIBIT 13.1
Caere Corporation Annual Report 1996
Financial Highlights
<TABLE>
<S> <C> <C> <C> <C> <C>
In thousands, except per share
Years ended December 31: 1996 1995 1994 1993 1992
Net revenues $54,528 51,939 $59,130 48,264 $57,093
Earnings (loss) before income taxes 496 2,820 3,984 (1,701) 8,965
Net earnings 396 2,397 2,384 352 4,774
Earnings ( loss) per share before
cumulative effect of change
in accounting principle .03 .18 .18 (.05) .36
Net earnings per share $ .03 $ .18 $ .18 $ .03 $ .36
Weighted average shares outstanding 13,319 13,538 13,136 12,639 13,318
As of December 31:
Cash and short-term investments $44,290 $47,765 $51,099 $39,325 $40,977
Working capital 49,793 52,650 53,729 46,552 47,340
Total assets 3,154 69,298 67,902 58,684 63,001
Total stockholders' equity 55,748 62,028 57,753 51,620 54,430
</TABLE>
<PAGE> 2
Management's Discussion & Analysis
0verview
In addition to historical information, the statements contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations include "forward looking" statements and are subject to risks and
uncertainties. The actual future results of Caere Corporation (the Company)
could differ materially from those projected in any forward looking statement.
Some factors that could cause future actual results to differ materially from
the Company's recent results or any projections in any forward looking
statement are listed below in the sections entitled "Gross Margins," "Certain
Trends," "Liquidity and Capital Resources," and other statements set forth
below, as well as in the section entitled "Risk Factors" in the Company's
report on Form 10-K for its fiscal year ended December 31, 1996. Except as may
be required by law, the Company assumes no obligation to update the forward
looking statements or such factors.
On December 18, 1996, the Company acquired Recognita Rt. (Recognita),
a developer of recognition and forms software located in Budapest, Hungary.
Under the terms of the acquisition agreement, the Company paid $3 million cash
for all of the shares of Recognita. The acquisition was accounted for using the
purchase method, and, accordingly, the operating results of Recognita are
included in the consolidated results of the Company since the date of
acquisition. In connection with this transaction, a charge to operations of
$4.4 million for acquired in-process research and development was recorded
during the Company's fourth quarter of 1996. See Note 8 of Notes to the
Consolidated Financial Statements.
Results Of Operations
The following table presents, for the periods indicated, the percentage
relationship certain items in the Consolidated Statements of Earnings bear to
net revenues:
<TABLE>
<CAPTION>
Percentage of net revenues Percentage change
1995 1994
Year ended December 31, 1996 1995 1994 to 1996 to 1995
---- ---- ---- --------- -------
<S> <C> <C> <C> <C> <C>
Net revenues 100% 100% 10% 5% (12)%
Cost of revenues 30 33 31 (4) (7)
---- ---- ---- ----- ----
Gross margin 70 67 69 9 (15)
---- ---- ---- ----- ----
Research and development 13 15 15 (11) (13)
Selling, general and administrative 48 48 44 5 (4)
Merger related costs -- 3 5 (94) (57)
In-process research and development 8 -- -- 100 --
---- ---- ---- ----- ----
Operating earnings (loss) 1 1 5 (36) (75)
Interest income 5 4 2 25 57
Write-down of investment in ZyLAB
International (5) -- -- (100) --
Earnings before income taxes 1 5 7 (82) (29)
Income tax expense -- -- 3 (76) (74)
---- ---- ---- ----- ----
Net earnings 1% 5% 4% (83)% -- %
</TABLE>
<PAGE> 3
Net Revenues
In fiscal 1996, the second full year of the Company's "bundle and
upgrade" strategy, net revenues increased 5 percent over net revenues in 1995.
Net revenues had declined 12 percent from 1994 to 1995 as the Company seeded
the expanding market for scanners with very low priced, fewer featured optical
character recognition (OCR) products by bundling those products with the
products of its scanner manufacturer partners. The objective of the strategy
is to expose more customers to the benefits of the Company's OCR technology and
then "upgrade" those customers to fully-featured products. During 1996, that
strategy resulted in unit sales of OmniPage Professional(R) upgrade products'
increasing 137 percent over 1995, offsetting a 34 percent decline in unit sales
of non-upgrade OCR products during the same period.
The following chart summarizes net revenues, cost of revenues, and
gross margins for the Company's products categorized between software and
hardware. Software products consist of the OmniPage, WordScan, OmniForm, and
PageKeeper lines of products. Hardware products consist of transaction
processing OCR and bar code products, the M/Series line of production OCR, and
in 1994, the OmniScan(R) handheld scanner product.
Business Line Analysis
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Software Hardware Software Hardware Software Hardware
In thousands Products Products Combined Product Products Combined Product Products Combined
-------- -------- -------- ------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 45,797 $ 8,731 $ 54,528 $ 41,653 $ 10,286 $ 51,939 $ 45,089 $ 14,041 $ 59,130
Cost of revenues 12,798 3,675 16,473 12,989 4,095 17,084 11,716 6,579 18,295
------ ----- ------ ------ ----- ------ ------ ----- ------
revenues
$ 32,999 $ 5,056 $ 38,055 $ 28,664 $ 6,191 $ 34,855 $ 33,373 $ 7,462 $ 40,835
Gross margin % 72.1% 57.9% 69.8% 68.8% 60.2% 67.1% 74.0% 53.1% 69.1%
------ ------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
Net revenues for software products increased 10% during 1996, to
$45,797,000 from $41,653,000 in 1995, due to increasing shipments of OCR
upgrade products, as well as increasing shipments of OmniForm products, which
began shipping in the second quarter of 1995. Net revenues of OmniPage
Professional upgrade products increased over 119 percent in 1996, while net
revenues of non-upgrade, fully-featured OCR products declined 24 percent over
the same period. In 1995, the first full year of operation under the bundle and
upgrade strategy, net revenues of software products decreased eight percent
from 1994, as a 42 percent decline in sales of non-upgrade, fully-featured
products outweighed the 144 percent increase in lower priced OmniPage
Professional upgrade products during that year.
