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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[xx] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 1998.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________________ to _________________
Commission file number 0-18090
CAERE CORPORATION
(Exact name of registrant as specified in the charter:)
DELAWARE 94-2250509
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 COOPER COURT, LOS GATOS, CALIFORNIA 95032
(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, 1999, as reported by NASDAQ, was approximately $185,717,000.
The number of shares of the Registrant's Common Stock outstanding as of
March 1, 1999, was 12,178,138.
.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Definitive proxy statement filed with the Securities and
Exchange Commission relating to the Company's 1999 Annual
Meeting of Stockholders to be held May 11, 1999 (Part III of
Form 10-K).
(2) Portions of the Annual Report to Stockholders for the fiscal
year ended December 31, 1998 (Parts II and IV of Form 10-K).
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TABLE OF CONTENTS
PART I
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Item 1. Business................................................................... Page 2
Recent Business Model................................................... Page 2
Products................................................................ Page 3
Distribution and Support................................................ Page 9
Competition............................................................. Page 10
Product Development..................................................... Page 11
Backlog................................................................. Page 12
Manufacturing and Suppliers............................................. Page 12
Product Protection...................................................... Page 12
Employees............................................................... Page 13
Risk Factors............................................................ Page 14
Item 2. Properties................................................................. Page 17
Item 3. Legal Proceedings.......................................................... Page 17
Item 4. Submission of Matters to a Vote of Security Holders ....................... Page 17
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PART II
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Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ....................................................... Page 17
Item 6. Selected Financial Data.................................................... Page 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.............................................................. Page 17
Item 7a. Quantitative and Qualitative Disclosures about Market Risks ............... Page 17
Item 8. Financial Statements and Supplementary Data................................ Page 19
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PART III
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Item 10. Directors and Executive Officers of the Registrant ........................ Page 19
Item 11. Executive Compensation..................................................... Page 19
Item 12. Security Ownership of Certain Beneficial Owners and Management ............ Page 19
Item 13. Certain Relationships and Related Transactions............................. Page 19
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PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......... Page 20
Signatures ................................................................................... Page 22
Report on Financial Statement Schedule and Consent of Independent Auditors ................... Page 23
Financial Statement Schedule.................................................................. Page 24
</TABLE>
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FORWARD LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT ON FORM 10-K
CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE DESCRIBED HEREIN.
FACTORS THAT MIGHT CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN THE SECTIONS ENTITLED "RISK FACTORS" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." READERS SHOULD CAREFULLY REVIEW THE RISKS DESCRIBED IN OTHER
DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE QUARTERLY REPORTS ON FORM 10-Q TO BE FILED BY THE
COMPANY IN 1999. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE
FORWARD LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF THIS ANNUAL
REPORT ON FORM 10-K. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE
ANY REVISIONS TO THE FORWARD LOOKING STATEMENTS OR REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE OF THIS DOCUMENT.
PART I
ITEM 1. BUSINESS.
Caere(R) Corporation ("Caere" or the "Company") is a leading scanner
software company. It 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 electronic 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.
The Company maintains its executive offices and principal facilities at
100 Cooper Court, Los Gatos, California 95032. Its telephone number is
408-395-7000. The Company maintains a World Wide Web site at
HTTP://WWW.CAERE.COM.
RECENT BUSINESS MODEL
Fiscal 1998 was the fourth year under the Company's "bundle and upgrade"
strategy. The Company previously shifted to the bundle and upgrade model late in
1994 to take advantage of the changing dynamics in the OCR marketplace. Prior to
that, OCR was primarily a "niche" market characterized by relatively high prices
and low unit volumes. Today, driven by the increased power of personal
computers, new scanner products with significantly lower prices, continuing
improvements in OCR accuracy, and the education of the marketplace, scanning and
OCR solutions continue to reach the mainstream.
Beginning in the fourth quarter of 1994, Caere began to "bundle"
versions of its OmniPage(R), OmniPage Limited Edition(TM), and WordScan(R) OCR
software 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 rapidly 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.
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In 1998, the "bundle and upgrade" model helped to generate the results
that have been expected since the strategy's inception in 1994 and laid the
foundation for future growth in revenues. The Company shipped nearly 7,500,000
bundled units in 1998, compared to approximately 2,800,000 bundled units in
1997, and 1,800,000 bundled units in 1996. Fueled by the growing customer base
of bundled product users, the business model helped produce a seven percent
increase in revenues from Windows-based OCR software in 1998, despite
approximately a 23 percent price reduction in the retail price of upgrade
products near the beginning of the year. Another indicator of the bundle and
upgrade model's success was the 11 percent increase in unit shipments of OCR
upgrade products in 1998 compared to 1997. Customers took advantage of key
improvements in Caere's OCR technology by upgrading to the Company's
fully-featured, flagship product -- OmniPage Pro(R) for Windows 95/98/NT version
9.0 -- which began shipping in October 1998. The Company believes that bundles
and upgrades will continue to 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 if they
find that the bundled product satisfies their OCR needs.
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, which accounted for 87 percent of
total revenues in 1998, for the information management market
that offer a range of OCR, electronic 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, which accounted for 13 percent of
total revenues in 1998, 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.
Caere's products can be used with a range of computer systems, such as
IBM, IBM-compatible, and Apple Macintosh personal computers, as well as most
desktop operating systems, such as Windows, Windows 95/98, Windows NT, and
System 7. Each product is designed to accomplish the same overall goal: to
improve the speed, accuracy, and simplicity of desktop information management.
SIGNIFICANT SOFTWARE PRODUCTS
OmniPage Pro
Caere's flagship product, OmniPage Professional for Windows 95/98, and
Windows NT, is a 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. New capabilities introduced in OmniPage Pro
version 9.0 provide users the ability to recognize tables and spreadsheets.
Using Caere's True Page(R) technology, the user can maintain the layout of their
original documents. Users can also edit graphics (including color graphics)
contained on a recognized page simply by double-clicking on the image. OmniPage
Pro uses a combination of technologies, including neural networks, linguistic
analysis, character experts, and grayscale data to improve accuracy on degraded
documents.
OmniPage Pro for Macintosh includes most of the same features found in
OmniPage Pro for Windows. The program also supports Apple Events, which allows
other software programs to access OmniPage Pro.
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OmniPage Web(TM)
The Company believes that OmniPage Web is the only product of its kind.
It is a fast, easy way to convert paper documents into intelligent, structured
Web sites. Using the award-winning OmniPage Pro OCR engine and new Logical
Structure Recognition(TM) (LSR(TM)) technology, OmniPage Web outlines a scanned
document and creates a complete, dynamic Web site with separate Web pages for
each page, chapter or section; hot-links between referenced sections (for
example, "See Chapter 3"); built-in navigation; and more.
OmniPage Wizard(TM)
OmniPage Wizard is the industry's first wizard-based OCR application.
With its highly graphical interface, OmniPage Wizard walks users easily through
the OCR process. It asks users five simple questions about the documents they
want to scan and what they want to do with those scanned documents. The user
answers each question before OmniPage Wizard takes over to automatically convert
the scanned pages. OmniPage Wizard is perfect for scanner owners who want higher
levels of OCR accuracy and page format preservation capabilities than the
"limited edition" OCR bundled with their scanner. The product is designed to
appeal to less sophisticated computer users who desire extreme ease of use and
are willing to compromise the superior OCR accuracy and advanced OCR features
found in Caere's OmniPage Pro.
OmniPage Limited Edition
OmniPage Limited Edition is a limited feature version of OmniPage that
allows a 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.
Recognita Plus(R)
Recognita Plus 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
can recognize text in more than 100 languages with the addition of its Language
Enhancement(TM) Package.
Developers Kit 2000(TM)
Caere's Developers Kit 2000 is a new way to develop applications that
integrate multiple recognition technologies. Whether users require OCR, ICR,
OMR, or bar code, the Developers Kit 2000 offers the flexibility customers
demand, in a single set of developer tools. Developers Kit 2000 includes support
for Windows 95/98 and NT application development through the use of ActiveX
controls and full C libraries, which gives developers the ability to easily
create applications with a wide variety of recognition technologies using a
single kit.
PageKeeper(R) Pro(TM)
PageKeeper Pro is document management software designed to help users
get their arms around the mounds of information stored on their computers.
PageKeeper Pro enables users to organize, use, and retrieve virtually all
computer documents, including scanned paper, electronic files, and Web pages.
PageKeeper Pro automates the time-consuming work of setting up and maintaining a
collection of documents, eliminating the up-front hassles typically associated
with document management software. In addition, PageKeeper Pro provides other
advantages over current products in the category, including more sophisticated
search capabilities and superior handling of electronic documents such as word
processing files, spreadsheets, and Web pages.
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OmniForm(R)
OmniForm converts paper forms to electronic forms with the click of a
button. Simply scan or fax documents into a computer and OmniForm creates an
electronic version using Caere's OCR technologies and color Logical Forms
Recognition(TM). OmniForm users also can design their own forms, complete with
fonts, graphics, and logos, using the custom toolset and Form Assistant(TM).
OmniForm Filler(TM) allows users to efficiently fill out 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)
The Company believes that OmniForm Internet Publisher is the first
paper-to-electronic 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 and developers kit 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 ESTIMATED STREET
PRICE*
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OmniPage Pro - Windows 80486 or above based personal computer, 16 $ 499
MB RAM, 45 MB disk space, Microsoft
Windows 95/98, or NT 4.0 or later
OmniPage Pro - Windows 80486 or above based personal computer, 16 $ 99
Retail Upgrade MB RAM, 45 MB disk space, Microsoft Windows
95/98, or NT 4.0 or later
OmniPage Pro - Mac Power Macintosh or compatible, 10 MB RAM, $ 499
20 MB disk space, System 7.5 or above
OmniPage Pro - Mac Power Macintosh or compatible, 10 MB RAM, $ 99
Retail Upgrade 20 MB disk space, System 7.5 or above
OmniPage Web Pentium-based personal computer or better, $ 499
16 MB RAM, 45 MB disk space, Microsoft
Windows 95/98, or NT 4.0 or later
OmniPage Wizard 80486 or above based personal computer, 16 $ 49
MB RAM, 40 MB disk space, Microsoft Windows
95/98
Recognita Plus - Windows 80386 or above based personal computer, 4 $ 695
MB RAM, 10 MB disk space, Microsoft Windows
3.1 or later
Recognita Plus - Windows 80386 or above based personal computer, 4 $ 199
Retail Upgrade MB RAM, 10 MB disk space, Microsoft Windows
3.1 or later
Developers Kit 2000 Pentium-based personal computer or better, $2,495-$5,495
32 MB RAM, 60 MB disk space, Microsoft
Windows 95/98, or NT 4.0 or later
PageKeeper Pro - Windows Pentium-based personal computer or better, $ 49
16 MB RAM, 150 MB disk space, Microsoft
Windows 95/98, or NT 4.0 or later
OmniForm - Windows 80486 or above based personal computer, 8 $ 149
MB RAM, 15 MB disk space, Microsoft Windows
95/98 or NT 4.0 or later
OmniForm - Mac Power Macintosh or Macintosh computer with $ 149
68020 processor or above, 12 MB RAM, 10 MB disk
space, System 7.1 or above
OmniForm Internet Publisher 80486 or above based personal computer, 12 $ 895
MB RAM, 10 MB disk space, Microsoft Windows
95/98 or NT 4.0 or later
</TABLE>
* Estimated Street Prices as of March 1, 1999.
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, Lotus 1-2-3, and Microsoft Excel. Supported scanners include,
but are not limited to: Agfa, Apple, Canon, Epson, Fujitsu, Hewlett Packard,
Microtek, Mustek, Plustek, Sony, and UMAX.
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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 OCR products.
[THE OCR PROCESS PICTURE]
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 a very high degree of
accuracy on many different types of documents. The Company believes that
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, slot-reader 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 remittance processing, which is 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 5000 Series OCR Line 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 5000 Series is also widely used by government organizations,
post offices, and the public utility industry.
In 1998, Caere developed a new OCR technology for use in handheld
digital cameras. Imager OCR(TM) combines Caere's neural network OCR technology
and our highly developED programmable data entry automation validation routines
with handheld digital cameras from strategic partners in the bar code industry,
including Welch Allyn. With Caere Imager OCR, a new class of two-dimensional
data entry automation scanners read linear bar codes, 2D barcodes, and OCR. The
Company believes that this is the first commercial application of non-contact
handheld embedded OCR and also creates the first cost-effective alternative to
bar code. Development of this new technology is continuing with other strategic
partners and application form factors.
A significant portion of Caere's OCR data capture business is 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. In 1998, we completed and began shipments of the Model 5911 OEM
OCR board and read head. This new product has more font choices than its
predecessor and utilizes visible light sensing to scan ink jet imprinted
remittance documents.
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 myriad applications where value added resellers need more
functionality from bar code readers than just decoding.
Caere's Easy-Scanner(TM) Series bar code systems are decoders, or
keyboard wedges, thAT can accommodate several input devices. 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, and re-formatted 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 keyboard wedge protocols
(for simple interfacing to over 450 different types of computers and terminals).
The Company partnered with PSC, Inc., one of the industry's leading bar
code laser manufacturers to build Caere's bar code decoding and interfacing
technologies into the housing of PSC's small platform laser scanner for Caere's
distribution. This partnership gave Caere a low cost laser scanning solution
that keeps pace with the price, performance, and size requirements of the
industry. Shipments of the Caere Model 1760 Integrated Laser Scanner began in
1998.
