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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 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 0-21200
MERIDIAN DATA, INC.
(Exact name of registrant as specified in its charter)
California 77-0188708
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5615 Scotts Valley Drive, California 95066
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(Address of principal executive office) (Zip Code)
(408) 438-3100
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report.)
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 in 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 .
The number of shares of Common Stock, no par value, outstanding on May 11, 1998,
was 8,850,153.
Exhibit index on page 20. Page 1 of 33.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MERIDIAN DATA, INC.
BALANCE SHEETS March 31, December 31,
(in thousands, except per share data 1998 1997
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ASSETS (unaudited)
Current assets:
Cash and cash equivalents $17,533 $15,167
Marketable securities 12,012 16,722
Accounts receivable (net of allowance
for returns and doubtful accounts of $393
and $543, respectively) 2,000 2,949
Inventories 2,003 1,795
Other assets 159 128
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Total current assets 33,707 36,761
Property and equipment at cost,
less accumulated depreciation 674 714
Other assets 15 16
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$34,396 $37,491
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,606 $ 2,371
Accrued payroll and related expenses 1,867 1,787
Accrued advertising and promotion 1,181 1,353
Other accrued liabilities 1,862 1,895
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Total current liabilities 6,516 7,406
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Stockholders' equity:
Preferred stock, $0.001 par value, 5,000 shares
authorized, and no shares outstanding -- --
Common stock, $0.001 par value, 35,000 shares
authorized, 8,802 and 8,785 shares issued
and outstanding 9 9
Additional paid-in capital 66,228 66,207
Accumulated deficit (38,357) (36,131)
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Total stockholders' equity 27,880 30,085
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$34,396 $37,491
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The accompanying notes are an integral part of these financial statements.
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MERIDIAN DATA, INC.
STATEMENTS OF OPERATIONS Three months ended March 31,
(In thousands, except per share data) 1998 1997
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Revenues:
Product sales $ 3,323 $ 3,009
Costs and expenses:
Cost of product sales 1,753 1,728
Research and development 1,639 1,853
Sales and marketing 1,915 2,292
General and administrative 644 952
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Total costs and expenses 5,951 6,825
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Loss from operations (2,628) (3,816)
Interest income, net 402 517
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Loss before income taxes (2,226) (3,299)
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Net loss $(2,226) $ (3,299)
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Net loss per share:
Basic $ (0.25) $ ( 0.34)
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Diluted $ (0.25) $ ( 0.34)
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Weighted average common shares and equivalents:
Basic 8,797 9,609
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Diluted 8,797 9,609
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The accompanying notes are an integral part of these financial statements.
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MERIDIAN DATA, INC.
STATEMENTS OF CASH FLOWS Three months ended March 31,
(In thousands) 1998 1997
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Cash flows from operating activities:
Net loss $(2,226) $(3,299)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Compensation expense related to stock options
issued below market value -- 6
Depreciation and amortization 121 127
Amortization of advance for research and
development arrangements -- 800
Changes in assets and liabilities:
Accounts receivable 949 1,487
Inventories (208) (16)
Other assets (30) 270
Accounts payable (765) 363
Accrued payroll and related expenses 80 396
Accrued advertising and promotion (172) --
Other accrued liabilities (33) 288
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Net cash provided by (used in) operating activities (2,284) 422
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Cash flows from investing activities:
Purchases of property and equipment (81) (102)
Redemption of marketable securities 29,321 6,998
Additions to marketable securities (24,611) (11,851)
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Net cash provided by (used in) investing activities 4,629 (4,955)
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Cash flows from financing activities:
Issuance of Common Stock related to stock plans 21 72
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Net cash provided by financing activities 21 72
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Net increase (decrease) in cash and cash equivalents 2,366 (4,461)
Cash and cash equivalents at beginning of year 15,167 24,809
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Cash and cash equivalents at end of period $17,533 $20,348
====== ======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 10 $ 8
Taxes 28 32
The accompanying notes are an integral part of these financial statements.
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MERIDIAN DATA, INC.
NOTES TO FINANCIAL STATEMENTS
For The Three Months Ended March 31, 1998, and March 31, 1997
NOTE 1. GENERAL
The accompanying financial information is unaudited, but, in the opinion of
management, reflects all adjustments (which include only normally recurring
adjustments) necessary to present fairly the Company's financial position as of
the dates indicated and the results of operations for the periods then ended.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. While the Company believes that the
disclosures are adequate to make the information presented not misleading, the
financial information should be read in conjunction with the audited financial
statements, and notes thereto, for the year ended December 31, 1997, included in
the Company's Annual Report on Form 10-K. Results for the interim period are not
necessarily indicative of the results for the entire year.
NOTE 2. INCOME TAXES
The Company made no provision for income taxes in the first quarters of 1997 and
1998 due to the net operating losses. Income taxes are computed using the asset
and liability method. Under this method, deferred income tax assets and
liabilities are determined based on the differences between the financial
reporting and tax bases of assets and liabilities and are measured using
currently enacted tax rules and laws. Based on the Company's evaluation of the
weight of available evidence it can not conclude that it is more likely than not
that deferred income tax assets will be realized and therefore the Company has
provided a full deferred income tax valuation allowance at March 31, 1998.