Net revenues for hardware products decreased 15% to $8,731,000 in
1996, compared to $10,286,000 in 1995. The decrease was primarily attributable
to a decline in shipments of maturing M/Series hardware products designed for
high-volume OCR applications, as well as a decrease in shipments of transaction
processing automated data entry products. Increasing memory and microprocessor
power on today's typical PC are helping to close the gap between the "hardware"
solution to high-volume OCR needs provided by the M/Series and "software only"
solutions. Over time, our M/Series hardware products may evolve into
software-only solutions as increasing computing power continues to be adopted.
The fluctuation in revenues from automated data entry products is typical of
historical sales patterns in that line of business. The periodic award of large
sales contracts tends to make revenues in the automated data entry line
difficult to predict, and such fluctuations in net revenues are expected to
continue. Net revenues for hardware products decreased 27% to $10,286,000 in
1995, compared to $14,041,000 in 1994. This decrease was caused by the
elimination of the OmniScan handheld scanner from the product line, lower net
revenues associated with transaction processing OCR/bar code products, and
lower unit sales of M/Series products.
International sales (outside the United States) increased eight
percent during 1996, and represented 30% of net revenues during the year,
compared to 29% in 1995 and 31% in 1994. International sales totaled
$16,391,000 in 1996, $15,154,000 in 1995, and $18,125,000 in 1994. The
increase in software upgrade revenues, resulting from a full year of operation
under the bundle and upgrade model, is the primary reason for the increase in
export sales in 1996. During 1995, international sales declined 16 percent from
1994 as the transition to the bundle and upgrade strategy was made during that
year.
<PAGE> 4
Gross Margins
Gross margins for software products improved from 68.8% in 1995 to
72.1% in 1996 due to manufacturing efficiencies derived from increased unit
shipments of upgrade products as well as a reduction in software media costs.
Also, in the latter portion of fiscal 1996, the Company shifted the cost of
manufacturing its bundled products to certain of the Company's bundling
partners. Under such agreements, rather than selling manufactured product to
such partners at prices approximating cost, the Company allows such bundling
customers to produce their own requirements with a minimal royalty. This
transition has the effect of reducing the Company's revenues by amounts nearly
equal to the reduction in associated cost of revenues for such bundled product,
resulting in an improvement in the overall gross margin percentage for software
products. This type of arrangement with bundling partners is expected to
continue in 1997. During 1995, gross margins for software products declined to
68.8% from 74.0% in 1994, due to product mix changes resulting from the bundle
and upgrade strategy. In 1995, the first full year of this new business model,
increased unit volumes of both bundle and upgrade products carrying much lower
margins than non-upgrade products resulted in lower overall gross margins for
software products in that year.
Gross margins for hardware products decreased to 57.9% in 1996 from
60.2% in 1995 due to a reduction in absorption of fixed manufacturing overhead
as a result of lower unit shipments of both M/Series and automated data entry
products. In 1995, gross margins for hardware products increased to 60.2% from
53.1% in 1994, due to the discontinuance of sales of the OmniScan product,
which had significantly lower gross margins than the Company's other hardware
based products.
The primary factor affecting gross margins in the future is likely to
be shifts in product mix between fully-priced non-upgrade software, bundled
software, and upgrade products, as well as overall shifts in product mix
between software and hardware products. In addition, the microcomputer software
market has been subject to rapid changes, including significant price
competition, which can be expected to continue. Future technology or market
changes may cause certain products to become obsolete rapidly, necessitating
increased inventory write- offs or reserves and a corresponding decrease in
gross margins.
Operating Expenses
Research and development (R&D) expenses decreased 11% to $7,069,000 in
1996 from $7,915,000 in 1995. As a percentage of revenue, 1996 R&D expense
declined to 13% of net revenues from 15% in 1995. The decrease in spending from
1995 to 1996 was primarily the result of synergies created by the merger with
Calera(R) Recognition Systems late in 1994. From 1994 to 1995, R&D expenses
decreased 13% from $9,072,000 to $7,915,000, respectively. As a percentage of
revenue, 1995 R&D expense was consistent with 1994 at 15% in each year. The
decrease in spending from 1994 to 1995 was also a result of synergies created
by the merger with Calera.
The Company is committed to providing continued enhancements to
current products as well as developing new technologies for the future. This
commitment resulted in the Company's continuing to invest heavily in R&D during
1996. In accordance with Statement of Financial Accounting Standards No. 86,
the Company capitalized $561,000 of software development costs during 1996,
compared to $614,000 in 1995 and $481,000 during 1994. Amortization of
capitalized software development costs was $734,000 in 1996, compared to
$683,000 in 1995 and $662,000 during 1994.
Selling, general and administrative (SG&A) expenses increased 5% in
1996 to $26,103,000 from $24,892,000 in 1995. The increase in SG&A spending
was primarily the result of higher service and support costs resulting from the
Company's high volume unit sales and growing customer base, as well as
increased promotional costs related to the OmniForm product line. As a
percentage of revenue, 1996 SG&A expense remained consistent with 1995 at 48%
of revenue in each year. From 1994 to 1995, SG&A expenses decreased 4% from
$25,897,000 to $24,892,000, respectively. The decrease in SG&A spending was a
result of the elimination of duplicative facilities and reduction in personnel
due to synergies from the Calera acquisition. As a percentage of revenue, SG&A
increased to 48% of revenue in 1995 from 44% in 1994. This increase is
primarily attributable to a decline in overall net revenues. The Company
expects that SG&A expense may increase in dollar terms in 1997, as efforts to
expand sales and marketing activities continue in the OCR, forms, and desktop
document management areas.
In fiscal 1996, the Company recorded a $90,000 charge for additional
merger related costs associated with its 1995 proposed merger with ViewStar
Corporation. In 1995, merger related costs totaled
<PAGE> 5
$1,387,000. Of this amount, $297,000 was related to the 1994 Calera
acquisition. This charge included additional severance payments, legal, and
other transaction costs, offset partially by savings resulting from an early
buyout of a duplicative facilities lease. The remaining $1,090,000 in merger
related costs in 1995 were associated with the proposed ViewStar merger. This
amount included direct costs for investment bankers, accountants, attorneys,
and financial printing related to the transaction prior to its termination.