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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>
PRODUCTS TYPICAL APPLICATIONS FEATURES AVAILABLE INTERFACES INPUT DEVICES
- -------- -------------------- -------- -------------------- -------------
<S> <C> <C> <C> <C>
OCR
5000 Series Point-of-sale Reads the following Apple Macintosh Handheld wand
fonts:
OCR/Bar Remittance processing OCR-A Full AT&T Fixed slot
Code Combo, Document control Alphanumeric Burroughs Fixed mount
1500 Series Manufacturing OCR-A Eurobanking DEC CCD scanner
applications
Document Hospitals OCR-B ECMA11 IBM Magnetic stripe
Processor, Banking OCR-B Eurobanking IBM PC and Bar code pen
Imager OCRsl Government E13B (MICR) compatibles Badge reader
Office file tracking PostNET ITT Non-contact
Office Font Numerics via industrial
handheld
digital cameras
Postal Most one-dimensional bar Etc. (over 450)
code symbologies
Dual-track magnetic stripe
Fully user programmable
BAR CODE
1000 Series, Manufacturing Reads and Apple Macintosh Wand
applications autodiscriminates
1700 Series, Inventory control the following AT&T Slot
symbologies:
2000 Series Work-in-process Code 39, Code 128, DEC Laser scanner
tracking
Shop floor control Codabar, Interleaved 2 IBM CCD scanner
of 5,
Warehousing UPC, EAN and MSI IBM PC and Magnetic stripe
Point-of-sale Plessey compatibles Badge reader
Hospital health Fully user programmable ITT
industry
Video cassette rental Dual-track Memorex
Government Magnetic stripe NCR
Document tracking UNISYS
Wyse
Etc. (over 450)
</TABLE>
DISTRIBUTION AND SUPPORT
Domestically, the Company markets its software products through
distributors, including: Ingram Micro, Merisel, and Tech Data; computer
superstores such as Best Buy, CompUSA, and Fry's Electronics; mail order houses
including PC Connection, MicroWarehouse, and Computer Discount Warehouse; and
office superstores, such as Staples and Office Depot. Software products are also
sold to end-users directly and through the Internet and marketed through scanner
manufacturers who "bundle" versions of the Company's products with their scanner
products. 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, Inc. represented
approximately 25 percent, 23 percent, and 28 percent of the Company's net
revenues during 1998, 1997, and 1996, respectively. Sales of software products
to Hewlett-Packard Company represented approximately 12 percent of the Company's
net revenues during 1998. There is considerable competition for bundling
arrangements with hardware suppliers such as Hewlett-Packard. There can be no
assurance that the nature of such relationships will continue in the future. In
addition, should these customers have a significant change in their quarterly
buying pattern or their 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. Distributors and retailers often carry
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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.
The Company markets its transaction processing OCR and bar code products
primarily through independent distributors, 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 primarily through
distributors and to end users directly. At December 31, 1998, the Company had
distributors servicing Western and Eastern Europe, Canada, South America,
Australia, New Zealand, Mexico, Africa, the Pacific Rim, 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 1998, 1997, and 1996 were approximately $22,369,000,
$18,659,000, and $16,367,000, respectively. In most cases, the Company bills its
international customers in U.S. dollars; therefore, such revenues are not
subject to foreign currency fluctuations.
The Company's agreements with its distributors generally provide for a
limited right of return, with the distributor receiving full credit of 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 1998, 1997, and 1996, returns
represented 2.4 percent, 2.6 percent, and 3.2 percent 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 approximately 40
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. In 1998, the Company established additional
European sales offices - Caere BV and Caere SARL - in Amsterdam, The
Netherlands, and Paris, France, respectively. Domestically, software product
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, and that
the software will function substantially in accordance with the documentation,
for three months. The Company outsources a portion of its technical support and
customer service volume to third party providers of such support. This allows
the Company to maintain a consistent level of support from internal personnel
while increasing or decreasing the level of outsourced support during periods of
fluctuating customer demand.
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
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<PAGE> 12
features and functions, price/performance characteristics, brand recognition,
and quality of product support. Caere's competition within the microcomputer
software industry ranges from large 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:
OCR -- The OmniPage, WordScan, and Recognita families of OCR products
contend with competition in two markets. First, several companies offer packaged
OCR application programs through the retail distribution channel. These include
ScanSoft, Inc. ("ScanSoft") 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 OCR 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 other hardware. Competitors include
ScanSoft 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 shrink-wrap product.
Document Management -- PageKeeper has several direct competitors
offering competing products in the growing desktop document management market.
The competing products include, but are not limited to, PaperPort Deluxe and
Pagis by ScanSoft, and Paper Master by eFax.com Inc. (formerly JetFax, Inc.).
With decreasing prices driving affordable scanning solutions into the
mainstream, Caere expects to face increasing competition in the product category
from a variety of software developers in the future.
Electronic Forms -- OmniForm competes against various products in the
electronic forms marketplace. In the forms creation segment, where OmniForm's
technology takes an existing paper form and converts it into an electronic
version, OmniForm competes with products like FormTool Scan & OCR by IMSI. In
the forms design and print segment of the electronic forms market, OmniForm
competes with products such as Form Tool Gold by IMSI and FormFlow by JetForm
Corporation ("JetForm"). In the form filling and submit segment of the
electronic forms market, OmniForm competes with products including FormFlow by
JetForm. In the Internet/intranet publish and submit segment of the electronic
forms market, OmniForm competes with FormFlow by JetForm and Acrobat by Adobe
Systems, Inc.
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, electronic forms,
and desktop document management products have recently 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. Furthermore, given the
Company's reliance on it's "bundle and upgrade" strategy, more frequent product
updates must be brought to market to continue to provide customers with
compelling reasons to upgrade to improved products. The Company has established
a goal of releasing upgrades of its OCR, electronic forms, and document
management products on a twelve-month cycle.
To accomplish this objective, the Company has recently increased its
investment in various software development projects significantly. During 1998,
1997, and 1996, research and product development expenses were approximately
$12,442,000, $9,370,000, and $7,069,000, respectively. In addition to internal
product
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<PAGE> 13
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 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.
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 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.
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, 1998, was
approximately $813,000, as compared to backlog at December 31, 1997, of
approximately $930,000. Backlog primarily represents orders for the Company's
hardware products, which represented approximately 13 percent of net revenues
during 1998. 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 outsources a majority of the duplication and production of
its software products to third parties. These vendors procure all required
components, including compact disks, floppy disks, product manuals, boxes, and
other product literature, and manufacture completed software products for
delivery to the Company. Such manufacturing services are available from multiple
vendors. However, an interruption or failure by an existing manufacturing
supplier could result in a delay in shipment of Caere products.
The Company's manufacturing operations for its OCR and bar code hardware
products 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.
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 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. These patents expire on various dates
between 2005 and 2016. Assurance cannot be
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<PAGE> 14
given 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 it 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 assurances 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, 1998, Caere employed 295 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.
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.
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<PAGE> 15
RISK FACTORS
Caere's future operating results may be affected by various factors that
are beyond the Company's control. Accordingly, in addition to the factors
described elsewhere in the Form 10-K, the following trends, issues, and
uncertainties, among others, should be considered in evaluating the Company's
growth and performance outlook.
RAPID TECHNOLOGICAL CHANGE AND INDUSTRY CONSOLIDATION
Rapid change and uncertainty due to new and emerging technologies
characterize the PC software industry. The introduction of competing products
embodying new technologies and the emergence of new industry standards can
render existing products obsolete and unmarketable. In addition, consolidation
in the software industry continues to occur, with competing companies merging or
acquiring other companies in order to capture market share or expand product
lines. As this consolidation occurs, the nature of the market may change as a
result of fewer players dominating particular markets, potentially providing
consumers with fewer choices. Any of these changes or factors may have a
material adverse impact on the Company's future revenues, operating results, or
financial condition.
SCANNER GROWTH RATES
The underlying scanner unit growth rate directly impacts the Company's
software revenue growth. A reduction in the scanner shipment growth rate may
adversely impact the Company's future software revenue opportunity.
PRODUCT SHIPMENT SCHEDULES
Delays in new product releases adversely affect revenue growth rates and
cause operational inefficiencies that impact manufacturing and distribution
logistics, distributor and OEM relationships, and customer support expenses. In
addition, as is common in the software industry, the Company operates with
relatively little backlog. As a result, delays in product shipments or weakness
in the near-term demand for the Company's products could have an immediate,
material adverse affect on revenues and operating results, which would likely
result in a significant and precipitous drop in the Company's stock price.
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 have 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 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.
CUSTOMER ACCEPTANCE
Caere believes that it will be necessary to continue to introduce new
products to remain competitive. While Caere performs extensive usability and
beta testing of new products, user acceptance and consumer penetration rates
ultimately dictate the success of development and marketing efforts.
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<PAGE> 16
TECHNICAL SUPPORT
Consistent with many companies in the software industry, technical
support costs comprise a significant portion of the Company's operating costs
and expenses. The Company's technical support levels are based largely on
projections of future sales levels. While the Company performs extensive quality
control review over both technical support services provided by its corporate
personnel and, to a lesser extent, support services outsourced to third-party
vendors, customer satisfaction with the services rendered may not be favorable.
In the event of customer dissatisfaction, future product and upgrade sales to
that customer base may be negatively impacted.
PRICES
Future product prices may decrease from historical levels, depending on
competitive market and cost factors. International software prices vary by
country and are generally higher than in the United States to cover higher costs
of distribution and localization expenses. Increased global competition,
European monetary unification, or other factors could erode such price uplifts
in the future. In the event of product price reductions either domestically or
internationally, the Company's future operating results and financial condition
may be adversely impacted.
Product upgrades, which enable users to upgrade from both limited
edition and earlier versions of the Company's products, have lower prices and
margins than fully priced, non-upgrade products. As the desktop applications
market continues to saturate, the sales mix has shifted from fully priced,
non-upgrade products to upgrade products. This trend is likely to continue, and
it could have a material adverse impact on the Company's future operating
results and financial condition.
DISTRIBUTION CHANNELS
Caere may not be able to develop an effective method of distributing its
software products utilizing newly emerging software distribution channels,
including the Internet. Even if successful, the presence of new channels could
adversely affect existing channels and product pricing, which could have a
material adverse impact on future operating results and financial condition.
Caere currently offers its software products over the Internet.
A significant portion of Caere's revenue is attributable to its upgrade
strategy. Upgrades are derived from three primary sources. First, from previous
customers who are seeking the improvements of the latest versions of Caere's
OCR, electronic forms, and document management software products. Second, from
customers who are upgrading from competitive products. And third, from a limited
edition version of the Company's product that was bundled with various scanner
manufacturer products. If previous Caere customers or the customers of
competitive products decline to upgrade or if customers using a bundled product
defer or forego the purchase of the Company's newer or more fully featured
products because they determine that the bundled product satisfies their needs,
it could have a material adverse impact on future revenues and operating
results.
Caere's future revenues and operating results may be negatively affected
by channel fill. Distributors may fill their distribution channels in
anticipation of price increases, sales promotions, or incentives. Channels may
also become filled simply because distributors do not sell their inventories to
retail distribution or retailers to end users as anticipated. If sell-through
does not occur at a sufficient rate, distributors will delay purchases, cancel
orders, or return prior purchases in an effort to reduce their inventories.
Further, distributors may also delay purchases, cancel orders, or return
products in anticipation of a new product or version release. While such channel
fill, order delays or cancellations can cause fluctuations in net revenues from
one quarter to the next, the impact is mitigated by the Company's deferral of
revenue associated with inventories estimated to be in excess of appropriate
levels in the distribution and retail channels. Furthermore, the Company
estimates and maintains reserves for product returns. A material adverse impact
on revenue and operating results, however, can occur.
LONG-TERM RESEARCH AND DEVELOPMENT CYCLE
Developing and localizing software is expensive and often involves a
long payback cycle. The Company plans to continue to make significant
investments in R&D and related product opportunities. Significant revenues from
these efforts in some cases are not expected for several years. Management
expects total spending for R&D in 1999 to increase over spending in 1998.
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INTERNATIONAL OPERATIONS
Caere's international operations are subject to certain risks common to
international operations, such as government regulations, import restrictions,
currency fluctuations, economic volatility, repatriation restrictions, and
seasonal reductions in business activity during summer months in Europe and
certain other parts of the world. One or more of these factors could have a
material adverse impact on the Company's business, revenues, operating results,
or financial condition.
EMPLOYEE RECRUITING AND RETENTION
Caere believes that its future success depends on its continuing ability
to attract and retain highly qualified technical, sales, financial, and
managerial personnel. Competition for such people, however, is intense. The
Company believes, therefore, that it must provide employees with a competitive
compensation package, which necessitates the continued availability of stock
options which, in turn, requires ongoing stockholder approval.
FUTURE GROWTH RATE
The revenue growth rate in 1999 and future periods may not approach the
level attained in prior years. As discussed previously, operating expenses are
expected to increase in 1999. Because of the fixed nature of a significant
portion of such expenses, coupled with the possibility of slower revenue growth,
operating margins in 1999 may decrease from those in 1998.
LACK OF PRODUCT REVENUE DIVERSIFICATION
Caere derived approximately 69 percent of sales in 1998, and 72 percent
of sales in each of 1997 and 1996, 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 near 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 HARDWARE PRODUCTS
In 1998, 1997, and 1996, Caere derived approximately 13 percent, 13
percent, and 14 percent, 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 prices for Caere Common Stock have fluctuated widely in the past.
The management of the Company 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 prices for Caere
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 the
Company's results of operations.
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. Caere's Board has 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 Rights Plan (the "Shareholder
Rights Plan"). The effect of the antitakeover protections of the Delaware Law,
the Caere charter documents and the Shareholder Rights Plan
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could be to make it more difficult for a third party to acquire, or could
discourage a third party from acquiring, a significant portion of the
outstanding stock of Caere.
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 2004. In addition, the Company leases office and
storage space in five locations in the United States for use by its regional
development and 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. As of December 31, 1998, neither Caere BV nor Caere
SARL leased office space in The Netherlands and France, respectively. It is
expected that office leases will be executed in 1999 for these European offices.