NOTE 3. INVENTORIES CONSIST OF THE FOLLOWING (IN THOUSANDS):
March 31, 1998 December 31, 1997
-------------- -----------------
(unaudited)
Raw materials $1,301 $1,390
Work-in-progress 702 405
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$2,003 $1,795
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NOTE 4. RESEARCH AND DEVELOPMENT ARRANGEMENTS:
In November 1996, the Company entered into an agreement with a
development stage company ("DSC") to partially fund the development of a media
independent software search technology. As envisioned, the product would allow
searches of textual, audio, and video data stored on corporate intranets, the
Internet, or such possible future media such as digital video disc's ("DVD's").
As part of this agreement, Meridian loaned $1 million (the "Loan") to DSC at an
annual rate of 5.96%, due in August of 1997, which was recorded in other assets.
In the fourth quarter of 1996, the Company reduced the carrying value of this
Loan by $0.2 million, which represented Meridian's estimate of the realizability
of the Loan at December 31, 1996. At March 31, 1997, the carrying value of the
Loan was reduced by an additional $0.8 million due to uncertainty regarding the
realizability of the Loan. These charges were recorded as research and
development expense. The Loan was repaid in full with interest by DSC in June of
1997. This was recorded as a credit against research and development expense.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Prior to 1995, the Company (then known as Parallan Computer, Inc.)
developed and supported high performance network superservers. During 1994, the
Company exited its prior business and product line, which had generated
substantial losses. The Company fundamentally changed its business in December
1994 with the purchase of Meridian Data, Inc. Since the acquisition, the Company
has been engaged in the business of developing CD ROM/DVD software products and
selling CD ROM/DVD networking software both separately and integrated with CD
ROM/DVD network servers.
In order to bring its skills and expertise in networking systems and
channel distribution to a larger market, Meridian embarked on the development of
its first non-CD ROM/DVD networking system in late 1996. On March 30, 1998, the
Company announced its Snap! Server, The Snap! Server is a protocol-independent,
plug and play network-attached storage ("NAS") device targeted for the PC-LAN
environment. The Company believes that the Snap! Server provides superior
ease-of-use and installation over competing products or methods for adding
storage capacity to PC LAN networks. According to Peripheral Concepts, Inc., an
independent market research firm, the market for NAS was approximately $800
million in 1997 and is projected to grow to $1.2 billion in 1998. There can be
no assurance that the Company's current or potential competitors will not
develop products comparable or superior to the Snap! Server or adapt more
quickly than the Company to new or emerging technologies, evolving industry
trends or changing customer requirements. The Snap! Server will require
different marketing, sales and distribution strategies than those for the
Company's current CD ROM/DVD products. There can be no assurance that the
Company's distributors, value-added resellers ("VARs"), or retailers will choose
or be able to effectively market this new product or that the Company will be
successful in developing alternate channels of distribution. Nor can there be
any assurance that the Snap! Server will be a commercial success. The failure of
the Company's distributors, VARs, and retailers to successfully market the
Company's new products, the Company's failure to develop new channels of
distribution, or the failure to obtain market acceptance for the Snap! Server
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Because the Company generally ships its products within a short period
after receipt of an order, the Company typically does not have a material
backlog of unfilled orders, and total revenues in any quarter are substantially
dependent on orders booked in that quarter. The Company's quarterly operating
results may also vary significantly depending on other factors such as: price
and other forms of competition; seasonality; the introduction of new products by
the Company's competitors; market acceptance of new products; mix of software
and systems sales; adoption of new technologies and standards, the long and
complex sales cycle for site licenses; the timing of site license revenue; the
cost, quality and availability of third party components used in the Company's
systems; changes in the Company's distribution arrangements; and the inability
of the Company to accurately monitor end-user demand for its products due to the
sale of products through distributors and VARs.
In 1997, identifiable sales to federal governmental agencies accounted
for approximately 14% of the Company's product sales, and the Company
anticipates that such sales will continue to account for a significant
percentage of the Company's revenues for the foreseeable future. In the event
that there is any reduction or deferral in spending by such governmental
agencies, the Company's quarterly and annual results of operations would be
adversely affected. Similarly, if such government agencies reduced their
purchases of Meridian products in favor of those of its competitors, the
Company's quarterly and annual results of operations would be adversely
affected. Moreover, the Company's business has experienced and is expected to
continue to experience seasonality in the form of higher sales for its products
during the quarters ending in September and December and weaker sales during the
quarters ending in March and June. The Company's operating results will also be
affected by the economic condition of the personal computer industry, which has
from time to time experienced cyclical, depressed business conditions, often in
connection with or in anticipation of a decline in general economic conditions.