During 1994, the Company incurred $3,254,000 of merger related costs as a
result of the acquisition of Calera. At that time, the charge included
approximately $1,236,000 of direct transaction costs, with the balance
reflecting costs to integrate the two companies such as elimination of
redundant information systems, severance and outplacement of terminated
employees, and cancellation of certain contractual arrangements.
In connection with the acquisition of Recognita in December 1996, as
discussed in Note 8 of Notes to the Consolidated Financial Statements, a charge
to operations of $4,373,000 was recorded for in-process research and
development during the Company's fourth fiscal quarter. In-process research and
development represents the present value of the estimated cash flow expected to
be generated by Recognita- related technology, which at the acquisition date
had not yet reached the point of technological feasibility and did not have an
alternative future use.
Interest income increased by 25% in 1996 to $2,692,000 from $2,159,000
in 1995. This increase is primarily attributable to higher average cash and
short-term investment balances in 1996, as well as generally higher interest
rates on the Company's investment securities, in addition to a shift from
tax-free investments to taxable securities carrying higher rates of interest.
During 1995, interest income increased by 57% to $2,159,000 from $1,372,000 in
1994. This increase was also attributable to generally higher interest rates on
the Company's short- term investments together with the shift to taxable
securities carrying higher rates of interest during the latter part of the
year.
In the fourth quarter of 1996, the Company recorded a one-time charge
of $2,616,000 to write-down its investment in ZyLAB International, due to
ZyLAB's failure to achieve its business plan.
The effective income tax rate for the Company during 1996 was 20%,
primarily due to increased utilization of net operating loss carryforwards
reducing taxable income and use of the Company's foreign sales corporation.
Both the in-process research and development charge as well as the write-down
of the ZyLAB investment were not deductible for tax purposes in 1996. Based on
the Company's earnings history, a reduction in the valuation allowance for
deferred tax assets was made in 1996, increasing such deferred tax assets and
reducing the current year's tax expense. During 1995, the effective income tax
rate was 15%, primarily due to the tax exempt nature of a majority of the
Company's interest income and the use of its foreign sales corporation.
Additionally, none of the Company's then $22,600,000 net operating loss
carryforward was utilized in 1995 due to taxable income limitations. In future
years, depending on profitability, the Company may be able to utilize
approximately $2,700,000 of net operating loss carryforwards per year.
Certain Trends
The Company's future operating results may be affected by various
uncertain trends and factors which are beyond the Company's control. These
include, but are not limited to, adverse changes in general economic
conditions, rising costs, or the occasional unavailability of needed
components. The industry is characterized by rapid changes in the technologies
affecting optical character recognition, forms, and desktop document
management. In addition, the industry has also become increasingly competitive,
and, accordingly, the Company's results may also be adversely affected by the
actions of existing or future competitors, including their development of new
technologies, their introduction of new products, and the reduction of prices
by such competitors to gain or retain market share.
Late in 1994, the Company began to bundle limited functionality
versions of its OmniPage and WordScan software recognition software with
products from various scanner manufacturers. The Company's objective in
bundling its software products with scanners was to expand the overall market
for OCR software by providing a larger number of scanner purchasers with
experience in the advantages of optical character recognition. The success of
this model, compared to Caere's former model of selling its software primarily
into niche markets at higher unit prices and lower unit volumes, depends upon
the Company's maintaining or expanding its existing relationships with scanner
manufacturers and on a significant proportion of customers who first receive
OCR software in a bundled product deciding to
<PAGE> 6
upgrade to a newer or more fully featured version of the software. Such an
upgrade is typically sold at a substantially lower price than non- upgrade
fully featured products.
Bundled products incorporating OmniPage and WordScan began shipping in
significant quantities in the fourth quarter of 1994. Because of the lower
per-unit revenue to the Company that results from the combined sale of a
bundled product plus an upgrade, compared to the sale of a non-upgrade fully
featured version of the software, the "bundle and upgrade" program resulted in
decreased revenues from software recognition products during 1995, despite an
increase of 111% in unit sales for the year. After another full year of
operation under this selling strategy in 1996, net revenues of software
products showed an increase over 1995 of 10%, primarily resulting from the 119%
increase in revenues of OmniPage Professional upgrade products during the year.
Unit sales volume of upgrade products increased 137% from 1995 to 1996.
However, there can be no assurance that Caere's transition to the "bundle and
upgrade" business model will be successful and provide sufficient increases in
unit volume in the future to offset reduced per-unit revenue. In addition,
customers using the bundled product may defer or forego purchase of the
Company's more fully featured versions of OmniPage and WordScan products if
they find that the bundled products satisfy their recognition needs.
A significant portion of the Company's net revenues is attributable to
sales through the distribution channel. The Company's future operating results
are dependent to a certain extent on its ability to maintain its existing
relationships with such distributors.
The Company's future earnings and stock price could be subject to
significant volatility, particularly on a quarterly basis. The Company's
revenues and earnings are unpredictable until the end of each quarter due to
the Company's shipment patterns. As is common in the software industry, the
Company's experience has been that a disproportionately large percentage of
shipments has occurred in the third month of each fiscal quarter, and shipments
tend to be concentrated in the latter half of that month. Because the Company's
backlog early in a quarter is not generally large enough to assure that it will
meet its revenue targets for any particular quarter, quarterly results are
difficult to predict until the end of the quarter. A shortfall in shipments at
the end of any particular quarter may cause the results for that quarter to
fall significantly short of anticipated levels. Due to analysts' expectations
of continued growth, any such shortfall in earnings could have a very
significant adverse effect on the trading price of the Company's common stock
in any given period.
As a result of the foregoing factors and other factors which may arise
in the future, the market price of the Company's common stock may be subject to
significant fluctuations over a short period of time. These fluctuations may be
due to factors specific to the Company, to changes in analysts' earnings
estimates, or to factors affecting the computer industry or the securities
markets in general.
Liquidity And Capital Resources
Caere's financial position remains strong at December 31, 1996.
Working capital decreased to $49,793,000 from $52,650,000 at December 31, 1995.
This decrease is related to the Company's repurchase of its common stock. In
accordance with its approved share repurchase program, the Company used
$9,233,000 to repurchase 1,000,000 shares during the third quarter of 1996. The
Company has no long-term debt. The Company's cash and short-term investments
totaled $44,290,000 at December 31, 1996. The Company believes that current
cash balances and internally generated funds will be sufficient to meet its
cash requirements through 1997.