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 1998 Annual
Report to Stockholders entitled "Quarterly Results of Operations," page 30.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference to the section of the Company's 1998 Annual
Report to Stockholders entitled "1998 Financial Highlights," page 3.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference to the section of the Company's 1998 Annual
Report to Stockholders entitled "Management's Discussion and Analysis," pages 14
through 18.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
FOREIGN CURRENCY HEDGING INSTRUMENTS
The Company transacts business in various foreign currencies, primarily
in certain European countries and Japan. Accordingly, the Company is subject to
exposure from movements in foreign currency exchange rates. This exposure is
primarily related to forint denominated licenses in Hungary and Eastern Europe,
yen denominated licenses in Japan, and local currency denominated operating
expenses in Europe.
A portion of the Company's operating expenses in Japan are in yen, which
mitigates a portion of the exposure related to yen denominated licenses in
Japan. Likewise, a majority of the Company's operating expenses in Hungary are
denominated in forints, mitigating a portion of the exposure related to forint
denominated licenses in
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Eastern Europe. In addition, the Company hedges firmly committed transactions
using primarily forward contracts with maturities of less than three months. As
of December 31, 1998, there were no outstanding foreign currency forward
exchange contracts. The Company's hedging policy is designed to reduce the
impact of foreign currency exchange rate movements, and any gain or loss in the
hedging instruments is expected to be offset by a corresponding gain or loss in
the underlying exposure being hedged.
The Company does not use derivative financial instruments for
speculative trading purposes, nor does the Company hedge its foreign currency
exposure in a manner that entirely offsets the effects of changes in foreign
exchange rates.
The Company currently does not use financial instruments to hedge local
currency denominated operating expenses in Europe. Instead, the Company believes
that a natural hedge exists, in that local currency revenue from product
upgrades substantially offsets the local currency denominated operating
expenses. The Company assesses the need to utilize financial instruments to
hedge European currency exposure on an ongoing basis.
The Company regularly reviews its hedging program and may as part of
this review determine at any time to change its hedging program.
FIXED INCOME INVESTMENTS
As of December 31, 1998, the Company had an investment portfolio of
fixed income securities, including those classified as cash equivalents of $42.2
million. These securities are subject to interest rate fluctuations. An increase
in interest rates could adversely affect the market value of the Company's fixed
income securities. As of December 31, 1998, the weighted-average, pre-tax
interest rate on the Company's fixed income securities was approximately 5.73
percent.
The Company does not use derivative financial instruments in its
investment portfolio to manage interest rate risk. The Company does, however,
limit its exposure to interest rate and credit risk by establishing and strictly
monitoring clear policies and guidelines for its fixed income portfolios. The
guidelines limit the maximum duration of portfolios, establish credit quality
standards, limits on exposure to one issue, issuer, as well as the type of
instrument. Due to the limited duration and credit risk criteria established in
the Company's guidelines, the exposure to market and credit risk is not expected
to be material.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated by reference to the sections of the Company's 1998 Annual
Report to Stockholders, pages 19 through 30.
Supplementary data for the year ended December 31, 1997, is as follows:
QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997, Quarter Ended Year
---------------------------------------- Ended
Mar 31 Jun 30 Sep 30 Dec 31 Dec 31
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues $ 12,572 $ 12,751 $ 14,069 $ 15,626 $ 55,018
Gross margin 8,856 9,398 10,621 11,823 40,698
In-process research and development 2,935 -- -- -- 2,935
Earnings (loss) before income taxes (1,831) 1,124 2,116 2,608 4,017
Net earnings (loss) (1,941) 1,012 1,852 2,217 3,140
Basic earnings (loss) per share $ (.15) $ .08 $ .14 $ .17 $ .24
Diluted earnings (loss) per share $ (.15) $ .08 $ .14 $ .17 $ .24
Weighted average shares used in
per share calculations:
Basic 12,682 13,280 13,310 13,212 13,123
Diluted 12,682 13,320 13,402 13,387 13,265
Common stock price per share:
High $ 12.88 $ 8.75 $ 9.38 $ 9.19 $ 12.88
Low 7.13 6.00 7.02 8.00 6.00
</TABLE>
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 1999 Annual Meeting of Stockholders entitled "Election
of Directors" and "Management."
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference to the sections of the Company's definitive
proxy statement for the 1999 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 1999 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 1999 Annual Meeting of Stockholders entitled "Executive
Compensation," "Compensation of Directors," and "Stock Option Grants and
Exercises."
19
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, 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 1998 Annual Report to Stockholders:
<TABLE>
<CAPTION>
ANNUAL REPORT TO
STOCKHOLDERS
----------------
<S> <C>
Consolidated Balance Sheets as of December 31, 1998 and 1997 Page 19
Consolidated Statements of Earnings for each of the years in the
three-year period ended December 31, 1998 Page 20
Consolidated Statements of Stockholders' Equity for each of the years in the
three-year period ended December 31, 1998 Page 21
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1998 Page 22
Notes to Consolidated Financial Statements Pages 23-30
Independent Auditors' Report Page 30
</TABLE>
With the exception of the information expressly incorporated by
reference into Items 5, 6, 7, and 8 of this Annual Report on Form 10-K,
the 1998 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 on Form 10-K 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
1998 Annual Report to Stockholders, filed as Exhibit 13.1.
20
<PAGE> 22
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization dated as of October 14, 1994,
between the Company and Calera Recognition Systems, Inc.(5)
3.1 Certificate of Incorporation of the Company (exhibit 3.4)(1)
3.1(i) Certificate of Amendment filed with the Delaware Secretary
of State October 13, 1994(6)
3.1(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 (Exhibit 3.5)(6)
3.2 By-laws of the Company (exhibit 3.4)(8)
3.3 Amended Bylaws
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(8)
*10.2 1981 Supplemental Stock Option Plan, as amended, and related form
of supplemental stock option agreement(8)
10.3 Lease Agreement for 100 Cooper Court, dated November 27, 1991
between the Company and Vasona Business Park(7)
10.4 Lease Agreement for 104 Cooper Court, dated November 27, 1991
between the Company and Vasona Business Park(7)
10.5 Form of Indemnity Agreement between the Company and its officers
and directors (exhibit 10.12)(1)
*10.7 Employee Stock Purchase Plan (exhibit 10.6)(8)
*10.8 1992 Officer Bonus Plan (exhibit 10.9)(4)
*10.9 1992 Non-Employee Directors' Stock Option Plan (exhibit 10.8)(8)
10.10 Preferred Share Purchase Rights Plan (exhibit 1)(3)
*10.11 Executive Compensation and Benefits Continuation Agreement, Robert
G. Teresi, dated December 28, 1994.(6)
10.12 2000 Stock Option Plan
10.13 2000 Employee Stock Purchase Plan
11.1 Statement regarding computation of net earnings (loss) per share
13.1 1998 Annual Report to Stockholders
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
24.1 Power of Attorney. Reference is made to the signature page
27.1 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 corresponding exhibit in the Company's
Form 10-K Annual Report for the fiscal year ended December 31, 1990.
(3) Incorporated by reference to the indicated exhibit in the Company's Form
8-K Current Report filed on April 18, 1991.
(4) 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.
(5) Incorporated by reference to Caere's Registration Statement on Form S-4
(File No. 33-85840).
(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, 1994.
(7) 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.
(8) 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, 1996.
21
<PAGE> 23
(b) REPORTS ON FORM 8-K.
None.
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, 1999 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, March 25, 1999
- -------------------------- Chief Executive Officer
Robert G. Teresi (Principal Executive Officer)
/S/James K. Dutton Director March 25, 1999
- --------------------------
James K. Dutton
/S/Robert J. Frankenberg Director March 25, 1999
- --------------------------
Robert J. Frankenberg
/S/Betsy S. Atkins Director March 25, 1999
- --------------------------
Betsy S. Atkins
/S/Joseph J. Francesconi Director March 25, 1999
- --------------------------
Joseph J. Francesconi
/S/Blanche M. Sutter March 25, 1999
- -------------------------- Executive Vice President,
Blanche M. Sutter Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
</TABLE>
22
<PAGE> 24
Report on Financial Statement Schedule and Consent of Independent Auditors
23
<PAGE> 25
SCHEDULE II
CAERE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Allowance for returns, coop advertising
and other customer credits $1,702 $1,578 $ -- $1,765 $1,515
===============================================================
Reserve for excess and obsolete
inventories $ 310 $1,033 $ -- $ 734 $ 609
===============================================================
Accumulated amortization of
software development costs $3,413 $ 734 $ -- $ -- $4,147
===============================================================
YEAR ENDED DECEMBER 31, 1997
Allowance for returns, coop advertising
and other customer credits $1,515 $2,189 $ -- $1,617 $2,087
===============================================================
Reserve for excess and obsolete
inventories $ 609 $ 975 $ -- $ 781 $ 803
===============================================================
Accumulated amortization of
software development costs $4,147 $ 508 $ -- $ -- $4,655
===============================================================
YEAR ENDED DECEMBER 31, 1998
Allowance for returns, coop advertising
and other customer credits $2,087 $2,341 $ -- $2,471 $1,957
===============================================================
Reserve for excess and obsolete
inventories $ 803 $1,100 $ -- $1,139 $ 764
===============================================================
Accumulated amortization of
software development costs $4,655 $ 678 $ -- $ -- $5,333
===============================================================
</TABLE>
24
<PAGE> 26
CAERE CORPORATION
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization dated as of October 14, 1994,
between the Company and Calera Recognition Systems, Inc. (5)
3.1 Certificate of Incorporation of the Company (exhibit 3.4)(1)
3.1(i) Certificate of Amendment filed with the Delaware Secretary
of State October 13, 1994(6)
3.1(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 (Exhibit 3.5)(6)
3.2 By-laws of the Company (exhibit 3.4)(8)
3.3 Amended Bylaws
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(8)
*10.2 1981 Supplemental Stock Option Plan, as amended, and related form
of supplemental stock option agreement(8)
10.3 Lease Agreement for 100 Cooper Court, dated November 27, 1991
between the Company and Vasona Business Park(7)
10.4 Lease Agreement for 104 Cooper Court, dated November 27, 1991
between the Company and Vasona Business Park(7)
10.5 Form of Indemnity Agreement between the Company and its officers
and directors (exhibit 10.12)(1)
*10.7 Employee Stock Purchase Plan (exhibit 10.6)(8)
*10.8 1992 Officer Bonus Plan (exhibit 10.9)(4)
*10.9 1992 Non-Employee Directors' Stock Option Plan (exhibit 10.8)(8)
10.10 Preferred Share Purchase Rights Plan (exhibit 1)(3)
*10.11 Executive Compensation and Benefits Continuation Agreement, Robert
G. Teresi, dated December 28, 1994.(6)
10.12 2000 Stock Option Plan
10.13 2000 Employee Stock Purchase Plan
11.1 Statement regarding computation of net earnings (loss) per share
13.1 1998 Annual Report to Stockholders
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
24.1 Power of Attorney. Reference is made to the signature page
27.1 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 corresponding exhibit in the Company's
Form 10-K Annual Report for the fiscal year ended December 31, 1990.
(3) Incorporated by reference to the indicated exhibit in the Company's Form
8-K Current Report filed on April 18, 1991.
(4) 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.
(5) Incorporated by reference to Caere's Registration Statement on Form S-4
(File No. 33-85840).
(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, 1994.
(7) 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.
(8) 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, 1996.
<PAGE> 1
EXHIBIT 3.3
AMENDED BYLAWS
OF
CAERE CORPORATION
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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 Meetings..........................................................2
Section 6. Special Meetings.........................................................4
Section 7. Notice of Meetings.......................................................5
Section 8. Quorum...................................................................5
Section 9. Adjournment and Notice of Adjourned Meetings.............................5
Section 10. Voting Rights............................................................6
Section 11. Joint Owners of Stock....................................................6
Section 12. List of Stockholders.....................................................6
Section 13. Action Without Meeting...................................................7
Section 14. Organization.............................................................7
ARTICLE IV DIRECTORS.........................................................................7
Section 15. Number and Term of Office................................................7
Section 16. Powers...................................................................8
Section 17. Classes of Directors.....................................................8
Section 18. Newly Created Directorships and Vacancies................................8
Section 19. Resignation..............................................................8
Section 20. Removal..................................................................9
Section 21. Meetings.................................................................9
Section 22. Quorum and Voting.......................................................10
Section 23. Action Without Meeting..................................................10
Section 24. Fees and Compensation...................................................10
Section 25. Committees..............................................................10
Section 26. Organization............................................................12
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE V OFFICERS..........................................................................12
Section 27. Officers Designated.....................................................12
Section 28. Tenure and Duties of Officers...........................................12
Section 29. Delegation of Authority.................................................14
Section 30. Resignations............................................................14
Section 31. Removal.................................................................14
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...........................15
ARTICLE VII SHARES OF STOCK.................................................................15
Section 34. Form and Execution of Certificates......................................15
Section 35. Lost Certificates.......................................................16
Section 36. Transfers...............................................................16
Section 37. Fixing Record Dates.....................................................16
Section 38. Registered Stockholders.................................................17
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION............................................17
Section 39. Execution of Other Securities...........................................17
ARTICLE IX DIVIDENDS........................................................................18
Section 40. Declaration of Dividends................................................18
Section 41. Dividend Reserve........................................................18
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.....................................................................23
Section 45. Amendments..............................................................23
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, Section 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, Section 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, Section
211(a))
1
<PAGE> 5
SECTION 5. ANNUAL MEETINGS.
(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. Nominations of persons
for election to the Board of Directors of the corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by
any stockholder of the corporation who was a stockholder of record at the time
of giving of notice provided for in the following paragraph, who is entitled to
vote at the meeting and who complied with the notice procedures set forth in
Section 5. (Del. Code Ann., tit. 8, Section 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. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the General Corporation Law of Delaware, (iii) if the
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be
2
<PAGE> 6
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "1934 Act") and Rule 14a-11
thereunder (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (B) as to any
other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (C) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner, (ii) the class and number of
shares of the corporation which are owned beneficially and of record by such
stockholder and such beneficial owner, and (iii) whether either such stockholder
or beneficial owner intends to deliver a proxy statement and form of proxy to
holders of, in the case of the proposal, at least the percentage of the
corporation's voting shares required under applicable law to carry the proposal
or, in the case of a nomination or nominations, a sufficient number of holders
of the corporation's voting shares to elect such nominee or nominees (an
affirmative statement of such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section
5(b) of these Bylaws to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred (100) days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Section 5 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5,
in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect
3
<PAGE> 7
any rights of stockholders to request inclusion of proposals in the corporation
proxy statement pursuant to Rule 14a-8 under the 1934 Act.