Due to all of the foregoing factors, the Company's total revenues or operating
results may in one or more future quarters be below the expectations of stock
market analysts and investors. In such event, the price of the Company's Common
Stock would likely decline, perhaps substantially.
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties, including, without limitation, risks disclosed under the caption
"Risk Factors" beginning on page 10 of this report; and other risks detailed
from time to time in the Company's filings with the Securities and Exchange
Commission. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements.
RESULTS OF OPERATIONS
REVENUES
PRODUCT SALES
Product sales increased from $3.0 million in the first quarter of 1997
to $3.3 million in the first quarter of 1998, an increase of 10%. This increase
was due to the higher sales of its low-end Universal server. The Company began
shipping the Snap! Server in early May. To encourage customers to adopt Snap!
Server technology, Meridian is offering a 30-day money-back guarantee. Due to
this guarantee and the Company's multi-layer distribution channel for the Snap!
Server, Meridian will not recognize revenue upon shipment of Snap! Servers. To
date, the Company does not have a material backlog of orders for the Snap!
Server. The Company anticipates that in the future it will generally ship its
Snap! Server within a short period after receipt of an order. As such, Meridian
typically will not have a material backlog of unfilled orders. The markets for
the Company's products are extremely competitive, and the Company expects that
competition will continue to increase as existing competitors consolidate,
change and expand their product offerings.
For a discussion of certain other risks that may affect the Company's
future product sales, see "Risk Factors-Operating losses; Fluctuations in
Quarterly Operating Results," "-Rapid Technological Change; -Potential for
Product Defects" and "-Emerging Markets; Product Concentration."
GROSS MARGIN
The Company's gross margin increased from 43% in the first quarter of
1997 to 47% for the comparable period of 1998. The increase in gross margin
percentage was due to higher sales of Meridian's CD ROM/DVD networking products
against fixed manufacturing expenses.
As a result of the continuing shift in the Company's product sales
towards systems with lower price points and continued pricing pressures,
Meridian anticipates that gross margins from its CD ROM/DVD networking products
will decrease in 1998. The Company expects that the Snap! Server will generate
gross margins lower than its existing CD ROM/DVD products.
For a discussion of certain other risks that may affect the Company's
future cost of product sales, see "Risk Factors-Dependence on Third party
Suppliers" and "-Expansion of International Operations; Foreign Currency
Fluctuations."
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT
Total research and development expense decreased from $1.9 million in
the first quarter of 1997, to $1.6 million for the comparable period of 1998.
This decrease was primarily due to charges that were recorded as research and
development expense in the first quarter of 1997 related to a loan made to a
development stage company (the "Loan"). See Note 4 of Notes to Financial
Statements. The Loan was repaid in full with interest in June 1997. This was
recorded as a credit against research and development expense in the second
quarter of 1997. The Company anticipates that research and development expenses
will increase as it completes work on the initial release of Snap! Server and
begins development on future products in the Snap! family of products.
The Company believes that due to CD ROM/DVD server hardware
increasingly becoming a commodity item, it is difficult to create a significant
competitive advantage solely through hardware development. As such, the Company
devotes substantially all of its engineering resources towards software and new
product development. The Company's inability to anticipate and respond to
technological and market changes or the Company's failure to incorporate new
technologies in a timely manner could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
anticipates that it will incur significant amounts of non-recurring engineering
expenses with respect to the development of the Snap! Server and its other new
products. As such, Meridian anticipates that research and development expense
will continue to increase through at least the end of the year. In addition,
there can be no assurance that Meridian's research and development efforts will
result in the introduction of new products or that any of such products, if
developed, will be commercially successful. For a discussion of certain other
risks that may relate to the Company's research and development, see "Risk
Factors-Rapid Technological Change; Potential for Product Defects."
SALES AND MARKETING
Sales and marketing expense decreased from $2.3 million for the first
quarter of 1997 to $1.9 million for the comparable period of 1998. This decrease
was due primarily to the postponement of Snap! Server promotional spending to
the second quarter of 1998. Meridian anticipates that sales and marketing
expenses will begin to increase in the future both in absolute dollars and as a
percent of sales. Sales and marketing expense consists primarily of payroll and
related expenses (including commissions), and promotional expenses.
On March 30, 1998, Meridian has announced the release of its first
non-CD ROM/DVD product, the Snap! Server. The Company anticipates that the
likelihood of other competitors entering this market is high. The Company has
initiated an aggressive launch campaign for its Snap! Server and anticipates
that it will incur significantly higher promotional costs related to the
introduction of this new product than it has for other products in the past.
Accordingly, sales and marketing expense will increase significantly beginning
in the second quarter and continue throughout 1998. In addition, there can be no
assurance that Meridian's sales and marketing efforts will result in the
successful introduction of new products or that any of such products, if
developed, will be commercially successful. For a discussion of certain other
risks that may relate to the Company's sales and marketing, see "Risk
Factors-Dependence on Third Party Distributors" and "Product Concentration."