Caere generated cash from operations of $5,627,000, $3,181,000, and
$9,697,000 during the years ended December 31, 1996, 1995, and 1994,
respectively. In each year, uses of cash included modest expenditures for
capital outlays and other investments. In 1996, a share repurchase program used
$9,233,000, while in 1995 the Company invested $2,616,000 in ZyLAB
International. Over the past three years, growth of cash and short-term
investment balances was reduced by increased corporate merger and acquisition
activity.
The Company offers credit terms to qualifying customers and also sells
on a prepaid, credit card, and cash-on-delivery basis. With respect to credit
sales, the Company attempts to control its bad debt exposure through monitoring
of customers' creditworthiness and, where practicable, through participation in
credit associations that provide credit rating information about its customers.
The Company has also purchased credit insurance for certain key accounts to
reduce the potential for catastrophic losses.
<PAGE> 7
Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
December 31, In thousands, except share and per share data 1996 1995
---- ----
Assets
Current assets:
Cash and cash equivalents $ 11,663 $ 10,664
Short-term investments 32,627 37,101
Receivables 6,888 6,180
Income tax receivable -- 1,109
Inventories 2,779 2,077
Deferred income taxes 2,474 1,659
Other current assets 768 766
Total current assets 57,199 59,556
-------- --------
Property and equipment, net 4,742 5,639
Other assets 1,213 4,103
-------- --------
$ 63,154 $ 69,298
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,481 $ 2,944
Accrued expenses 3,925 3,032
Accrued merger related costs -- 930
-------- --------
Total current liabilities 7,406 6,906
Deferred income taxes -- 364
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value. authorized
2,000,000 shares; none issued or outstanding -- --
Common stock, $.001 par value. authorized
30,000,000 shares; issued and outstanding
12,630,584 and 13,283,224 shares 13 13
Additional paid-in capital 55,399 62,075
Retained earnings (deficit) 336 (60)
-------- --------
Total stockholders' equity 55,748 62,028
-------- --------
$ 63,154 $ 69,298
======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
<PAGE> 8
Consolidated Statements Of Earnings
<TABLE>
<CAPTION>
Years Ended December 31, In thousands, except per share data 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net revenues $ 54,528 $ 51,939 $ 59,130
Cost of revenues 16,473 17,084 18,295
------- ------- -------
38,055 34,855 40,835
------- ------- -------
Operating expenses:
Research and development 7,069 7,915 9,072
Selling, general and administrative 26,103 24,892 25,897
Merger related costs 90 1,387 3,254
In-process research and development 4,373 -- --
------- ------- -------
37,635 34,194 38,223
------- ------- -------
Operating earnings 420 661 2,612
Interest income 2,692 2,159 1,372
Write-down of investment in ZyLAB International (2,616) -- --
------- ------- -------
Earnings before income taxes 496 2,820 3,984
Income tax expense 100 423 1,600
------- ------- -------
Net earnings $ 396 $ 2,397 $ 2,384
======= ======= =======
Earnings per share $ .03 $ .18 $ .18
======= ======= =======
Shares used in per share calculation 13,319 13,538 13,136
======= ======= =======
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
<PAGE> 9
Consolidated Statements Of Stockholders' Equity
<TABLE>
<CAPTION>
Notes
Common stock Additional receivable Retained Total
------------ paid-in from earnings stockholders'
In thousands, except share data Shares Amount capital stockholders (deficit) equity
------ ------ ------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 12,543,041 $ 13 $ 56,448 $ -- $ (4,841) $ 51,620
Repurchase of stock (19,916) -- (311) -- -- (311)
Exercise of stock options 265,993 -- 1,956 -- -- 1,956
Issued in exchange for notes 125,109 -- 400 (400) -- --
receivable
Issued pursuant to stock purchase plan 57,192 -- 395 -- -- 395
Reissuance of treasury stock to public 75,000 -- 1,104 -- -- 1,104
Tax benefit associated with
exercise of stock options -- -- 605 -- -- 605
Net earnings -- -- -- -- 2,384 2,384
--------- ----- -------- ------ ------ --------
Balances at December 31, 1994 13,046,419 13 60,597 (400) (2,457) 57,753
Exercise of stock options 182,823 -- 914 -- -- 914
Collection of notes receivable -- -- -- 400 -- 400
Issued pursuant to stock purchase plan 69,778 -- 569 -- -- 569
Repurchase of stock (15,796) -- (64) -- -- (64)
Tax benefit associated with
exercise of stock options -- -- 110 -- -- 110
Other -- -- (51) -- -- (51)
Net earnings -- -- -- -- 2,397 2,397
--------- ----- -------- ------ ------ --------
Balances at December 31, 1995 13,283,224 13 62,075 -- (60) 62,028
Repurchase of stock (1,000,000) -- (9,233) -- -- (9,233)
Exercise of stock options 240,438 -- 1,560 -- -- 1,560
Issued pursuant to stock purchase plan 106,922 -- 650 -- -- 650
Tax benefit associated with
exercise of stock options -- -- 296 -- -- 296
Other -- -- 51 -- -- 51
Net earnings -- -- -- -- 396 396
--------- ----- -------- ------ ------ --------
Balances at December 31, 1996 12,630,584 $ 13 $ 55,399 $ -- $ 336 $ 55,748
========== ==== ======== ====== ====== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
<PAGE> 10
Consolidated Statements Of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31, In thousands 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 396 $ 2,397 $ 2,384
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 2,689 2,317 1,939
Merger related costs (930) (1,337) 2,467
Write-down of investment in ZyLAB International 2,616 -- --
Amortization of capitalized software development costs 734 683 662
Deferred income taxes (1,301) 691 (705)
Changes in operating assets and liabilities:
Receivables (708) (140) 1,722
Income tax receivable 1,109 (1,109) 1,002
Inventories (702) 478 (687)
Other current assets (2) (18) 10
Accounts payable 537 (136) 515
Accrued expenses 1,189 (645) 388
------- ------- --------
Net cash provided by operating activities 5,627 3,181 9,697
------- ------- --------
Cash flows from investing activities:
Short-term investments, net 4,474 9,952 (28,450)
Capital expenditures (1,460) (3,925) (1,362)
Capitalized software development costs (561) (614) (481)
Investment in ZyLAB International -- (2,616) --
Other assets (109) (838) 171
------- ------- --------
Net cash provided by (used for) investing activities 2,344 1,959 (30,122)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuances of common stock 2,261 1,529 3,749
Repayment of short-term borrowings -- (400) --
Collection of notes receivable from stockholders -- 400 --
Repurchase of common stock (9,233) -- --
------- ------- --------
Net cash provided by (used for) financing activities (6,972) 1,529 3,749
------- ------- --------
Net change in cash and cash equivalents 999 6,669 (16,676)
Cash and cash equivalents at beginning of year 10,664 3,995 20,671
------ ----- --------
Cash and cash equivalents at end of year $11,663 $10,664 $ 3,995
======= ======= ========
Supplemental disclosures:
Cash paid for income taxes $ 162 $ 1,636 $ 2,112
======= ======= ========
Non-cash investing and financing activities:
Options exercised in exchange for notes receivable or stock $ -- $ -- $ 711
======= ======= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
<PAGE> 11
Notes To The Consolidated Financial Statements
Note 1. Company And Significant Accounting Policies
The Company. Caere Corporation (the Company) designs, develops,
manufactures, and markets information recognition software and products. The
Company distributes a range of information recognition software and equipment
through channels of original equipment manufacturers, value added resellers,
distributors, and retail distributors.