(f) 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 1934 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 of
Directors, (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 of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors, shall fix.
(b) If a special meeting is properly 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 of Directors, 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,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and 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. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly 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.
(c) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
4
<PAGE> 8
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
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, Sections 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 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, Section 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
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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, Section
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, Sections 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 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,
Section 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, Section 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
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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, Section 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 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
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bylaw duly adopted by the Board of Directors. The number of directors presently
authorized is five (5). 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, Sections 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, Section 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,
Section 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 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
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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, Sections 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, Section 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, Section 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, Section 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 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, Section 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, Section 229)
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(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, Section 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, Section 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,
Section 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 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, Section 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, Section 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
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(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, Section 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, Section 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 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, Section 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
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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, Sections 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 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, Sections 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, Section 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
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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, Section 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, Section 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, Section 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 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, Section 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
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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, Section 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, Section 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.
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, Sections 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
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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,
Sections 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, Sections 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, Section 123)
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,
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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, Section 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, Section 167)
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, Section 201, tit. 6, Section 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, Section 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
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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, Section 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, Sections 213(a), 219)
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.
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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, Sections 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, Section 171)
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
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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 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
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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 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
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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 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,
Section 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, Section
222)
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(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.
(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, Section 230 )
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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, Sections 109(a), 122(6))
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, Section 143)
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EXHIBIT 10.12
CAERE CORPORATION
2000 STOCK OPTION PLAN
ADOPTED MARCH 10, 1999
APPROVED BY STOCKHOLDERS _______________, 199
TERMINATION DATE: MARCH 9, 2009
1. PURPOSES.
(a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Employees, Directors and Consultants of the Company and its Affiliates.
(b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which eligible recipients of Options may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of the following
Options: (i) Incentive Stock Options, and (ii) Nonstatutory Stock Options.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Options, to secure and
retain the services of new members of this group and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means Caere Corporation, a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, (1) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (2) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
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(h) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director of the
Company will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave, military
leave or any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
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(p) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either
(i) is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a 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 promulgated
pursuant to the Securities Act ("Regulation S-K")), 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.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(u) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(v) "OUTSIDE DIRECTOR" means a Director of the Company 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.
(w) "PLAN" means this Caere Corporation 2000 Stock Option Plan.
(x) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(y) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(z) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to 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.
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3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board will administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Options; when and how each Option shall be
granted; what type or combination of types of Option shall be granted; the
provisions of each Option granted (which need not be identical), including the
time or times when a person shall be permitted to receive stock pursuant to an
Option; and the number of shares with respect to which an Option shall be
granted to each such person.
(ii) 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.
(iii) To amend the Plan or an Option as provided in Section 11.
(iv) 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 which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. 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 any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), 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.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (i) delegate to a committee of one or
more members of the Board who are not Outside Directors, the authority to grant
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<PAGE> 5
Options to eligible persons who are either (a) not then Covered Employees and
are not expected to be Covered Employees at the time of recognition of income
resulting from such Option or (b) not persons with respect to whom the Company
wishes to comply with Section 162(m) of the Code and/or (ii) delegate to a
committee of one or more members of the Board who are not Non-Employee Directors
the authority to grant Options to eligible persons who are not then subject to
Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Options shall not exceed in the aggregate four hundred thousand (400,000) shares
of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Option shall revert to
and again become available for issuance under the Plan. If any Common Stock
acquired pursuant to the exercise of an Option shall for any reason be
repurchased by the Company under an unvested share repurchase option provided
under the Plan, the stock repurchased by the Company under such repurchase
option shall not revert to and again become available for issuance under the
Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC OPTIONS. Incentive Stock Options may be
granted only to Employees. Nonstatutory Stock Options may be granted to
Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS. No Ten Percent Stockholder shall be
eligible for the grant of an Incentive Stock Option unless the exercise price of
such Option is at least one hundred ten percent (110%) of the Fair Market Value
of the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Options covering more than three hundred thousand (300,000) shares of
the Common Stock during any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option. The
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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) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock 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. Notwithstanding the foregoing, an Incentive Stock Option
may be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock 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. Notwithstanding the foregoing, a Nonstatutory Stock Option
may be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(d) CONSIDERATION. 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 at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) by delivery to the
Company of other Common Stock, according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Optionholder or in any other
form of legal consideration that may be acceptable to the Board; provided,
however, that at any time that the Company is incorporated in Delaware, payment
of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded 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.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
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 Optionholder
only by the Optionholder. Notwithstanding the foregoing provisions of this
subsection 6(e), the Optionholder 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 Optionholder, shall thereafter be entitled to
exercise the Option.
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(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock 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 Optionholder only by the Optionholder. Notwithstanding the foregoing
provisions of this subsection 6(f), the Optionholder 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 Optionholder, shall thereafter be
entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service (or
such longer or shorter period specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionholder does not exercise his or her Option within
the time specified in the Option Agreement, the Option shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in subsection 6(a) or (ii) the expiration of a period of
three (3) months after the termination of the Optionholder's Continuous Service
during which the exercise of the Option would not be in violation of such
registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period specified in the
Option Agreement) or (ii) the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
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(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date of death) by the
Optionholder's estate, by a person who acquired the right to exercise the Option
by bequest or inheritance or by a person designated to exercise the option upon
the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within
the period ending on the earlier of (1) the date eighteen (18) months following
the date of death (or such longer or shorter period specified in the Option
Agreement) or (2) the expiration of the term of such Option as set forth in the
Option Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased may be subject to an unvested share repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate.
(m) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionholder to a further Option (a "Re-Load Option")
in the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares equal to the
number of shares surrendered as part or all of the exercise price of such
Option; (ii) have an expiration date which is the same as the expiration date of
the Option the exercise of which gave rise to such Re-Load Option; and (iii)
have an exercise price which is equal to one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option
shall be subject to the same exercise price and term provisions heretofore
described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) and
the "Section 162(m) Limitation" on the grants of Options under subsection 5(c)
and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
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7. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option 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 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.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which an Option may first be exercised or the
time during which an Option or any part thereof will vest in accordance with the
Plan, notwithstanding the provisions in the Option stating the time at which it
may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Optionholder 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 Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Option granted pursuant thereto shall confer upon any
Optionholder or other holder of Options any right to continue to serve the
Company or an Affiliate in the capacity in effect at the time the Option was
granted or shall affect the right of the Company or an Affiliate to terminate
(i) the employment of an Employee with or without notice and with or without
cause, (ii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the service of
a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year
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(under all plans of the Company and its Affiliates) exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder'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 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 (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) 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. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of an
Option Agreement, the Optionholder may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under an
Option by any of the following means (in addition to the Company's right to
withhold from any compensation paid to the Optionholder by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the Optionholder as a result of the exercise or acquisition of stock
under the Option; or (iii) delivering to the Company owned and unencumbered
shares of the Common Stock.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Options
will be appropriately adjusted in the class(es) and number of securities and
price per share of stock subject to such outstanding Options. Such adjustments
shall be made by the Board, the determination of which shall be final, binding
and conclusive. (The conversion of
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any convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then such Options shall be terminated
if not exercised (if applicable) prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (1) a sale of substantially all of the assets of the
Company, (2) a merger or consolidation in which the Company is not the surviving
corporation or (3) a reverse merger in which the Company is the surviving
corporation but the shares of 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, then any surviving corporation or
acquiring corporation shall assume any Options outstanding under the Plan or
shall substitute similar Options (including an award to acquire the same
consideration paid to the stockholders in the transaction described in this
subsection 10(c) for those outstanding under the Plan. In the event any
surviving corporation or acquiring corporation refuses to assume such Options or
to substitute similar Options for those outstanding under the Plan, then with
respect to Options held by Optionholders whose Continuous Service has not
terminated, the vesting shall be accelerated in full, and the Options shall
terminate if not exercised at or prior to such event. With respect to any other
Options outstanding under the Plan, such Options shall terminate if not
exercised prior to such event.
(d) CHANGE IN CONTROL--SECURITIES ACQUISITION. In the event of an
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act, or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or an Affiliate) of the beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors, then with
respect to Options held by Optionholders whose Continuous Service has not
terminated, the vesting of such Options shall be accelerated in full.
(e) CHANGE IN CONTROL--CHANGE IN INCUMBENT BOARD. In the event that the
individuals who, as of the date of the adoption of this Plan, are members of the
Board (the "Incumbent Board"), cease for any reason to constitute at least fifty
percent (50%) of the Board, then with respect to Options held by persons whose
Continuous Service has not terminated, the vesting of such Options shall be
accelerated in full. If the election, or nomination for election, by the
Company's stockholders of any new director was approved by a vote of at least
fifty percent (50%) of the Incumbent Board, such new director shall be
considered as a member of the Incumbent Board.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 10 relating to
adjustments upon changes in
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stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary to satisfy the
requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities
exchange listing requirements.
(b) STOCKHOLDER APPROVAL. 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 thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. 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 Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(e) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Options may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Rights and obligations under any Option
granted while the Plan is in effect shall not be impaired by suspension or
termination of the Plan, except with the written consent of the Optionholder.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Option shall be exercised unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
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EXHIBIT 10.13
CAERE CORPORATION
2000 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY BOARD OF DIRECTORS MARCH 10, 1999
APPROVED BY STOCKHOLDERS _______________ , 1999
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which Employees of
the Company and certain designated Affiliates may be given an opportunity to
purchase Shares of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
such 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 and its Affiliates.
(c) The Company intends that the Rights to purchase Shares granted under
the Plan be considered options issued under an Employee Stock Purchase Plan.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the United States Internal Revenue Code of 1986, as
amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subparagraph 3(c) of the Plan.
(e) "COMPANY" means Caere Corporation, a Delaware corporation.
(f) "DIRECTOR" means a member of the Board.
(g) "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering.
(h) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or an Affiliate of the Company. Neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
"employment" by the Company or the Affiliate.
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(i) "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants rights
intended to be options issued under an "employee stock purchase plan," as that
term is defined in Section 423(b) of the Code.
(j) "EXCHANGE ACT" means the United States Securities Exchange Act of
1934, as amended.
(k) "FAIR MARKET VALUE" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of the security shall be the closing sales price (rounded
up where necessary to the nearest whole cent) for such security (or the closing
bid, if no sales were reported) as quoted on such exchange or market (or the
exchange or market with the greatest volume of trading in the relevant security
of the Company) on the trading day prior to the relevant determination date, as
reported in The Wall Street Journal or such other source as the Board deems
reliable.
(l) "NON-EMPLOYEE DIRECTOR" means 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 promulgated pursuant to the Securities Act
("Regulation S-K")), 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.
(m) "OFFERING" means the grant of Rights to purchase Shares under the
Plan to Eligible Employees.
(n) "OFFERING DATE" means a date selected by the Board for an Offering
to commence.
(o) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the 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.
(p) "PARTICIPANT" means an Eligible Employee who holds an outstanding
Right granted pursuant to the Plan.
(q) "PLAN" means this Caere Corporation 2000 Employee Stock Purchase
Plan.
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(r) "PURCHASE DATE" means one or more dates established by the Board
during an Offering on which Rights granted under the Plan shall be exercised and
as of which purchases of Shares shall be carried out in accordance with such
Offering.
(s) "RIGHT" means an option to purchase Shares granted pursuant to the
Plan.
(t) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3 as in effect with respect to the Company at the time
discretion is being exercised regarding the Plan.
(u) "SECURITIES ACT" means the United States Securities Act of 1933, as
amended.
(v) "SHARE" means a share of the common stock of the Company.
3. ADMINISTRATION.
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subparagraph 3(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 (or the Committee) 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 Shares 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 impose vesting restrictions, restrictions on
transferability or other similar conditions on Shares purchased under the Plan,
including without limitation a repurchase option in favor of the Company,
pursuant to which a Participant's right to realize the value of all or a portion
of any appreciation in Shares purchased is conditioned on continued employment
with the Company or an Affiliate, the holding of such Shares for a specified
period or other events the Board determines to be appropriate.
(iv) 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.
(v) To amend the Plan as provided in paragraph 14.
(vi) Generally, to exercise such powers and to perform such acts as
it deems necessary or expedient to promote the best interests of the Company and
its Affiliates and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.
-3-
<PAGE> 4
(c) The Board may delegate administration of the Plan to a Committee of
the Board composed of one (1) or more members, all of the members of which
Committee may be, in the discretion of the Board, Non-Employee Directors and/or
Outside Directors. 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 one (1) or more Directors any of the administrative powers the
Committee is authorized to exercise (and references in this Plan to the Board
shall thereafter be to the Committee or such a subcommittee), 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.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 13 relating to adjustments
upon changes in securities, the Shares that may be sold pursuant to Rights
granted under the Plan shall not exceed in the aggregate two hundred thousand
(200,000) Shares. If any Right granted under the Plan shall for any reason
terminate without having been exercised, the Shares not purchased under such
Right shall again become available for the Plan.
(b) The Shares subject to the Plan may be unissued Shares or Shares that
have been bought on the open market at prevailing market prices or otherwise.
5. GRANT OF RIGHTS; OFFERING.
(a) The Board may from time to time grant or provide for the grant of
Rights to purchase Shares of the Company under the Plan to Eligible Employees in
an Offering on an Offering Date or Offering Dates selected by the Board. Each
Offering shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate, which shall comply with the requirements of
Section 423(b)(5) of the Code that all Employees granted Rights to purchase
Shares under the Plan shall have the same rights and privileges. The terms and
conditions of an Offering shall be incorporated by reference into the Plan and
treated as part of the Plan. 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 document comprising the Offering or
otherwise) the period during which the Offering shall be effective, which period
shall not exceed twenty-seven (27) months beginning with the Offering Date, and
the substance of the provisions contained in paragraphs 6 through 9, inclusive.