GENERAL AND ADMINISTRATIVE
General and administrative expense decreased from $1.0 million for the
first quarter of 1997 to $0.6 million for the comparable period of 1998. This
decrease was primarily due to lower legal expenses, and other corporate
expenses. General and administrative expenses consist primarily of payroll,
payroll related expenses, and occupancy expenses.
INTEREST INCOME
Interest income decreased from $517,000 in the first quarter of 1997 to
$402,000 in the first quarter of 1998 primarily due to lower invested cash
balances. Future interest income will vary depending on the average invested
balance and interest rates.
INCOME TAXES
The Company made no provision for income taxes in the first quarter of
1998 due to a net operating loss. Income taxes are computed using the asset and
liability method. Under this method, deferred income tax assets and liabilities
are determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using currently enacted tax
rules and laws. Based on the Company's evaluation of the weight of available
evidence it can not conclude that it is more likely than not that deferred
income tax assets will be realized and therefore the Company has provided a full
deferred income tax valuation allowance at March 31, 1998.
CAPITAL RESOURCES AND LIQUIDITY
Meridian's negative cash flow from operations for the first three
months of 1998 was principally due to the net operating loss of $2.2 million. At
March 31, 1998, the Company's principal source of liquidity consisted of cash
and marketable securities totaling $29.5 million. Meridian believes that its
current cash and marketable securities will satisfy its working capital and
capital expenditures for at least the next twelve months.
The Company's entry into the NAS market will entail the expenditures of
substantial funds for the completion of the Snap! Server, implementing a
nation-wide marketing campaign, and developing distribution channels for the
Snap! Server. These expenditures may be funded by internally generated cash,
marketable securities, debt, or the sale of additional equity. The sale of
additional equity would result in dilution in the equity ownership of the
Company's stockholders.
Meridian believes that success in its industry requires substantial
capital in order to maintain the flexibility to take advantage of opportunities
as they may arise. The Company may, from time to time, as market and business
conditions warrant, invest in or acquire complementary businesses, products or
technologies. The costs of such investments could be charged to expense. Such
investment or acquisitions may be funded by internally generated cash,
marketable securities, or the sale of additional equity. The sale of additional
equity would result in dilution in the equity ownership of the Company's
stockholders.
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION
TO THE OTHER INFORMATION PRESENTED IN THIS REPORT. THIS REPORT CONTAINS FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD
LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE
NOT LIMITED TO, THE FOLLOWING RISK FACTORS.
OPERATING LOSSES; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company (then
known as Parallan Computer, Inc.) fundamentally changed its business in December
1994 with the purchase of Meridian Data, Inc. During 1994, the Company exited
its prior business and product line, which had generated substantial losses. In
the first half of 1995, the Company incurred an operating loss, excluding
certain non-recurring revenue. From that point the Company operated profitably
until the first quarter of 1997, when it again began incurring net losses. There
can be no assurance that the Company will achieve profitability, or that if
achieved, will be able to sustain profitability. In late 1996 and early 1997,
the Company made several decisions to address the disappointing systems revenue
growth experienced in the last three quarters of 1996. Late in the fourth
quarter of 1996, Meridian increased its sales and promotional expenditures and,
at the end of January 1997, significantly reduced system prices in response to
competitive pressures. Even if unit shipments were to increase in the future,
there can be no assurance that prices for the Company's products will not
decrease further due to competitive pricing pressures. Accordingly, the Company
may not meet its total revenue goals and the Company's business, financial
condition and results of operations would be materially adversely affected. As a
result of expenses related to completing the engineering development and
developing and implementing the initial marketing campaign of Meridian's new
Snap! Server, the Company anticipates that it will operate at a substantial net
operating loss for 1998.
The Company generally ships its software and systems within a short
period after receipt of an order, therefore the Company typically does not have
a material backlog of unfilled orders. Accordingly, total revenues in any
quarter are substantially dependent on orders booked in that quarter. This may
result in quarterly fluctuations in revenue. The Company's expense levels are
based, in part, on its expectations as to future sales. As a result, if sales
levels are below expectations, net income may be disproportionately affected.
The Company's quarterly operating results may also vary significantly depending
on other factors, including the introduction of new products by the Company's
competitors; market acceptance of the Company's new products; mix of software
and systems sales; adoption of new technologies and standards; price and other
forms of competition; the long and complex sales cycle for site licenses; the
timing of site license revenue; the cost, quality and availability of third
party components used in the Company's systems; changes in the Company's
distribution arrangements; and the inability of the Company to accurately
monitor end user demand for its products due to the sale of products through
distributors and VARs.