In December 1994, the Company acquired Calera Recognition Systems,
Inc. (Calera), a developer of software and hardware for converting scanned or
faxed images into usable text and graphics. This acquisition was accounted for
under the pooling of interests method of accounting. Accordingly, the
consolidated results of the Company have been restated to include Calera's
results of operations for all periods presented.
In December 1996, the Company acquired Recognita Rt. (Recognita), a
developer of recognition and forms software and products. This acquisition was
accounted for using the purchase method of accounting. Accordingly, the
consolidated results of the Company include Recognita's results of operations
since the date of acquisition.
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 disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation. The accompanying financial statements
include the accounts of the Company and its wholly owned subsidiaries after
elimination of intercompany transactions.
Foreign Currency Translation. The financial statements of the
Company's foreign subsidiaries, where the local currency is the functional
currency, are translated using the exchange rate in effect at the end of the
year for assets and liabilities and average exchange rates during the year for
results of operations. The resulting foreign currency translation adjustments
have not been material. The Company enters into transactions denominated in
foreign currencies and includes the exchange gain or loss
arising from such transactions in current operations.
Cash, Cash Equivalents, and Short-Term Investments. Cash and cash
equivalents consist of cash on deposit with banks and highly liquid money
market instruments with original maturities of 90 days or less. Certain cash
equivalents and all investments have been classified as available-for-sale and
are stated at fair value at December 31, 1996 and 1995.
Inventories. Inventories are stated at the lower of first-in,
first-out cost or market.
Property and Equipment. Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is provided over the
estimated useful lives of the respective assets, generally three to five years,
on a straight-line basis. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lease terms or the lives of the
respective assets.
Software Development Costs. The Company capitalizes software
development costs incurred subsequent to determining a product's technological
feasibility. Such costs are amortized on a straight-line basis over the
estimated useful life of the product, generally two to three years. Included in
other assets at December 31, 1996 and 1995, are capitalized software
development costs aggregating $4,770,000 and $4,209,000, respectively, and
related accumulated amortization of $4,147,000 and $3,413,000, respectively.
Amortization is included in cost of revenues in the accompanying consolidated
statements of earnings.
Other Assets. The Company owns a minority interest in ZyLAB
International, Inc. (ZyLAB), a developer of full text indexing and retrieval
software, and accounts for such investment under the cost method. At December
31, 1995, the balance of the ZyLAB investment totaled $2,616,000. At December
31, 1996, the balance of the ZyLAB investment was written off.
Revenue Recognition. Revenue is recognized when (i) delivery has
occurred, (ii) collectibility is probable, and (iii) remaining vendor
obligations are insignificant. In addition, provisions are recorded for
<PAGE> 12
the limited rights to exchange products and price protection on unsold
merchandise granted to certain distributors.
Stock-Based Compensation. The Company uses the intrinsic value method
to account for stock-based compensation.
Income Taxes. The Company records income tax expense using the asset
and liability approach that results in the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been recognized in Caere's financial statements or tax returns. In estimating
future tax consequences, Caere generally considers all expected future events
other than enactment of changes in tax laws or rates. A valuation allowance is
recognized for the portion of deferred tax assets whose realizability is not
considered more likely than not.
Earnings Per Share. Earnings per share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the period. Common equivalent shares consist of options to purchase
common stock calculated using the treasury stock method.
Note 2. Cash Equivalents And Short-Term Investments
Certain cash equivalents and all short-term investments have been classified as
available-for-sale securities, and their estimated fair value, which
approximated their cost, was as follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31, In thousands 1996 1995
---- -----
<S> <C> <C>
Corporate bonds and notes $ 17,556 $ 15,796
Commercial paper 6,712 6,549
Certificates of deposit 3,600 --
State and municipal bonds 3,101 1,600
Corporate auction-rate preferred securities 9,995 18,700
----- ------
$ 40,964 $ 42,645
======== ========
</TABLE>
The Company's investments are classified as follows:
<TABLE>
<CAPTION>
December 31, In thousands 1996 1995
---- -----
<S> <C> <C>
Cash equivalents $ 8,337 $ 5,544
Short-term investments 32,627 37,101
------ ------
$ 40,964 $ 42,645
======== ========
</TABLE>
The estimated fair value of available-for-sale securities as of
December 31, 1996, by contractual maturity, consisted of the following:
<TABLE>
<S> <C>
In thousands
Due in one year or less $ 22,032
Due in more than one year 600
Auction-rate securities 9,995
-----
$ 32,627
========
</TABLE>
Auction-rate preferred securities are taxable investments without a
stated expiration date. The Company has the option of adjusting the respective
interest rates or liquidating these investments at auction on stated auction
dates which range from 7 to 28 days.