(b) If a Participant has more than one Right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (i) each agreement or notice delivered by that Participant will be
deemed to apply to all of his or her Rights under the Plan, and (ii) an
earlier-granted Right (or a Right with a lower exercise price, if two Rights
have identical grant dates) will be exercised to the fullest possible extent
before a later-granted Right (or a Right with a higher exercise price if two
Rights have identical grant dates) will be exercised.
-4-
<PAGE> 5
(c) In addition to or in conjunction with Rights granted under the Plan
as provided herein, the Board may provide, in the terms of an Offering or
otherwise, for additional benefits to be provided to Participants, in the form
of additional vested or unvested Shares awarded outside of the Plan, cash or
other property, the receipt of which may be conditioned on continued employment
with the Company or an Affiliate, the holding of Shares purchased under the Plan
for a specified period or other events the Board determines to be appropriate;
provided, however, that (i) no such additional benefits shall be provided in any
manner that would cause Rights under the Plan to fail to qualify as options
granted under an Employee Stock Purchase Plan, and (ii) any such additional
benefits are not intended to qualify in any way for the treatment provided in
Section 423 of the Code and shall be fully taxable to Participants at such time
and in such manner as applies under the Code without regard to such Section 423.
6. ELIGIBILITY.
(a) Rights may be granted only to Employees of the Company or, as the
Board may designate as provided in subparagraph 3(b), to Employees of an
Affiliate. Except as provided in subparagraph 6(b), an Employee 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 the Affiliate, as the case may
be, for such continuous period preceding such Offering Date as the Board may
require, but in no event shall the required period of continuous employment be
greater than two (2) years. In addition, the Board may provide that no Employee
shall be eligible to be granted Rights under the Plan unless, on the Offering
Date, such Employee's customary employment with the Company or an Affiliate is
more than twenty (20) hours per week and more than five (5) months per calendar
year.
(b) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee will, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which 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 period of the Offering with respect to such Right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
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 6(c), the rules of Section 424(d)
-5-
<PAGE> 6
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.
(d) An Eligible Employee may be granted Rights under the Plan only if
such Rights, together with any other Rights granted under all Employee Stock
Purchase Plans of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such Eligible Employee's rights to purchase
Shares of the Company or any Affiliate to accrue at a rate which exceeds twenty
five thousand dollars ($25,000) of fair market value of Shares (determined at
the time such Rights are granted) for each calendar year in which such Rights
are outstanding at any time.
(e) The Board may provide in an Offering that Employees who are highly
compensated Employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
7. 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 up to the
number of Shares purchasable either:
(i) with a percentage, as designated by the Board, but not exceeding
fifteen percent (15%), of such Employee's Earnings (as defined by the Board in
each Offering) 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 later than the end of the
Offering; or
(ii) with a maximum dollar amount designated by the Board that, as
the Board determines for a particular Offering, (1) shall be withheld, in whole
or in part, from such Employee's Earnings (as defined by the Board in each
Offering) 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 later than the end of the
Offering and/or (2) shall be contributed, in whole or in part, by such Employee
during such period.
(b) The Board shall establish one or more Purchase Dates during an
Offering as of which Rights granted under the Plan shall be exercised and
purchases of Shares carried out in accordance with such Offering.
(c) In connection with each Offering made under the Plan, the Board may
specify a maximum amount of Shares that may be purchased by any Participant as
well as a maximum aggregate amount of Shares that may be purchased by all
Participants pursuant to such Offering. In addition, in connection with each
Offering that contains more than one Purchase Date, the Board may specify a
maximum aggregate amount of Shares which may be purchased by all Participants on
any given Purchase Date under the Offering. If the aggregate purchase of Shares
upon exercise of Rights granted under the Offering would exceed any such maximum
aggregate
-6-
<PAGE> 7
amount, the Board 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.
(d) The purchase price of Shares 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 Shares on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the Shares on the Purchase Date.
8. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An Eligible Employee may become a Participant in the Plan pursuant
to 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 the maximum percentage
specified by the Board of such Employee's Earnings during the Offering (as
defined in each Offering). The payroll deductions made for each Participant
shall be credited to a bookkeeping account for such Participant under the Plan
and shall be deposited with the general funds of the Company. To the extent
provided in the Offering, a Participant may reduce (including to zero) or
increase such payroll deductions. To the extent provided in the Offering, a
Participant may begin such payroll deductions after the beginning of 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 already had the maximum permitted amount withheld during the Offering.
(b) At any time during an Offering, a Participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering 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
Offering, except as provided by the Board in 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 Shares for the
Participant) under the Offering, without interest (unless otherwise specified in
the Offering), 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 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 a designated Affiliate for any reason (subject to any
post-employment participation period required by law) or other lack of
eligibility. The Company shall distribute to such terminated Employee all of his
or her accumulated payroll deductions (reduced to the extent, if any, such
deductions
-7-
<PAGE> 8
have been used to acquire Shares for the terminated Employee) under the
Offering, without interest (unless otherwise specified in the Offering).
(d) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 15 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such Rights
are granted.
9. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering,
each Participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of Shares up to the maximum amount 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 unless specifically provided
for in the Offering.
(b) 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 on the final Purchase 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 8(b), or is not eligible to
participate in such Offering, as provided in paragraph 5, in which case such
amount shall be distributed to the Participant after said final Purchase Date,
without interest (unless otherwise specified in the Offering). The amount, if
any, of accumulated payroll deductions remaining in any Participant's account
after the purchase of Shares that is equal to the amount required to purchase
one or more whole Shares on the final Purchase Date of the Offering shall be
distributed in full to the Participant at the end of the Offering without
interest (unless otherwise specified in the Offering).
(c) No Rights granted under the Plan may be exercised to any extent
unless the Shares to be issued upon such exercise under the Plan (including
Rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act and the Plan is in material compliance with all
applicable state, foreign and other securities and other laws applicable to the
Plan. If on a Purchase Date in any Offering hereunder the Plan is not so
registered or in such compliance, no Rights granted under the Plan or any
Offering shall be exercised on such Purchase Date, and the Purchase Date shall
be delayed until the Plan is subject to such an effective registration statement
and such compliance, except that the Purchase Date shall not be delayed more
than twelve (12) months and the Purchase Date shall in no event be more than
twenty-seven (27) months from the Offering Date. If, on the Purchase Date under
any Offering hereunder, as delayed to the maximum extent permissible, the Plan
is not registered and in such compliance, no Rights granted under the Plan or
any Offering shall be exercised and all payroll deductions accumulated during
the Offering (reduced to the extent, if any, such deductions have been used to
acquire Shares) shall be distributed to the Participants, without interest
(unless otherwise specified in the Offering).
-8-
<PAGE> 9
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Rights granted under the Plan, the Company
shall ensure that the amount of Shares required to satisfy such Rights are
available.
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell Shares 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 Shares under the Plan, the Company shall be relieved from any liability for
failure to issue and sell Shares upon exercise of such Rights unless and until
such authority is obtained.
11. USE OF PROCEEDS FROM SHARES.
Proceeds from the sale of Shares pursuant to Rights granted under the
Plan shall constitute general funds of the Company.
12. 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, Shares subject to Rights granted under
the Plan unless and until the Participant's Shares acquired upon exercise of
Rights under the Plan are recorded in the books of the Company.
13. ADJUSTMENTS UPON CHANGES IN SECURITIES.
(a) If any change is made in the Shares subject to the Plan, or subject
to any Right, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of Shares subject to the Plan pursuant to subparagraph 4(a), and the
outstanding Rights will be appropriately adjusted in the class(es), number of
Shares and purchase limits of such outstanding Rights. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a transaction that does not involve the receipt of consideration by the
Company.)
(b) In the event of: (i) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (ii) a merger or consolidation
in which the Company is not the surviving corporation; or (iii) a reverse merger
in which the Company is the surviving corporation but the Shares 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 (iv)
any other capital reorganization (including related sales of Shares by
Stockholders of the Company) in which more than fifty (50%) of the shares of the
Company entitled to vote are exchanged (or
-9-
<PAGE> 10
sold), then, as determined by the Board in its sole discretion: (1) any
surviving or acquiring corporation shall assume Rights outstanding under the
Plan or shall substitute similar rights (including a right to acquire the same
consideration paid to Stockholders in the transaction described in this
subparagraph 13(b)) for those outstanding under the Plan, or (2) in the event
any surviving or acquiring corporation refuses to assume such Rights or to
substitute similar rights for those outstanding under the Plan, then, as
determined by the Board in its sole discretion such Rights may continue in full
force and effect or the Participants' accumulated payroll deductions (exclusive
of any accumulated interest which cannot be applied toward the purchase of
Shares under the terms of the Offering) may be used to purchase Shares
immediately prior to the transaction described above under the ongoing Offering
and the Participants' Rights under the ongoing Offering thereafter terminated.
14. 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 13 relating to adjustments upon changes
in securities and except as to amendments solely to benefit the administration
of the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Affiliate, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3
under the Exchange Act and any Nasdaq or other securities exchange listing
requirements. Currently under the Code, stockholder approval within twelve (12)
months before or after the adoption of the amendment is required where the
amendment will increase the amount of Shares reserved for issuance pursuant to
Rights under the Plan or make certain modifications to the provisions as to
eligibility for participation in the Plan.
(b) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide 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.
(c) Rights and obligations under any Rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such Rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or Rights granted under the Plan comply with the
requirements of Section 423 of the Code.
15. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a beneficiary who is
to receive any Shares and/or cash, if any, from the Participant's account under
the Plan in the event of such Participant's death subsequent to the end of an
Offering but prior to delivery to the Participant of such Shares or cash. In
addition, a Participant may file a written designation of a beneficiary
-10-
<PAGE> 11
who is to receive any cash from the Participant's account under the Plan in the
event of such Participant's death during an Offering.
(b) The Participant may change such designation of beneficiary at any
time by written notice. In the event of the death of a Participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such Participant's death, the Company shall deliver such Shares and/or
cash to the executor or administrator of the estate of the Participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its sole discretion, may deliver such Shares and/or
cash to the spouse or to any one or more dependents or relatives of the
Participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the Shares subject to the Plan's reserve, as increased and/or adjusted from time
to time, have been issued under the terms of the Plan. 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 impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.
17. 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 within twelve (12) months
before or after the date the Plan is adopted by the Board, which date may be
prior to the effective date set by the Board.
-11-
<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,
-------------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net earnings $10,276 $ 3,140 $ 396
======= ======= =======
Basic earnings per share - weighted average
common shares outstanding
12,687 13,123 13,120
Effect of dilutive common equivalent shares -
stock options outstanding 559 142 199
------- ------- -------
Diluted earnings per share - weighted average
common shares and common equivalent shares
outstanding 13,246 13,265 13,319
======= ======= =======
Basic earnings per share $ 0.81 $ 0.24 $ 0.03
======= ======= =======
Diluted earnings per share $ 0.78 $ 0.24 $ 0.03
======= ======= =======
</TABLE>
There were no reconciling items in the numerators between the basic and diluted
earnings per share computations. Options excluded from the computation of
earnings per share because their effect on earnings per share was antidilutive,
but which could dilute basic earnings per share in future periods, were as
follows: 140,000 in 1998, 564,000 in 1997, and 26,000 in 1996.
<PAGE> 1
EXHIBIT 13.1
CAERE CORPORATION
1998 ANNUAL REPORT
Financial Highlights
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Earnings data:
Net revenues $65,802 $55,018 $54,528 $51,939 $59,130
Earnings before income taxes 13,701 4,017 496 2,820 3,984
Net earnings 10,276 3,140 396 2,397 2,384
Basic earnings per share $ .81 $ .24 $ .03 $ .18 $ .18
Diluted earnings per share $ .78 $ .24 $ .03 $ .18 $ .18
Weighted average shares outstanding:
Basic 12,687 13,123 13,120 13,172 12,649
Diluted 13,246 13,265 13,319 13,538 13,136
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance Sheet data:
Cash and short-term investments $44,337 $49,573 $44,290 $47,765 $51,099
Working capital 49,290 54,893 49,793 52,650 53,729
Total assets 63,884 67,300 63,154 69,298 67,902
Total stockholders' equity 56,173 61,209 55,748 62,028 57,753
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations, and elsewhere in this annual report,
include "forward looking" statements and are subject to risks and uncertainties.
These statements discuss, among other things, expected growth, future revenues,
and future performance. The actual future results of Caere Corporation (the
"Company") could differ materially from anticipated results described in these
forward looking statements. Some factors that could cause future actual results
to differ materially from the Company's recent results or those described in the
forward looking statements include those listed below in the sections entitled
"Results of Operations," "Certain Trends, Issues, and Uncertainties," "Financial
Condition," and other statements set forth below, as well as the section
entitled "Risk Factors" in the Company's report on Form 10-K for its fiscal year
ended December 31, 1998. The Company assumes no obligation to update the forward
looking statements or such factors.
<PAGE> 2
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
Year ended December 31, -----------------------
--------------------------------- 1997 1996
1998 1997 1996 to 1998 to 1997
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues 100% 100% 100% 20% 1%
Cost of revenues 21 26 30 (1) (13)
--- --- --- --- ---
79 74 70 27 7
--- --- --- --- ---
Research and development 19 17 13 33 33
Selling, general and administrative 43 49 48 5 3
In-process research and development -- 5 8 (100) (33)
--- --- --- --- ---
Operating earnings 17 3 1 631 261
Interest income, net 4 4 5 5 (7)
Writedown of investment in ZyLAB
International -- -- (5) -- (100)
--- --- --- --- ---
Earnings before income taxes 21 7 1 241 710
Income tax expense 5 1 -- 291 777
--- --- --- --- ---
Net earnings 16% 6% 1% 227% 693%
=== === === === ===
</TABLE>
Under Caere's "bundle and upgrade" strategy, very low priced, limited-featured
optical character recognition (OCR) and in certain cases document management,
software products are bundled with products sold by certain scanner manufacturer
partners. When customers purchase scanners from these manufacturers, they will
be exposed to the utility and benefit of the Company's OCR and document
management technology. The objective of this strategy is to capitalize on such
exposure by getting a number of customers to "upgrade" from the bundled limited
edition version software to the Company's more fully-featured products.