In 1997, identifiable sales to federal governmental agencies accounted
for approximately 14% of the Company's product sales, and the Company
anticipates that such sales will continue to account for a significant
percentage of the Company's revenues for the foreseeable future. In the event
that there is any reduction or deferral in spending by such governmental
agencies, the Company's quarterly and annual results would be adversely
affected. Similarly, if such government agencies reduced their purchases of
Meridian products in favor of those of its competitors, the Company's quarterly
results would be adversely affected. Moreover, the Company's business has
experienced and is expected to continue to experience seasonality in the form of
higher sales for its products during the quarters ending in September and
December and weaker sales during the quarters ending in March and June. The
Company's operating results will also be affected by the economic condition of
the personal computer industry, which has from time to time experienced
cyclical, depressed business conditions, often in connection with or in
anticipation of a decline in general economic conditions. Due to all of the
foregoing factors, the Company's total revenues or operating results may in one
or more future quarters be below the expectations of stock market analysts and
investors. In such event, the price of the Company's Common Stock would likely
decline, perhaps substantially. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NEW PRODUCT DEVELOPMENT. The Company is actively developing products for entry
into non-CD ROM/DVD networking markets, such as the new Snap! Server. Such entry
entails substantially higher risks to the Company in the form of new and well
established competition, and competitive dynamics different than those
experienced in the CD ROM/DVD networking market. In attempting to successfully
enter the NAS market and other new markets, the Company will have to commit to
significant levels of engineering, sales and marketing expenditures. With
respect to NAS, Meridian must also successfully educate the market concerning
the practicality of changing from conventional means of adding storage capacity
to PC networks to installing its new Snap! Server. There can be no assurance
that the Company will be successful in developing and marketing its new Snap!
Server or other new products, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of the new Snap! Server or other new products, or that its new Snap!
Server or other new products will adequately meet the requirements of the
marketplace and achieve market acceptance. If the Company is unable, for
technological or other reasons, to develop and introduce its new Snap! Server or
other new products in a timely manner in response to changing market conditions
or customer requirements, the Company's business, financial condition, and
results of operations will all be materially adversely affected. The Company's
potential new products and Snap! Server are subject to significant technical
risk due to their complexity and the difficulty in gauging the engineering
effort required to produce such products. There can be no assurance that the
Snap! Server and other potential new products will be introduced on a timely
basis or at all. In addition, there can be no assurance that the Company will be
able to offer the functionality and ease-of-use that it believes the Snap!
Server requires for a successful introduction. If the new products are delayed,
do not offer the functionality and ease-of-use envisioned, or do not achieve
market acceptance, the Company's business, financial condition and operating
results will be materially adversely affected. As a result of uncertainty with
respect to Snap! Server revenues and anticipated expenses required to
successfully develop and market this product, the Company anticipates that it
will operate at a substantial net loss in 1998.
DEPENDENCE ON THIRD PARTY DISTRIBUTORS. The Company derives substantially all of
its product sales through distributors and VARs. Two distributors accounted for
21% and 19%, respectively, of the Company's 1997 product sales. The loss of
either of these distributors, or certain other distributors or VARs, would have
a material adverse effect on the Company's business, financial condition, and
results of operations. The Company's contractual relationships with its
distributors and VARs can generally be canceled upon notice to the Company.
Certain of the Company's distributors and VARs also act as distributors for
competitors of the Company and could devote greater effort and resources to
marketing competitive products. In addition, effective distributors and VARs
must devote significant technical, marketing and sales resources to an often
lengthy sales cycle. There can be no assurance that the Company's current
distributors and VARs will continue to market the Company's products effectively
or that economic or industry conditions will not adversely affect such
distributors and VARs. Because the Company sells a significant portion of its
products through distributors and VARs, it is difficult for the Company to
monitor end user demand for its products on a current basis. Initial stocking
orders from distributors or retailers may not be indicative of long-term end
user demand. The Company's distributors and retailers typically are allowed by
contract to return products, subject to certain limitations, without charge or
penalty. While the Company provides for a reserve for future returns, there can
be no assurance that the reserve will adequately cover actual product returns.
Excessive or unanticipated returns could materially adversely affect the
Company's business, financial condition, and results of operations. The
Company's business, financial condition, and results of operations could also be
materially adversely affected by changes in distributors' inventory strategies,
which could occur rapidly, and in many cases may be unrelated to end user
demand. There can be no assurance that the Company's distributors and VARs will
to continue to market the Company's existing products. A failure of the
Company's distributors and VARs to successfully market the Company's products
would have a material adverse effect on the Company's business, financial
condition, and results of operations
The Company began shipping its new Snap! Server in the second quarter
of 1998. The Snap! Server requires different marketing, sales and distribution
strategies than those for the Company's current CD ROM/DVD products. As such, it
entails significant new risks to Meridian. There can be no assurance that the
Company's distributors, VARs, and retailers will choose or be able to
effectively market this new product or that the Company will be successful in
developing alternate channels of distribution. Initial stocking orders from
distributors or retailers may not be indicative of long-term end user demand.