<PAGE> 13
Note 3. Receivables
<TABLE>
<S> <C> <C>
December 31, In thousands 1996 1995
------- -------
Trade accounts receivable $ 8,139 $ 7,743
Interest receivable 264 139
------- -------
8,403 7,882
Less allowance for returns and doubtful accounts 1,515 1,702
------- -------
$ 6,888 $ 6,180
======= =======
</TABLE>
The Company's credit risk is concentrated primarily in trade
receivables from dealers and distributors of hardware and software products who
sell into the retail market (see Note 11). Historically, the Company has not
experienced significant losses related to receivables from individual customers
or groups of customers in any particular industry.
Note 4. Inventories
<TABLE>
<CAPTION>
December 31, In thousands 1996 1995
------- -------
<S> <C> <C>
Raw materials $ 1,540 $ 1,212
Work in process 348 287
Finished goods 891 578
------- -------
$ 2,779 $ 2,077
======= =======
</TABLE>
Note 5. Property And Equipment
<TABLE>
<CAPTION>
December 31, In thousands 1996 1995
------- -------
<S> <C> <C>
Equipment $11,116 $13,012
Furniture and fixtures 1,954 2,247
Leasehold improvements 1,489 1,580
------- -------
14,559 16,839
Less accumulated depreciation and amortization 9,817 11,200
------- -------
$ 4,742 $ 5,639
======= =======
</TABLE>
Note 6. Accrued Expenses
<TABLE>
<CAPTION>
December 31, In thousands 1996 1995
------- -------
<S> <C> <C>
Accrued payroll costs $ 1,108 $ 1,478
Accrued royalties 651 829
Accrued professional fees 329 344
Income taxes payable 700 --
Other accrued expenses 1,137 381
------- -------
$ 3,925 $ 3,032
======= =======
</TABLE>
Note 7. Commitments And Contingencies
The Company leases its facilities under noncancelable operating leases
that expire in 2002. As of December 31, 1996, future minimum lease payments
under noncancelable operating leases were $668,000, $704,000, $738,000,
$772,000 and $805,000 for each of the years through the period ending December
31, 2001.
Rent expense was approximately $692,000 in 1996, $611,000 in 1995, and
$913,000 in 1994. The Company is responsible for taxes and insurance in
connection with its facilities leases.
There are certain claims against the Company arising in the normal
course of business. The extent to which these matters will be pursued by the
claimants or the eventual outcome is not presently determinable; however, the
Company believes that the ultimate resolution of these matters will not have a
material adverse effect on its consolidated financial position or results of
operations.
<PAGE> 14
Note 8. Mergers And Acquisitions
On December 20, 1994, the Company issued approximately 2.5 million
common shares in exchange for all of the capital stock and vested stock options
of Calera, and initiated a plan to combine the operations of the two companies.
This business combination has been accounted for as a pooling of interests, and
accordingly, the consolidated financial statements for periods prior to the
combination have been restated to include the results of operations, financial
position, and cash flows of Calera. On the date of the merger, the Company
recorded a $3.3 million charge related to merger transaction and integration
costs. Transaction costs consist principally of transaction fees for investment
bankers, attorneys, accountants, financial printing, and other related charges.
Other merger related costs include the elimination of redundant information
systems and equipment, severance and outplacement of terminated employees, and
cancellation of certain contractual agreements.
The Calera merger transaction and integration costs are summarized
below:
<TABLE>
<CAPTION>
Provision
recorded at
acquisition Cash Accrued as of
Period from acquisition to Dec. 31, 1994, In thousands date Write-offs payments December 31, 1994
----------- ---------- -------- -----------------
<S> <C> <C> <C> <C>
Transaction costs $ 1,236 $ -- $ 770 $ 466
Severance and outplacement 1,368 -- 9 1,359
Redundant information systems and equipment 230 200 8 22
Cancellation of facility leases 420 -- -- 420
------- ----- ----- -------
$ 3,254 $ 200 $ 787 $ 2,267
======= ===== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Accrued as of Cash Change in Accrued as of
Year ended Dec. 31, 1995, In thousands Dec. 31, 1994 Write-offs payments estimate Dec. 31, 1995
------------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Transaction costs $ 466 $ -- $ 494 $ 51 $ 23
Severance and outplacement 1,359 -- 1,321 366 404
Redundant information systems and equipment 22 -- 17 -- 5
Cancellation of facility leases 420 -- 300 (120) --
------- ------ ------- ----- -----
$ 2,267 $ -- $ 2,132 $ 297 $ 432
======= ====== ======= ===== =====
</TABLE>
<TABLE>
<CAPTION>
Accrued as of Cash Change in Accrued as of
Year ended Dec. 31, 1996, In thousands Dec. 31, 1995 Write-offs payments estimate Dec. 31, 1996
------------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Transaction costs $ 23 $ -- $ 23 $ -- $ --
Severance and outplacement 404 -- 404 -- --
Redundant information systems and equipment 5 -- 5 -- --
Cancellation of facility leases -- -- -- -- --
----- ------ ----- ------ ------
$ 432 $ -- $ 432 $ -- $ --
===== ====== ===== ====== ======
</TABLE>
The nature, timing and extent of other merger related costs follow:
Severance and Outplacement. As a result of the merger, certain
manufacturing, distribution, customer service, and administrative functions
were combined and reduced. These costs included severance and outplacement
charges related to approximately 40 terminated employees.
Redundant Information Systems and Equipment. To facilitate the
operations of the Company, the combined organization migrated to a common
management information system, which resulted in the write-off of the book
value of abandoned systems as of December 31, 1994.
Cancellation of Facility Leases. The Company consolidated duplicate
offices. An early termination was negotiated by the Company and was paid during
fiscal year 1995.
<PAGE> 15
On January 22, 1996, the Company exercised its right to terminate its
agreement to acquire ViewStar Corporation. Direct transaction costs totaling
$1,090,000 were expensed in fiscal year 1995. These costs included fees for
investment bankers, attorneys, accountants, financial printing, and other
transaction costs which were incurred through the date of termination. All such
costs were paid as of December 31, 1996. In addition to these costs, additional
ViewStar transaction expenses totaling $90,000 were recorded and paid in the
first quarter of 1996.
On December 18, 1996, the Company acquired Recognita Rt., a
recognition and forms software developer headquartered in Budapest, Hungary.