Net Revenues
The following chart summarizes net revenues, cost of revenues, and gross margins
for the Company's products categorized between software and hardware. Software
product revenues are primarily derived from sales of OmniPage, OmniForm, and
PageKeeper products, and beginning in 1997, Recognita Plus. Hardware products
consist of transaction processing optical character recognition ("OCR") and bar
code products.
Business Line Analysis
<TABLE>
<CAPTION>
1998 1997 1996
(In thousands) Software Hardware Software Hardware Software Hardware
Products Products Combined Products Products Combined Products Products Combined
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $57,351 $ 8,451 $65,802 $47,119 $ 7,899 $55,018 $45,797 $ 8,731 $54,528
Cost of revenues 9,963 4,181 14,144 10,260 4,060 14,320 12,798 3,675 16,473
------- ------- ------- ------- ------- ------- ------- ------- -------
$47,388 $ 4,270 $51,658 $36,859 $ 3,839 $40,698 $32,999 $ 5,056 $38,055
Gross margin % 82.6% 50.5% 78.5% 78.2% 48.6% 74.0% 72.1% 57.9% 69.8%
------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
Net revenues from software products represented about 87 percent, 86 percent,
and 84 percent of total net revenues for 1998, 1997, and 1996, respectively. To
the extent the demand for the Company's software products continues to broaden,
the Company anticipates that net revenues from software products during 1999
will continue to comprise a similar significant portion of its total net
revenues as seen over this three-year period. Over 90 percent of all software
revenues were derived from Windows-based products in 1998, and the Company
anticipates that this will continue in 1999.
Net revenues for software products of $57.4 million in 1998 represented an
increase of approximately 22 percent over 1997. This growth is primarily
attributable to increased royalties received from scanner manufacturers bundling
the Company's limited-featured OCR and document management software and
increased unit sales of both the OmniPage family of products, especially
OmniPage Pro 9.0 which first shipped in October 1998, and OmniForm. Net software
product revenues of $47.1 million in 1997 represented an increase of
approximately three percent over 1996. This slight growth was primarily
attributable to increased royalties received and increased unit sales of the
Windows-based versions of the OmniPage family of products, offset by a decline
in units sales of Macintosh-based software products.
<PAGE> 3
Net revenues for hardware products increased about seven percent to $8.4 million
in 1998, compared to $7.9 million in 1997. This reflects a slight increase in
the unit sales of hardware products in 1998 compared to 1997. The decrease in
net revenues in 1997 compared to 1996, however, was primarily attributable to
the market's transition from certain hardware products designed for high-volume
OCR applications to software only solutions. As customers employ such software
only solutions, sales of the comparable hardware products decline. Historically,
there have been fluctuations in sales patterns for the Company's hardware
products. In particular, the periodic award of large sales contracts tends to
make shipments difficult to predict. As a result, fluctuations in net revenues
between quarters are expected to continue in the future.
International sales have increased in absolute dollars in each of the last three
years, and represented about 34 percent, 34 percent, and 30 percent of total net
revenues in 1998, 1997 and 1996, respectively. The Company believes that
continued growth in international sales will be important for the Company's
future success, and as a result, the Company intends to continue to invest in
expanding its operations internationally, particularly in Europe. Sales growth
in these markets, however, has been and will continue to be impacted by certain
factors beyond the control of the Company, such as variable economic conditions,
foreign currency exchange rates, slower adoption of OCR and document management
technologies, and government regulation.
Gross Margin
Gross margin represents net revenues less cost of revenues. Cost of revenues
consists primarily of manufacturing and production expenses, packaging costs,
royalties paid to third parties, and amortization and write-off of capitalized
software development costs.
Cost of revenue as a percentage of total net revenue was 21 percent in 1998, 26
percent in 1997, and 30 percent in 1996. Although cost of revenue as a
percentage of total net revenue decreased in 1998 and 1997, it varies with
channel mix and product mix within channels. The trend of declining cost of
revenue as a percentage of revenue may not continue in 1999.
Overall gross margins were 79 percent in 1998, 74 percent in 1997, and 70
percent in 1996. This trend was due primarily to product mix being more heavily
weighted towards software products, which generally have higher gross margins
than do hardware products.
Gross margins for software products were 83 percent in 1998, 78 percent in 1997,
and 72 percent in 1996. This trend of increasing gross margin for software
products is largely attributable to changes made in certain bundling
arrangements with original equipment manufacturers ("OEM") where the Company
shifted the cost of manufacturing its limited-featured bundled products to these
OEM partners. Under such agreements, rather than selling manufactured software
products to such partners at very low prices, the Company allows such OEM
partners to produce their own requirements on a reduced royalty basis. 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 overall gross margin percentage for software
products. This type of arrangement with OEM partners is expected to continue in
1999. Also contributing to the improved gross margin percentages in 1998 and
1997 were increasing production volumes generated by the Company's bundle and
upgrade strategy, as well as increased royalty revenue.
Gross margins for hardware products were 51 percent in 1998, 49 percent in 1997,
and 58 percent in 1996. The fluctuation in gross margins over this three-year
period reflects the weakness of hardware product net revenues in 1998 and 1997
compared to 1996. In addition, demand for certain hardware products has lessened
over the last couple of years as customers have turned to software only
solutions. Since a significant portion of hardware cost of revenues relates to
fixed manufacturing overhead costs, the gross margins for hardware will often
decline during periods of flat or negative revenue and unit shipment growth.
Also contributing to lower gross margins on hardware products were certain price
reductions over the last several years.
The primary factor affecting overall 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 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.
Capitalized Software
In accordance with Statement of Financial Accounting Standards No. 86, the
Company capitalized $280,000 of software development costs in 1998 compared to
$858,000 during 1997 and $561,000 during 1996. Amortization of capitalized
software development costs was $678,000 in 1998, $508,000 in 1997, and $734,000
in 1996.
Operating Expenses
Research and Development
Caere continued to invest heavily in the future by funding research and
development ("R&D"). Expense increases of 33 percent in both 1998 and 1997,
resulted primarily from development staff headcount growth and higher levels of
third-party development costs in many areas, particularly in software
technologies. The sustained commitment to R&D over the last two
<PAGE> 4
years allowed the Company to successfully launch multiple products in 1998,
including OmniPage Pro 9.0, OmniPage Wizard, PageKeeper Standard, and an
all-in-one Professional Developers Kit. In some cases, R&D efforts for these
products began well over a year before their launch. The Company believes that
significant R&D investments in 1999, and beyond, will be necessary for the
Company to effectively compete in the software market.
Selling, General and Administrative
The increase in the absolute dollar amounts of selling, general and
administrative ("SG&A") expenses in the three-year period was due principally to
expanded product-specific marketing programs, expansion of distribution
channels, and growth in computer and information systems, and business
infrastructure necessary to support overall increases in the scope of the
Company's operations. As a percentage of net revenue, SG&A expense was 43
percent in 1998, 49 percent in 1997, and 48 percent in 1996. Caere expects that
SG&A expense will increase in absolute dollar terms in 1999 as efforts to expand
sales and marketing activities continue both domestically and internationally.
In-Process Research and Development
During 1997, in connection with the acquisition of Formonix, Inc., acquired
in-process research and development of about $2.9 million was charged to
operations during the Company's first fiscal quarter. During 1996, in connection
with the acquisition of Recognita, acquired in-process research and development
of approximately $4.4 million was charged to operations during the Company's
fourth fiscal quarter. See Note 8 of Notes to the Consolidated Financial
Statements for additional information on these two acquisitions.
Interest Income and Income Taxes
Interest income was $2.6 million in 1998, $2.5 million in 1997, and $2.7 million
in 1996. The effective income tax rate increased to 25 percent in 1998. The
effective income tax rate was 22 percent in 1997 and 20 percent in 1996. The
effective income tax rate continues to be lower than the U.S. federal statutory
tax rate primarily due to benefits derived from federal net operating loss
carryforwards and the Company's utilization of a foreign sales corporation. In
future years, depending on profitability, the Company may be able to utilize
approximately $2.7 million of federal net operating loss carryforwards per year.
Certain Trends, Issues and Uncertainties
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. 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 the development of new technologies, the introduction of new products,
and the reduction of prices by such competitors to gain or retain market share.
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 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.
Year 2000 and Potential Consequences
Like many other companies, the Year 2000 computer issues create certain risks
for the Company. If the Company's internal management information systems or
products sold to customers do not correctly recognize and process date
information beyond the year 1999, there could be an adverse impact on the
Company's operations.
The Company is addressing a broad range of issues associated with the
programming code in existing computer systems as the year 2000 approaches. Many
currently installed computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates. This is frequently referred to as the "Year 2000 Problem." If the
Company's internal management information systems and products do not correctly
recognize and process date information beyond the year 1999, there could be an
adverse impact on the Company's operations. In mid-1997, Caere initiated a
company-wide Year 2000 Project to address this issue. A Year 2000 Committee was
established and mandated with defining, assessing, and converting, or replacing,
various programs, hardware, and instrumentation systems to make them Year 2000
compatible.
<PAGE> 5
1. Status of Readiness: To address the Year 2000 issues with its internal
information technology ("IT") systems, the Company has initiated a program to
evaluate its internal systems, including manufacturing, sales, and financial
systems. The Company has completed the assessment phase and the renovation and
testing phases are proceeding in parallel. The Company's assessment indicated
that certain internal IT systems should be upgraded or replaced as part of a
solution to the Year 2000 problem. All of the hardware and most of the software
for the Company's internal IT systems come from third-party suppliers and are
being remediated by them.
Although the Company's non-IT systems do not in many cases directly impact the
Company's core business, they remain an important part of Caere's Year 2000
efforts. All mission-critical non-IT systems and products have the same target
dates for remediation and interoperability testing as their network element and
information system counterparts. Caere is currently evaluating the Year 2000
readiness of its non-IT systems with a comprehensive inventory of monitoring and
control devices for premises, safety systems, and other similar operating
installations. Caere has communicated with all mission critical suppliers and
service providers about their plans for Year 2000 compliance. Plans detailing
the tasks and resources required to ensure Year 2000 readiness of non-IT systems
by the end of June 1999 are expected to be in place by March 31, 1999.
The Company's Year 2000 Project for internal systems is scheduled to be
completed by mid-1999. The chart below shows the overall status of Caere's
five-phase Year 2000 project in the following areas:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Awareness Assessment Renovation Testing Implementation
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
IT Systems Completed Completed Underway with Underway with Planning and
approximately 25% approximately 35% scheduling
completed. completed. underway.
Mission critical Mission critical Scheduled to be
elements scheduled elements completed by
to be completed by scheduled to be mid-1999
mid-1999 completed by
mid-1999
- -----------------------------------------------------------------------------------------------------------------
Non-IT Completed Completed Underway with Underway with Planning and
Systems approximately 20% approximately 20% scheduling
completed. completed. underway.
Mission critical Mission critical Scheduled to be
elements scheduled elements completed by
to be completed by scheduled to be mid-1999
mid-1999 completed by
mid-1999
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company is in the process of identifying and prioritizing critical third
parties and customers, and will follow up with them concerning their plans and
progress in addressing the Year 2000 problem. The Company is also working with
key suppliers of products and services to determine that their operations and
products are Year 2000 compliant or to monitor their progress toward Year 2000
compliance, as appropriate.
In the Company's standard license agreements, the Company warrants to licensees
that its software routines and programs are Year 2000 compliant. If any of the
Company's licensees experience Year 2000 problems, such licensee could assert
claims for damages against the Company. Any such litigation could result in
substantial costs and diversion of the Company's resources, even if ultimately
decided in favor of the Company.
The Company believes that all products currently shipping and supported by Caere
will be "Year 2000 Compliant." It is likely that some older products may not be
Year 2000 Compliant. As used by Caere, "Year 2000 Compliant" means that when
used properly and in conformity with the product information provided by the
Company, and when used with "Year 2000 Compliant" computer systems, the product
will accurately store, display, process, provide, and/or receive data from,
into, and between the twentieth and twenty-first centuries, including leap year
calculations, provided that all other technology used in combination with the
Caere product properly exchanges date data with the Caere product. There can be
no assurance that (i) third party technologies used in combination with Caere
products will be Year 2000 Compliant and (ii) Caere products will not be
adversely affected when used with such third party technologies, nor can the
Company represent that any modifications to its products made by a party other
than Caere will be Year 2000 Compliant.
2. Costs Associated with the Year 2000 Project: Costs associated with certain
system upgrades are included in existing operating budgets. In some instances
(such as the Company's financial administrative system), the installation
schedule of new software and hardware in the normal course of business is being
accelerated to also afford a solution to Year 2000 compliance issues. Certain of
the costs related to upgrades of hardware and software systems are covered by
ongoing maintenance agreements. Additional costs of purchasing, installing,
modifying and testing the internal systems are not
<PAGE> 6
expected to exceed $800,000. The total cost associated with required
modifications to become Year 2000 Compliant is estimated at $1,000,000.
The total cost estimate is based on the current assessment of the projects and
is subject to change as the project progresses. Based on currently available
information, the Company does not believe that the Year 2000 matters discussed
above related to internal systems or products sold to customers will have a
material adverse impact on its financial condition or overall trends in results
of operations; however, it is still uncertain to what extent the Company may be
affected by such matters. In addition, customers may delay purchase decisions
because of uncertainty about Year 2000 issues. There also can be no assurance
that the failure to ensure Year 2000 compliance by a supplier or another third
party would not have a material adverse effect on the Company.