The Company anticipates that its contracts will allow its distributors and
retailers of the Snap! Server and other new products to return products, subject
to certain limitations, without charge or penalty. The Company will provide for
a reserve for returns based on its contractual obligations. A failure of the
Company's distributors, VARs, and retailers to successfully market this product,
or the failure to establish other means of marketing, sales, and distribution,
would have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE ON THIRD PARTY SUPPLIERS. The Company is dependent on a small number
of suppliers for certain key components used in its products, including CD ROM
and DVD drives, microprocessors, integrated circuits and power modules. The
Company purchases these components pursuant to periodic purchase orders, does
not carry significant inventories of these components, and has no long-term
supply arrangements. In addition, certain subassemblies used in the Company's
products are manufactured by a single third party vendor. The loss of a key
supplier or a disruption to the business of a key supplier could have a material
adverse effect upon the Company's business, financial condition and results of
operations. Although the Company believes that alternative sources of components
or subassemblies could be arranged, the process of qualifying new suppliers
could be lengthy. There can be no assurance that any additional source would be
available to the Company on a timely basis or at a cost acceptable to the
Company. Any disruption or reduction in the future supply of any key components
currently obtained from limited sources could have a material adverse effect on
the Company's business, financial condition and results of operations. In the
past, there has been unexpected significant growth in the demand for CD ROM/DVD
drives, which has caused temporary supply disruptions. These components are only
available from a limited number of manufacturers, most of which are Japanese
manufacturers. The Company has experienced in the past, and may experience in
the future, an adverse impact on the cost in dollars of certain components
purchased from Japanese manufacturers due to fluctuations in the exchange rate
for the yen. Moreover, the Company has been required to make spot market
purchases for certain components at premium prices. In the third quarter of
1995, the Company experienced temporary delays in obtaining the drives required
for its products. If such delays reoccur or the Company is required to purchase
components at a higher cost due to fluctuating currency exchange rates, spot
market shortages or other factors, the Company may be unable to ship products on
the schedule anticipated or may sustain higher product costs with a resulting
adverse effect on the Company's business, financial condition and results of
operations.
The Company anticipates that the manufacturing of its new Snap! Server,
including final assembly and testing, will contracted out to third party
vendors, some of whom may be located in Asia. Initially, Meridian will be
dependent on a few third party contractors. Like its CD ROM/DVD counterparts,
the Snap! Server will be dependent on a small number of suppliers for certain
key components and parts, including microprocessors, integrated circuits and
power modules. In addition, certain subassemblies used will be manufactured by a
single third party vendor. Financial, market or other developments adversely
affecting the Company's key component suppliers, or the loss of a key
subassembly manufacturer, could have an adverse effect on their ability to
supply the Company with components or assemblies and, consequently, could have a
material adverse effect upon the Company's business, financial condition and
results of operations. The process of qualifying new suppliers would be lengthy,
and there can be no assurance that any additional source would be available to
the Company on a timely basis or at a cost acceptable to the Company. Any
disruption or reduction in the future supply of any key components currently
obtained from limited sources could have a material adverse effect on the
Company's business, financial condition and results of operations
RAPID TECHNOLOGICAL CHANGE; POTENTIAL FOR PRODUCT DEFECTS. The market for the
Company's products is characterized by rapid technological advances, evolving
industry standards in computer hardware and software technology, changes in
customer requirements and frequent new product introductions and enhancements.
The Company's future success will depend on its ability to continue to enhance
its current product line and to continue to develop and introduce new products
that keep pace with competitive product introductions and technological
developments, satisfy diverse and evolving customer requirements and otherwise
achieve market acceptance. There can be no assurance that the Company will be
successful in continuing to develop and market on a timely and cost-effective
basis new products or product enhancements that respond to technological
advances by others, or that these products will achieve market acceptance. In
addition, companies in the industry have in the past experienced delays in the
development, introduction and marketing of new and enhanced products, and there
can be no assurance that the Company will not experience delays in the future.
Any failure by the Company to anticipate or respond adequately to changes in
technology and customer preferences, or any significant delays in product
development or introduction, would have a material adverse effect on the
Company's business, financial condition and results of operations.
Due to their complexity and sophistication, the Company's products from
time to time may contain defects or "bugs" which can be difficult to correct.
Furthermore, as the Company continues to develop and enhance its products, there
can be no assurance that the Company will be able to identify and correct
defects in a manner that will permit the timely introduction of such products.
Moreover, despite extensive testing, the Company has from time to time
discovered defects only after its products have been commercially released.
There can be no assurance that such defects will not cause delays in product
introductions and shipments or loss of or delay in market acceptance, result in
increased costs, require design modifications, impair customer satisfaction, or
result in customer returns. Any such event could materially adversely affect the
Company's business, financial condition and results of operations.
Over the past two years, CD ROM/DVD drive technology has advanced
significantly. Additionally, the pace of new drive introductions has increased.
As a result, the Company may find itself holding an inventory of obsolete
drives. Further, the Company's contracts with its distributors and retailers
allow for product return, or price protection credits, based on current
inventory levels of current and obsolete products under certain limited
circumstances. Meridian estimates and accrues its required allowance for such
occurrences, but there can be no assurance that actual inventory writedowns,
product returns, or price protection credits will not exceed the Company's
estimate. Such an event could materially adversely affect the Company's
business, financial condition and results of operations.