Total costs of the acquisition were $4,868,000. The purchase price of
$3,000,000 was paid in cash prior to the end of fiscal 1996. Acquisition costs
associated with the transaction totaled $1,090,000 and consisted mainly of
professional fees. The Company also assumed $778,000 of debt in conjunction
with the acquisition. This business combination was accounted for under the
purchase method of accounting. Accordingly, Recognita's results of operations
have been included in the Company's consolidated results of operations since
the date of acquisition.
The purchase price was allocated among the identifiable assets of
Recognita. Acquired technology was valued using a risk-adjusted cash flow
model, under which future expected cash flows were discounted taking into
account risks related to existing markets, the technology's life expectancy,
future target markets and potential changes thereto, and the competitive
outlook for the technology. This analysis resulted in an allocation of
$4,373,000 to in-process technology which had not yet reached technological
feasibility and had no alternative future use, and accordingly, was charged to
expense.
The following summarized, pro forma results of operations assumes the
acquisition took place at the beginning of the respective periods and excludes
the $4,373,000 charge for acquired in-process technology.
<TABLE>
<CAPTION>
Year ended December 31, In thousands, except per share amounts 1996 1995
---- ----
<S> <C> <C>
Net revenues $ 56,683 $ 54,039
Net earnings $4,446 $1,852
Earnings per share $.33 $.14
</TABLE>
Note 9. Stock Compensation Plans
At December 31, 1996, the Company has several stock-based compensation
plans, which are described below. The Company applies Accounting Principles
Board Opinion No. 25 and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its fixed stock
option plans and its stock purchase plan. Had compensation cost for such plans
been determined consistent with FASB Statement No. 123, the Company's net
earnings (loss) and earnings (loss) per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
In thousands, except per share data 1996 1995
---- ----
<S> <C> <C> <C>
Net earnings (loss) As reported $ 396 $ 2,397
Pro forma $ (396) $ 1,484
Primary earnings (loss) per share As reported $ .03 $ .18
Pro forma $ (.03) $ .11
</TABLE>
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 under each of the option plans in
1996, and 1995, respectively: dividend yield of 0% for each year; expected
volatility of 66%, and 67%; risk-free interest rates of 5.85%, and 5.75%; and
an expected life of .82 years following vesting for each year.
Under FASB Statement No. 123, compensation cost related to the 1990
Employee Stock Purchase Plan is recognized for the fair value of the employees'
purchase rights, which was estimated using the Black-Scholes model with the
following assumptions for 1996, and 1995, respectively: dividend yield of 0%
for each year; expected volatility of 66%, and 67%; risk-free interest rates of
5.85%, and 5.75%; and an expected life of one year for each year. The
weighted-average fair value per share of those purchase rights granted in 1996,
and 1995 was $2.50, and $3.06, respectively.
<PAGE> 16
Fixed Stock Option Plans. The Company has two fixed option plans.
Under the 1981 Incentive and Supplemental Stock Option Plan, the Company may
grant options to its employees for up to 3,595,000 shares of common stock.
Under the 1992 Non-Employee Directors' Stock Option Plan, the Company may grant
options to its non-employee directors for up to 230,000 shares of common stock.
Under both plans, the exercise price of each option equals the market price of
the Company's stock on the date of grant, and an option's maximum term is ten
years. Options are generally exercisable in equal installments over four years.
A summary of the status of the Company's two fixed stock option plans
as of December 31, 1996, 1995, and 1994, and changes during the years ended on
those dates is presented below (in thousands except per share data):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Weighted- Weighted- Weighted-
Average Average Average
Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,541 $ 7.91 1,514 $ 7.03 1,522 $ 6.20
Granted 487 8.65 438 9.27 1,156 8.00
Exercised (240) 6.49 (183) 5.00 (391) 5.15
Forfeited (329) 8.84 (228) 7.02 (773) 7.79
------ ----- ------ ----- ------ -----
Outstanding at end of year 1,459 $ 8.18 1,541 $ 7.91 1,514 $ 7.03
===== ====== ===== ======== ===== ======
Options exercisable at year-end 705 594 444
===== ===== =====
Weighted-average fair value of
options granted during the year $ 4.13 $ 6.30
====== ======
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996 (in thousands, except per share and life
data):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-Avg
Remaining
Contractual
Range of Number Life Weighted-Avg Number Weighted-Avg
Exercise Prices Outstanding (in years) Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$2.73 to 7.63 524 5.5 $ 7.12 352 $ 7.12
$8.00 to 8.50 293 8.9 8.27 64 8.37
$8.63 to 9.38 293 7.7 9.02 123 9.17
$9.75 to 20.00 350 7.4 10.34 166 10.13
-------------- ----- --- ------ --- ------
$2.73 to 20.00 1,459 7.1 $ 8.18 705 $ 8.30
============== ===== === ======= === ======
</TABLE>
Employee Stock Purchase Plan. Under the 1990 Employee Stock Purchase
Plan, the Company is authorized to issue up to 500,000 shares of common stock
to its full-time employees, nearly all of whom are eligible to participate.
Under the terms of the Plan, employees can choose to have up to 15 percent of
their annual earnings withheld to purchase the Company's common stock. The
purchase price of the stock is the lower of 85 percent of the market price on
either the purchase date or the offering date. Under the Plan, the Company sold
106,922 shares, 69,778 shares, and 57,192 shares to employees in 1996, 1995,
and 1994, respectively.
Shareholder Rights Plan. The Company's shareholder rights plan is
intended to protect shareholders from unfair or coercive takeover practices. In
accordance with this plan, the Board of Directors declared a dividend
distribution of one common stock purchase right on each outstanding share of
its common stock held as of May 3, 1991. Each right entitles the registered
holder to purchase from the Company one one- hundredth of a share of series A
junior participating preferred stock at $90. The rights will not be exercisable
until certain events occur. The rights are redeemable at $.01 by the Company
and expire May 3, 2001. As of December 31, 1996, 100,000 shares of the
Company's preferred stock have been reserved for this plan.