3. Contingency Plans: The Company has begun internal discussions concerning
contingency planning to address potential problem areas with internal systems
and with suppliers and other third parties. It is expected that remediation and
contingency planning activities will be on-going throughout calendar year 1999
with the goal of appropriately resolving all material internal systems and third
party issues.
Financial Condition
Caere's cash and short-term investment portfolio totaled $44.3 million at
December 31, 1998. The portfolio is diversified among security types,
industries, and individual issuers. The portfolio is invested primarily in
short-term, U.S. dollar denominated securities to both minimize interest rate
risk and maintain liquidity in the event of immediate cash needs.
Caere offers credit terms to qualifying customers and also sells products on a
prepaid, credit card and cash-on-delivery basis. For 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.
Caere has no long-term debt. The Company has not paid cash dividends on its
common stock. Stockholders' equity at December 31, 1998 was $56.2 million.
Caere will continue to invest in its sales, marketing, and product support
infrastructures. In addition, research and development investments will continue
to be made in existing and advanced areas of technology, including using cash to
acquire technology and to fund other strategic opportunities. Additions to
property and equipment will continue, including new facilities and computer
systems for research and development, sales and marketing, support, and
administrative staff.
Cash will also continue to be used to repurchase common stock. Among other
purposes, the shares will be used for employee stock option and purchase plans.
The Company repurchased approximately 1.5 million shares of common stock in 1998
with an aggregate cost of approximately $19.8 million.
Management believes that existing cash and short-term investments together with
funds generated from operations will be sufficient to meet operating and capital
expenditure requirements for at least the next 12 months.
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
------- -------
<S> <C> <C>
(In thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents $15,753 $16,417
Short-term investments 28,584 33,156
Receivables 7,336 5,263
Inventories 1,953 1,917
Deferred income taxes 2,953 3,241
Other current assets 422 990
------- -------
Total current assets 57,001 60,984
Property and equipment, net 3,640 4,781
Other assets 3,243 1,535
------- -------
$63,884 $67,300
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,691 $ 2,145
Accrued expenses 5,020 3,946
------- -------
Total current liabilities 7,711 6,091
------- -------
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
12,072,028 and 13,107,235 shares 12 13
Additional paid-in capital 42,409 57,720
Retained earnings 13,752 3,476
------- -------
Total stockholders' equity 56,173 61,209
------- -------
$63,884 $67,300
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
(In thousands, except per share data)
Net revenues $ 65,802 $ 55,018 $ 54,528
Cost of revenues 14,144 14,320 16,473
-------- -------- --------
51,658 40,698 38,055
-------- -------- --------
Operating expenses:
Research and development 12,442 9,370 7,069
Selling, general and administrative 28,136 26,878 26,193
In-process research and development -- 2,935 4,373
-------- -------- --------
40,578 39,183 37,635
-------- -------- --------
Operating earnings 11,080 1,515 420
Interest income 2,621 2,502 2,692
Writedown of investment in ZyLAB International -- -- (2,616)
-------- -------- --------
Earnings before income taxes 13,701 4,017 496
Income tax expense 3,425 877 100
-------- -------- --------
Net earnings $ 10,276 $ 3,140 $ 396
======== ======== ========
Basic earnings per share $ .81 $ .24 $ .03
Diluted earnings per share $ .78 $ .24 $ .03
Weighted average number of shares used in per
share computations:
Basic 12,687 13,123 13,120
Diluted 13,246 13,265 13,319
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 9
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock Additional Retained Total
--------------------------- paid-in earnings stockholders'
Shares Amount capital (deficit) equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(In thousands, except share data)
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
Repurchase of stock (237,444) -- (2,000) -- (2,000)
Exercise of stock options 61,980 -- 410 -- 410
Issued pursuant to stock purchase plan 102,115 -- 658 -- 658
Issued for acquisition of Formonix, 550,000 -- 3,105 -- 3,105
Inc.
Tax benefit associated with
exercise of stock options -- -- 57 -- 57
Other -- -- 91 -- 91
Net earnings -- -- -- 3,140 3,140
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1997 13,107,235 13 57,720 3,476 61,209
Repurchase of stock (1,546,000) (1) (19,825) -- (19,826)
Exchanged for option exercises (33,013) -- (477) -- (477)
Exercise of stock options 435,424 -- 3,498 -- 3,498
Issued pursuant to stock purchase plan 108,382 -- 798 -- 798
Tax benefit associated with
exercise of stock options -- -- 698 -- 698
Other -- -- (3) -- (3)
Net earnings -- -- -- 10,276 10,276
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1998 12,072,028 $ 12 $ 42,409 $ 13,752 $ 56,173
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 10,276 $ 3,140 $ 396
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 3,013 3,130 2,689
In-process research and development -- 2,935 --
Merger related costs -- -- (930)
Write-down of investment in ZyLAB International -- -- 2,616
Amortization of capitalized software
development costs 678 508 734
Deferred income taxes (991) (991) (1,301)
Loss on disposition of assets -- 111 --
Changes in operating assets and liabilities:
Receivables (2,073) 1,625 (708)
Income tax receivable -- -- 1,109
Inventories (36) 862 (702)
Other current assets 568 (222) (2)
Accounts payable 546 (1,336) 537
Accrued expenses 1,074 21 893
-------- -------- --------
Net cash provided by operating activities 13,055 9,783 5,331
-------- -------- --------
Cash flows from investing activities:
Short-term investments, net 4,572 (529) 4,474
Capital expenditures (1,362) (2,786) (1,460)
Capitalized software development costs (280) (858) (561)
Other assets (1,337) (72) (109)
-------- -------- --------
Net cash provided by (used for) investing activities 1,593 (4,245) 2,344
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuances of common stock 3,819 1,068 2,261
Tax benefit associated with exercise of stock options 698 57 296
Repurchase of stock (19,826) (2,000) (9,233)
Other (3) 91 --
-------- -------- --------
Net cash used for financing activities (15,312) (784) (6,676)
-------- -------- --------
Net change in cash and cash equivalents (664) 4,754 999
Cash and cash equivalents at beginning of year 16,417 11,663 10,664
-------- -------- --------
Cash and cash equivalents at end of year $ 15,753 $ 16,417 $ 11,663
======== ======== ========
Supplemental disclosures:
Cash paid for income taxes $ 3,402 $ 1,202 $ 162
======== ======== ========
Non-cash investing and financing activities:
Acquisition of Formonix for common stock $ -- $ 3,105 $ --
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 11
Notes to the Consolidated Financial Statements
December 31, 1998, 1997, and 1996
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 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 only include Recognita's results of operations since the
date of acquisition.
In March 1997, the Company acquired Formonix, Inc. ("Formonix"), a developer of
forms software and products. This acquisition was accounted for using the
purchase method of accounting. Accordingly, the consolidated results of the
Company only include Formonix's results of operations since the date of
acquisition.
Segment Reporting. In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the manner in which public companies report
information about operating segments in annual and interim financial statements.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company has determined that
it operates in a single operating segment: information recognition software and
products.
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 revenues and expenses. The resulting 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. Such gains and losses have not been
material.
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 purchased 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 (approximates cost) at December 31, 1998 and 1997.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction and, if it is, the type of
hedge transaction. The Company does not expect that the adoption of SFAS No. 133
will have a material impact on its consolidated financial statements.
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. Recoverability of property and equipment is measured by
comparison of its carrying amount to future net cash flows the property and
equipment are expected to generate. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the property and equipment exceeds its fair market value. To
date, the Company has made no adjustments to the carrying values of its
long-lived 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, 1998 and 1997, are capitalized software development costs aggregating
$5,908,000 and $5,628,000, respectively, and related accumulated amortization of
$5,333,000 and $4,655,000, respectively.
<PAGE> 12
Revenue Recognition. Revenue is recognized when (i) evidence of an arrangement
exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and
(iv) collectibility is probable. In addition, provisions are recorded for the
limited rights to exchange products and price protection on unsold merchandise
granted to certain distributors.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," which supersedes SOP 91-1. The Company adopted SOP 97-2 for
software transactions entered into beginning January 1, 1998. SOP 97-2 generally
requires revenue earned on software arrangements involving multiple elements
such as software products, upgrades, enhancements, post-contract customer
support, installation, and training to be allocated to each element based on the
relative fair values of the elements. The fair value of an element must be based
on evidence that is specific to the vendor. If a vendor does not have evidence
of the fair value for all elements in a multiple-element arrangement, all
revenue from the arrangement is deferred until such evidence exists or until all
elements are delivered. There was no material change to the Company's accounting
for revenues as a result of the adoption of SOP 97-2.
In February 1998, the AICPA issued SOP 98-4, "Deferral of the Effective Date of
SOP 97-2." SOP 98-4 defers the effective date for applying the provisions
regarding vendor-specific objective evidence of fair value ("VSOE") until the
AICPA can reconsider what constitutes such VSOE. There was no material change to
the Company's accounting for revenues as a result of the adoption of SOP 98-4.
In December 1998, the AICPA issued SOP 98-9, "Software Revenue Recognition, with
Respect to Certain Arrangements," which requires recognition of revenue using
the "residual method" in a multiple-element arrangement when fair value does not
exist for one or more of the delivered elements in the arrangement. Under the
residual method, the total fair value of the undelivered elements is deferred
and subsequently recognized in accordance with SOP 97-2. The Company does not
expect a material change to its accounting for revenues as a result of the
provisions of SOP 98-9.
Stock-Based Compensation. The Company uses the intrinsic value method to account
for stock-based compensation.
Income Taxes. Caere recorded income tax expense during all periods 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. Basic earnings per share is computed using the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share is based on the weighted-average common shares outstanding
for the period plus dilutive common equivalent shares including stock options
using the treasury stock method.
Comprehensive Income. The Company has no significant components of other
comprehensive income and, accordingly, comprehensive income is the same as net
earnings for all periods.
2. Cash Equivalents and Short-Term Investments
Certain cash equivalents and all short-term investments have been classified as
available-for-sale securities, and consisted of the following as of December 31,
1998 and 1997:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Corporate bonds and notes $11,989 $ 8,868
Commercial paper 14,201 20,053
Certificates of deposit -- 600
U.S., State and municipal bonds 4,004 6,181
Corporate auction-rate preferred securities 11,525 11,500
Money market funds 488 1,139
------- -------
$42,207 $48,341
======= =======
</TABLE>
The Company's investments are classified as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Cash equivalents $13,623 $15,185
Short-term investments 28,584 33,156
------- -------
$42,207 $48,341
======= =======
</TABLE>
<PAGE> 13
The cost and estimated fair value of available-for-sale securities as of
December 31, 1998, by contractual maturity, consisted of the following:
<TABLE>
<CAPTION>
Estimated
fair value
-------
(In thousands)
<S> <C>
Due in one year or less $ 2,212
Due in more than one year 14,847
Auction-rate securities 11,525
-------
$28,584
=======
</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 seven to 28 days.
3. Receivables
A summary of receivables follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Trade accounts receivable $ 8,888 $ 6,767
Interest receivable 405 583
------- -------
9,293 7,350
Less allowances for returns and doubtful accounts 1,957 2,087
------- -------
$ 7,336 $ 5,263
======= =======
</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 13). Historically, the Company has not experienced
significant losses related to receivables from individual customers or groups of
customers in any particular industry.
4. Inventories
A summary of inventories follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Raw materials $ 690 $ 738
Work in process 406 226
Finished goods 857 953
------- -------
$ 1,953 $ 1,917
======= =======
</TABLE>
5. Property and Equipment
A summary of property and equipment follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Equipment $13,755 $12,466
Furniture and fixtures 1,925 1,896
Leasehold improvements 1,661 1,617
------- -------
17,341 15,979
Less accumulated depreciation
and amortization 13,701 11,198
------- -------
$ 3,640 $ 4,781
======= =======
</TABLE>
<PAGE> 14
6. Accrued Expenses
A summary of accrued expenses follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Accrued payroll costs $ 1,493 $ 1,125
Accrued royalties 449 250
Accrued professional fees 368 243
Income taxes payable 1,368 1,247
Other accrued expenses 1,342 1,081
------- -------
$ 5,020 $ 3,946
======= =======
</TABLE>
7. Commitments and Contingencies
The Company leases certain facilities under noncancelable operating leases that
expire in 2004. As of December 31, 1998, future minimum lease payments under
noncancelable operating leases were $971,000, $1,030,000, $1,078,000,
$1,302,000, and $1,352,000 for each of the years through the period ending
December 31, 2003.
Rent expense was approximately $858,000 in 1998, $784,000 in 1997, and $692,000
in 1996. 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.
8. Mergers and Acquisitions
On December 18, 1996, the Company acquired Recognita. 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.
After allocating the purchase price to the net tangible assets, 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 for the year ended
December 31, 1996 assume the acquisition took place at the beginning of the year
and exclude the $4,373,000 charge for acquired in-process technology.
<TABLE>
<S> <C>
(In thousands, except per share amounts)
Net revenues $56,683
Net earnings $ 4,446
Basic earnings per share $ .33
Diluted earnings per share $ .33
</TABLE>
On March 31, 1997, the Company acquired Formonix. Total value of the acquisition
was approximately $3,188,000. The Company issued 550,000 shares of common stock
in exchange for all of the capital stock of Formonix Using the closing price of
the Company's stock on the closing date of the acquisition the valuation of the
shares issued was approximately $3,105,000. Acquisition costs associated with
the transaction totaled approximately $83,000 and consisted mainly of
professional fees. This business combination was accounted for under the
purchase method of accounting. Accordingly, Formonix'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 Formonix.
After allocating the purchase price to the net tangible assets, 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
<PAGE> 15
markets and potential changes thereto, and the competitive outlook for the
technology. This analysis resulted in an allocation of $2,935,000 to in-process
technology which had not yet reached technological feasibility and had no
alternative future use, and accordingly, was charged to expense, along with an
allocation of $253,000 to capitalized software development costs for technology
in development that had reached technological feasibility, and accordingly, will
be amortized to expense over the estimated useful lives of the technology's
related products.