COMPETITION. The markets for the Company's CD ROM/DVD products are extremely
competitive. The Company expects that competition will increase if more
companies enter the market and as existing competitors continue to change and
expand their product offerings. Pricing is very aggressive in the Company's
industry, and the Company expects pricing pressures to continue to intensify.
The Company's current competitors in the CD ROM/DVD networking market include
other suppliers of CD ROM/DVD networking software and hardware such as Procom
Technology, Inc., Microtest, Inc. and Microdesign International. The Company
also competes indirectly with suppliers of personal computers, such as Dell
Computer Corporation ("Dell"), Compaq Computer Corporation ("Compaq"), and
International Business Machines Corporation ("IBM"), and network operating
systems such as Microsoft Corporation and Novell, Inc., to the extent such
companies include CD ROM/DVD networking utilities as part of their operating
systems. The Company's potential competitors in the hardware area include
companies in the personal computer market and certain CD ROM/DVD manufacturers.
These companies in particular, and the Company's competitors in general, include
large domestic and international companies, many of which have significantly
greater financial, technical, manufacturing, marketing, sales and distribution
resources than the Company. There can be no assurance that the Company's current
or potential competitors will not develop products comparable or superior to
those developed by the Company or adapt more quickly than the Company to new or
emerging technologies, evolving industry trends or changing customer
requirements. There can be no assurance that the Company will have the financial
resources, technical expertise, or marketing, sales, distribution and customer
service and technical support capabilities to compete successfully.
Initially, the Company's Snap! Server will compete with alternative
methods of adding storage to PC-LAN networks such as adding new PC servers from
companies such as Dell, Compaq and IBM, and adding additional disk drives from
manufacturers such as Seagate Technology, Inc. and Maxtor Corporation to
existing servers. These companies in particular, and the Company's competitors
in general, include large domestic and international companies, many of which
have significantly greater financial, technical, manufacturing, marketing, sales
and distribution resources than the Company. There can be no assurance that the
Company's current or potential competitors will not develop products comparable
or superior to the Snap! Server or adapt more quickly than the Company to new or
emerging technologies, evolving industry trends or changing customer
requirements. There can be no assurance that the Company will have the financial
resources, technical expertise, or marketing, sales, distribution and customer
service and technical support capabilities to compete successfully.
The Company believes that its ability to compete successfully in the CD
ROM/DVD networking and NAS markets will depend upon a number of factors both
within and outside of its control, including price, quality, product performance
and features; timing of new product introductions by the Company, its customers
and competitors; customer service and technical support; and the ability of the
Company to respond more quickly than current or potential competitors to new or
emerging technologies, evolving industry trends and changes in customer
requirements and to devote greater resources than current or potential
competitors to the development, promotion and sale of products. The Company
believes that it competes favorably with respect to these factors. There can be
no assurance however that the Company will have the financial resources,
technical expertise, or marketing, sales, distribution and customer service and
technical support capabilities to compete successfully.
EXPANSION OF INTERNATIONAL OPERATIONS. There can be no assurance that the
Company will be able to successfully localize, market, sell and deliver its
products internationally. The inability of the Company to successfully expand
its international operations in a timely and cost effective manner could
materially adversely affect the Company's business, financial condition and
results of operations. International product sales were approximately 12% of
total product sales in 1997. The Company's business, financial condition, and
results of operations could be materially adversely affected by risks inherent
in conducting business internationally, such as changes in currency exchange
rates, longer payment cycles, difficulties in staffing and managing
international operations, problems in collecting accounts receivable, slower
acceptance of technology advances compared with the United States, lack of
published CD ROM/DVD content, seasonal reductions in business activity during
the summer months in Europe and certain other parts of the world, and tariffs,
duties and other trade barriers. For a discussion of the effect of fluctuations
in the exchange rate of the Japanese yen on the cost of certain components used
in the Company's products, see "Risk Factors - Dependence on Third Party
Suppliers."
PRODUCT CONCENTRATION. The Company's future financial performance will depend in
part on the growth in market share for CD ROM/DVD networking products and its
success in the new NAS market. While there is a substantial installed base of CD
ROM/DVD drives in the United States, growth in the CD ROM/DVD networking market
is primarily in entry-level systems with low price points. There can be no
assurance that the Company's products will be widely accepted in this market. If
demand for the Company's CD ROM/DVD networking products continues to decrease,
the Company's business, financial condition and results of operations would be
materially adversely affected. In addition, if CD ROM/DVD server products were
to become generally available, the Company anticipates that, as a percentage of
product sales, systems sales could decline and software sales may increase. In
the event that software sales do not increase in an amount sufficient to offset
a decline in systems sales, the Company's business, financial condition and
results of operations will be materially adversely affected.