<PAGE> 17
Note 10. Income Taxes
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, In thousands 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 855 $ (423) $ 1,277
State 250 45 423
------- ----- -------
Total current 1,105 (378) 1,700
------- ----- -------
Deferred:
Federal (1,071) 573 (535)
State (230) 118 (170)
------- ----- -------
Total deferred (1,301) 691 (705)
------- ----- -------
Charges in lieu of income taxes associated
with the exercise of stock options 296 110 605
------- ----- -------
$ 100 $ 423 $ 1,600
======= ===== =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are presented
below.
<TABLE>
<CAPTION>
December 31, In thousands 1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Federal and state net operating loss and research and
experimental credit carryforwards $ 6,671 $ 7,969
Accounts receivable, principally due to allowance for doubtful accounts
and sales returns and allowances 411 500
Inventories, non-deductible lower of cost or market adjustments 327 260
Compensated absences, principally due to accrual for
financial reporting purposes 285 225
Accruals for financial statement purposes not taken for tax purposes 310 670
Property and equipment principally due to differences in depreciation 373 --
Other 46 4
-------- -------
Total gross deferred tax assets 8,423 9,628
Less valuation allowance (5,523) (7,969)
-------- -------
Net deferred tax assets $ 2,900 $ 1,659
Deferred tax liabilities:
Property and equipment, principally due to differences in depreciation -- (25)
Software development costs, principally due to capitalization and (302) (319)
amortization
Other (2) (20)
-------- -------
Total gross deferred tax liabilities (304) (364)
-------- -------
Net deferred tax benefit $ 2,596 $ 1,295
======= =======
</TABLE>
<PAGE> 18
The difference between the effective income tax rate and the U. S.
federal statutory income tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State tax, net of federal benefit 2.0 4.0 5.7
Tax exempt income -- (16.0) (9.0)
Utilization of net operating loss carryforward (239.0) -- --
Change in valuation allowance (206.0) -- --
Benefit of foreign sales corporation (35.0) (4.0) (3.4)
Non-deductible acquisition expenditures -- -- 10.5
In-process research and development non-deductible for tax purposes 283.0 -- --
ZyLAB investment write-down non-deductible for tax purposes 180.5 -- --
Other 0.7 (3.0) 2.4
20.2% 15.0% 40.2%
====== ====== ======
</TABLE>
The Company has a net operating loss carryforward for federal tax
purposes at December 31, 1996, of $17.9 million and federal research and
experimentation credit carryforwards of $441,000. Federal tax laws impose
significant restrictions on the utilization of net operating loss carryforwards
in the event of a shift in the ownership of the Company, which constitutes an
"ownership change" as defined by Internal Revenue Code Section 382. The
acquisition of Calera in December 1994 resulted in such a change. As a result,
the Company's federal net operating loss carryforwards are subject to an annual
limitation approximating $2.7 million. Any unused annual limitations may be
carried forward to increase the limitations in subsequent years.
Note 11. Major Customers And Export Sales
One distributor accounted for 28%, 22%, and 23% of net revenues in
1996, 1995, and 1994, respectively. At December 31, 1996, this distributor
accounted for 34% of trade accounts receivable. A second customer accounted
for 15%, 9%, and 2% of net revenues in 1996, 1995, and 1994, respectively. At
December 31, 1996, this distributor accounted for 8% of trade accounts
receivable. International sales, principally to Europe, were 30%, 29%, and 31%
of net revenues in 1996, 1995, and 1994, respectively.
Note 12. Quarterly Results Of Operations (Unaudited)
<TABLE>
<CAPTION>
1996, Quarter Ended Year Ended
--------------------- ----------
In thousands, except per share data Mar 31 Jun 30 Sep 30 Dec 31 Dec 31
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net revenues $ 13,556 $ 13,989 $ 13,403 $ 13,580 $ 54,528
Gross margin 9,241 9,532 9,130 10,152 38,055
In-process research and development -- -- -- 4,373 4,373
Write-down of investment in ZyLAB -- -- -- 2,616 2,616
Earnings (loss) before income taxes 1,609 1,844 1,691 (4,648) 496
Net earnings (loss) 1,300 1,475 1,522 (3,901) 396
Net earnings (loss) per share $ .10 $ .11 $ .11 $ (.31) $ .03
Shares used in per share calculations 13,459 13,820 13,342 12,596 13,319
Common stock price per share:
High $ 9.00 $ 13.38 $ 12.50 $ 11.50 $ 13.38
Low 6.63 8.63 8.00 7.63 6.63
</TABLE>
The Company has not paid cash dividends on its common stock since its
inception. The Company presently intends to retain earnings for use in its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future. The Company's stock trades on the NASDAQ National Market
System. On December 31, 1996, there were 487 holders of record of the Company's
common stock.
<PAGE> 19
Independent Auditors' Report
The Board Of Directors And Stockholders
Caere Corporation:
We have audited the accompanying consolidated balance sheets of Caere
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Caere
Corporation and subsidiaries as of December 31, 1996 and 1995 and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
San Jose, California
January 28, 1997
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Caere FSC Corporation, Guam
Caere GmbH, Germany
Recognita Rt., Hungary
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors
Caere Corporation:
We consent to incorporation by reference in the registration statements (Nos.
33-35033, 33-49114, 33-32992, 33-66430, 33-81708, 33-87824, 33-81680,
33-60027, 333-02293, and 333-10803) on Form S-8 of Caere Corporation of our
reports dated January 28, 1997, relating to the consolidated balance sheets of
Caere Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996,
and the related schedule, which reports appear or are incorporated by reference
in the December 31, 1996, annual report on Form 10-K of Caere Corporation.
KPMG PEAT MARWICK LLP
/s/ KPMG PEAT MARWICK LLP
San Jose, California
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,663
<SECURITIES> 32,627
<RECEIVABLES> 6,888
<ALLOWANCES> 1,515
<INVENTORY> 2,779
<CURRENT-ASSETS> 57,199
<PP&E> 14,559
<DEPRECIATION> 9,817
<TOTAL-ASSETS> 63,154
<CURRENT-LIABILITIES> 7,406
<BONDS> 0
0
0
<COMMON> 55,412
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 63,154
<SALES> 54,528
<TOTAL-REVENUES> 54,528
<CGS> 16,473
<TOTAL-COSTS> 37,635
<OTHER-EXPENSES> 2,616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,692
<INCOME-PRETAX> 496
<INCOME-TAX> 100
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 396
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