The following summarized, pro forma results of operations assume the acquisition
took place at the beginning of the respective periods and exclude the $2,935,000
charge for acquired in-process technology.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1997 1996
---------- ----------
(In thousands, except per
share amounts)
<S> <C> <C>
Net revenues $ 55,018 $ 54,534
Net earnings $ 5,325 $ 506
Basic earnings per share $ .40 $ .04
Diluted earnings per share $ .40 $ .04
</TABLE>
9. Stock Compensation Plans
At December 31, 1998, the Company has several stock-based compensation plans,
which are described below. The Company applies APB Opinion No. 25 and related
Interpretations in accounting for its plans. As the exercise price of the
Company's employee stock options generally equals the market price of the
underlying stock on the date of grant, no compensation cost has been recognized
for its fixed stock option plans and its stock purchase plan. Pro forma
information regarding net earnings and earnings per share is required by SFAS
No. 123, "Accounting for Stock Based Compensation." Had compensation cost for
such plans been determined consistent with SFAS No. 123, the Company's net
earnings and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net earnings (loss) As reported $ 10,276 $ 3,140 $ 396
Pro forma $ 8,585 $ 1,516 $ (627)
Basic earnings (loss) per share As reported $ .81 $ .24 $ .03
Pro forma $ .68 $ .12 $ (.05)
Diluted earnings (loss) per share As reported $ .78 $ .24 $ .03
Pro forma $ .65 $ .11 $ (.05)
</TABLE>
For the Company's fixed stock option plans, SFAS No. 123 recognizes compensation
expense for the fair value of each option grant on the date of grant which was
estimated using the Black-Scholes option valuation model with the following
weighted-average assumptions used for grants under each of the option plans in
1998, 1997, and 1996, respectively: dividend yield of zero percent for each
year; expected volatility of 65 percent, 66 percent, and 66 percent; risk-free
interest rates of 5.14 percent, 5.70 percent, and 5.85 percent; and an expected
life of 1.10 years, .84 years, and .82 years.
For the Company's Employee Stock Purchase Plan, SFAS No. 123 recognizes
compensation expense for the fair value of the employees' purchase rights, which
was estimated using the Black-Scholes option valuation model with the following
assumptions for 1998, 1997, and 1996, respectively: dividend yield of zero
percent for each year; expected volatility of 65 percent, 66 percent, and 66
percent; risk-free interest rates of 5.14 percent, 5.70 percent, and 5.85
percent; and an expected life of 0.6 years in each year. The weighted-average
fair value of those purchase rights granted in 1998, 1997, and 1996 was $3.22,
$2.69, and $2.50, respectively.
Fixed Stock Option Plans
The Company has three fixed option plans. Under the 1981 Incentive and
Supplemental Stock Option Plan, the Company may grant options to its employees
for up to 4,095,000 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 330,000 shares of common stock. Under the 1997 Non-Officer
Stock Option Plan, the Company may grant options to its non-officer employees
for up to 250,000 shares of common stock. Under each plan, 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.
<PAGE> 16
A summary of the status of the Company's three fixed stock option plans as of
December 31, 1998, 1997, and 1996, and changes during the years ended on those
dates is presented below (shares in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
- ------------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,953 $ 8.08 1,452 $ 8.18 1,541 $ 7.91
Granted 447 12.61 845 7.67 486 8.65
Exercised (436) 8.03 (62) 6.61 (240) 6.49
Forfeited (140) 10.14 (282) 9.38 (335) 8.84
----- ---------- ----- ---------- ----- ----------
Outstanding at end of year 1,824 $ 9.04 1,953 $ 8.08 1,452 $ 8.18
===== ===== =====
Options exercisable at year-end 875 916 705
===== ===== =====
Weighted-average fair value of
options granted during the year $ 6.22 $ 3.42 $ 4.13
========== ========== ==========
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1998 (shares in thousands):
<TABLE>
<CAPTION>
Range Weighted-Avg.
Of Number Remaining Weighted-Avg. Number Weighted-Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
(in years)
<S> <C> <C> <C> <C> <C>
$2.73 to 7.63 547 6.55 $7.11 299 $7.22
$7.75 to 8.44 531 7.91 8.14 309 8.11
$8.50 to 10.13 456 6.80 9.63 264 9.53
$10.50 to 20.00 290 9.48 13.43 3 20.00
- --------------- ------- ------- ------- ------- -------
$2.73 to 20.00 1,824 7.48 $9.04 875 $8.26
=============== ======= ======= ======= ======= =======
</TABLE>
These options will expire if not exercised by specific dates ranging from
February 2001 to November 2008. Prices of options exercised during the
three-year period ended December 31, 1998 ranged from $6.00 to $10.13.
Employee Stock Purchase Plan
Under the 1990 Employee Stock Purchase Plan, the Company is authorized to issue
up to 1,000,000 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 quarterly purchase dates or the annual
offering date. Under the Plan, the Company sold 108,382 shares, 102,115 shares,
and 106,922 shares to employees in 1998, 1997, and 1996, 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 a share of Common
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, 1998, 100,000 shares of the Company's Preferred Stock have been
reserved for this plan.
10. Common Stock Repurchase
In April 1997, the Board of Directors of Caere authorized the repurchase of up
to 1,000,000 shares of the Company's common stock. As of June 1998, management
completed the repurchase of 1,000,000 shares at prices ranging from $8.21 to
$15.00 per share.
In May 1998, the Board of Directors of Caere authorized the repurchase of up to
an additional 1,000,000 shares of the Company's common stock. As of December
1998, management completed the repurchase of approximately 800,000 shares at
prices ranging from $9.63 to $14.71 per share.
The Company has a net operating loss carryforward for federal purposes at
December 31, 1998, of $11.1 million and federal research and experimentation
credit carryforwards of $441,000. Federal tax laws impose significant
restrictions on the
<PAGE> 17
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 and California 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.
11. Income Taxes
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 2,731 $ 1,109 $ 855
State 987 702 250
------- ------- -------
Total current 3,718 1,811 1,105
------- ------- -------
Deferred:
Federal (913) (856) (1,071)
State (78) (135) (230)
------- ------- -------
Total deferred (991) (991) (1,301)
------- ------- -------
Charges in lieu of income taxes
associated with the exercise of stock options 698 57 296
------- ------- -------
$ 3,425 $ 877 $ 100
======= ======= =======
</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,
-----------------------------------
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Federal and state net operating loss and research and
experimental credit carryforwards $ 4,243 $ 5,165 $ 6,671
State tax expense on temporary differences 103 24 39
Accruals for financial statement purposes not taken for
tax purposes 1,842 1,772 1,333
Property and equipment principally due to differences in
depreciation 902 743 373
Other 22 39 7
------- ------- -------
Total gross deferred tax assets 7,112 7,743 8,423
Less valuation allowance (2,399) (3,900) (5,523)
------- ------- -------
Net deferred tax assets 4,713 3,843 2,900
Deferred tax liabilities:
Software development costs, principally due to
capitalization and amortization (135) (256) (304)
------- ------- -------
Net deferred tax assets $ 4,578 $ 3,587 $ 2,596
======= ======= =======
</TABLE>
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,
---------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State tax, net of federal benefit 6.0 9.5 2.0
Utilization of net operating loss
Carryforward (6.8) (34.2) (239.0)
Change in beginning valuation allowance (6.7) (9.5) (206.0)
Benefit of foreign sales corporation (1.3) (3.9) (35.0)
In-process research and development non-
deductible for tax purposes -- 25.4 283.0
ZyLAB investment writedown non-deductible
for tax purposes -- -- 180.5
Other (0.2) 0.5 0.7
---- ---- ----
25.0% 21.8% 20.2%
==== ==== ====
</TABLE>
<PAGE> 18
The Company has a net operating loss carryforward for federal purposes at
December 31, 1998, of $11.1 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 and California 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.
12. Earnings per Share
Following is the computation of basic and diluted earnings per share, including
a reconciliation of the shares used to compute basic earnings per share to the
shares used to compute diluted earnings per share. Net earnings is the same for
purposes of computing both basic and diluted earnings per share.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
(In thousands, except per share data)
Net earnings $10,276 $ 3,140 $ 396
======= ======= =======
Shares used to compute basic earnings per share -
weighted average common shares outstanding 12,687 13,123 13,120
Effect of dilutive common equivalent shares - stock
options outstanding 559 142 199
------- ------- -------
Shares used to compute diluted earnings per share 13,246 13,265 13,319
======= ======= =======
Basic earnings per share $ 0.81 $ 0.24 $ 0.03
======= ======= =======
Diluted earnings per share $ 0.78 $ 0.24 $ 0.03
======= ======= =======
</TABLE>
For the years ended December 31, 1998, 1997, and 1996, options to purchase
approximately 140,000, 564,000, and 26,000 shares, respectively, of common stock
with exercise prices greater than the average fair market value of the Company's
stock for the period were not included in the calculation because the effect
would have been antidilutive.
13. Segment Information
The Company has adopted the provisions of SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the reporting by public business enterprises of information about
operating segments, products and services, geographic areas, and major
customers. The method for determining what information to report is based on the
way management organizes the operating segments within the Company for making
operating decisions and assessing financial performance.
The Company's chief operating decision maker is considered to be the Company's
Chief Executive Officer ("CEO"). The CEO reviews financial information presented
on a consolidated basis accompanied by disaggregated information about revenues
by product type and certain information about geographic regions for purposes of
making operating decisions and assessing financial performance. The consolidated
financial information is identical to the information presented in the
accompanying consolidated statements of operations. Therefore, the Company
operates in a single operating segment: information recognition software and
products.
Net revenue information regarding product type is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Software products $57,351 $47,119 $45,797
Hardware products 8,451 7,899 8,731
------- ------- -------
Consolidated $65,802 $55,018 $54,528
======= ======= =======
</TABLE>
<PAGE> 19
Revenue and asset information regarding operations in the different geographic
regions is as follows (in thousands):
<TABLE>
<CAPTION>
Americas Europe Asia Consolidated
-------- ------ ---- ------------
<S> <C> <C> <C> <C>
Revenues:
1998 $44,226 $19,629 $ 1,947 $65,802
1997 37,257 16,088 1,673 55,018
1996 38,875 13,808 1,845 54,528
Identifiable assets:
1998 $61,217 $ 2,667 $ -- $63,884
1997 65,793 1,507 -- 67,300
</TABLE>
One distributor accounted for 25 percent, 23 percent, and 28 percent of net
revenues in 1998, 1997, and 1996, respectively. At December 31, 1998, this
distributor accounted for 23 percent of trade accounts receivable. A second
customer accounted for 12 percent, six percent, and four percent of net revenues
in 1998, 1997, and 1996, respectively. At December 31, 1998, this distributor
accounted for less than one percent of trade accounts receivable.
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 under
CAER. On December 31, 1998, there were 349 holders of record of the Company's
common stock.
14. Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
1998, Quarter Ended Year
--------------------------------- Ended
Mar 31 Jun 30 Sep 30 Dec 31 Dec 31
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data)
Net revenues $15,659 $16,168 $15,707 $18,268 $65,802
Gross margin 12,232 12,285 12,151 14,990 51,658
Earnings before income taxes 2,814 3,187 2,910 4,790 13,701
Net earnings 2,245 2,393 2,179 3,459 10,276
Basic earnings per share $ .17 $ .19 $ .17 $ .28 $ .81
Diluted earnings per share $ .17 $ .18 $ .17 $ .27 $ .78
Weighted average shares used in per
share calculations:
Basic 13,064 12,817 12,591 12,315 12,687
Diluted 13,550 13,531 13,159 12,769 13,246
Common stock price per share:
High $ 12.50 $ 14.94 $ 14.69 $ 14.00 $ 14.94
Low 8.63 10.06 9.38 8.00 8.00
</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, 1998, there were 349 holders of record of the Company's common
stock.
<PAGE> 20
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, 1998 and 1997, 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, 1998. 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, 1998 and 1997 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Mountain View, California
January 22, 1999
KPMG LLP
<PAGE> 1
EXHIBIT 21.1
CAERE CORPORATION
SUBSIDIARIES OF THE REGISTRANT
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SUBSIDIARY LEGAL NAME JURISDICTION
- --------------------- ------------
<S> <C>
Caere FSC Corporation Territory of Guam
Caere GmbH Germany
Recognita Rt. Hungary
Caere BV The Netherlands
Caere SARL France
</TABLE>
<PAGE> 1
EXHIBIT 23.1
REPORT ON FINANCIAL STATEMENT SCHEDULE
AND CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Caere Corporation:
The audits referred to in our report dated January 22, 1999, included the
related consolidated financial statement schedule for each of the years in the
three-year period ended December 31, 1998, included in the annual report on
Form 10-K. This consolidated financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this consolidated financial statement schedule based on our audits. In our
opinion, such consolidated 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.
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, 333-10803, 333-30993, 333-31019) on Form S-8 of Caere Corporation of
our reports dated January 22, 1999, relating to the consolidated balance sheets
of Caere Corporation and subsidiaries as of December 31, 1998 and 1997, 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, 1998,
and the related schedule, which reports appear or are incorporated by reference
in the December 31, 1998, annual report on Form 10-K of Caere Corporation.
Mountain View, California
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 15,753
<SECURITIES> 28,584
<RECEIVABLES> 9,293
<ALLOWANCES> (1,957)
<INVENTORY> 1,953
<CURRENT-ASSETS> 57,001
<PP&E> 17,341
<DEPRECIATION> (13,701)
<TOTAL-ASSETS> 63,884
<CURRENT-LIABILITIES> 7,711
<BONDS> 0
0
0
<COMMON> 42,421
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 63,884
<SALES> 65,802
<TOTAL-REVENUES> 65,802
<CGS> 14,144
<TOTAL-COSTS> 40,578
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,621)
<INCOME-PRETAX> 13,701
<INCOME-TAX> 3,425
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,276
<EPS-PRIMARY> .81
<EPS-DILUTED> .78
</TABLE>