The Company's future financial performance will depend in large part on
the success of its Snap! Server and growth in demand for NAS products. The
market for NAS appliances is new and undeveloped. There can be no assurance that
the Company's products will be widely accepted in this emerging market. If
demand for the Snap! Server fails to develop, or develops more slowly than the
Company currently anticipates, the Company's business, financial condition and
results of operations would be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL; MANAGEMENT OF GROWTH. Due to the specialized nature
of the Company's business, the Company's future success is highly dependent upon
the continued services of its key engineering personnel and executive officers
and upon its ability to attract and retain qualified engineering, sales and
marketing, management and manufacturing personnel for its operations.
Competition for such personnel is intense. There can be no assurance that the
Company will be successful in attracting or retaining such personnel. The loss
of any key personnel or the Company's inability to attract and retain qualified
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. None of the Company's key
employees has an employment agreement with the Company, and the Company does not
maintain key man insurance policies on the lives of its key employees. Although
the Company's senior executives have lengthy experience in the computer
industry, they have no experience with the NAS market that the Company has
entered. To manage its growth, the Company must continue to implement and
improve its operational, financial and management information systems and
expand, train and manage its workforce. Meridian believes that success in its
industry requires substantial capital in order to maintain the flexibility to
take advantage of opportunities as they may arise. The Company may, from time to
time, as market and business conditions warrant, invest in or acquire
complementary businesses, products or technologies. Such investment or
acquisitions may be funded by internally generated cash, marketable securities,
or the sale of additional equity. The sale of additional equity would result in
dilution in the equity ownership of Meridian's stockholders. The Company's
failure to manage growth effectively could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON PROPRIETARY RIGHTS. The Company's success depends in part upon
protecting its proprietary technology. The Company relies on a combination of
intellectual property laws, nondisclosure agreements and other protective
measures to protect its proprietary information. There can be no assurance,
however, that the steps taken by the Company will be adequate to deter
misappropriation or independent third party development of its technology or
that its intellectual property rights can be successfully defended if
challenged. Litigation may be necessary to protect the Company's proprietary
rights. Any such litigation may be time-consuming and costly. In addition, the
laws of certain foreign countries do not protect the Company's intellectual
property rights to the same extent as the laws of the United States. Given the
rapid development of technology, there can be no assurance that certain aspects
of the Company's products do not or will not infringe upon the existing or
future proprietary rights of others or that, if licenses or rights are required
to avoid infringement, such licenses or rights could be obtained or obtained on
terms that are acceptable to the Company. The Company is not currently aware of
any infringement of its proprietary rights, nor is it aware of any claims that
its products infringe the rights of others.
POSSIBLE VOLATILITY OF STOCK PRICE. The Company believes that factors such as
announcements of developments related to the Company's business, announcements
by competitors, quarterly fluctuations in the Company's financial results,
conditions in the CD ROM/DVD networking and NAS industries, changes in the
general economy and other factors could cause the price of the Company's Common
Stock to fluctuate, perhaps substantially. In addition, in recent years the
stock market in general, and the market for shares of small capitalization
technology stocks in particular, have experienced extreme price fluctuations,
which have often been unrelated to the operating performance of affected
companies. Such fluctuations could have a material adverse effect on the market
price of the Company's Common Stock.
ANTI-TAKEOVER EFFECT OF STOCKHOLDER RIGHTS PLAN AND CERTAIN CHARTER AND BYLAW
PROVISIONS. In July 1997, the Company's Board of Directors adopted a Preferred
Shares Rights Plan (the "Rights Plan"). The Rights Plan provides for a dividend
distribution of one Preferred Shares Purchase Right (a "Right") on each
outstanding share of the Company's Common Stock. The Rights will become
exercisable following the tenth day after a person or group announces
acquisition of 15% or more of the Company's Common Stock, or announces
commencement of a tender offer, the consummation of which would result in
ownership by the person or group of 15% or more of the Company's Common Stock.
The Company will be entitled to redeem the Rights at $0.01 per Right at any time
on or before the tenth day following acquisition by a person or group of 15% of
more of the Company's Common Stock.
The Rights Plan and certain provisions of the Company's Certificate of
Incorporation and Bylaws may have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. The Company's Certificate of Incorporation
allows the Company to issue Preferred Stock without any vote or further action
by the stockholders, and certain provisions of the Company's Certificate of
Incorporation and Bylaws specify procedures for director nominations by
stockholders and submission of other proposals for consideration at stockholder
meetings, and eliminate cumulative voting in the election of directors. Certain
provisions of Delaware law could also delay or make more difficult a merger,
tender offer or proxy contest involving the Company, including Section 203,
which prohibits a Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years unless certain
conditions are met. The Rights Plan, the possible issuance of Preferred Stock,
the procedures required for director nominations and stockholder proposals and
Delaware law could have the effect of delaying, deferring or preventing a change
in control of the Company, including without limitation, discouraging a proxy
contest or making more difficult the acquisition of a substantial block of the
Company's Common Stock. These provisions could also limit the price that
investors might be willing to pay in the future for shares of the Company's
Common Stock.
PART II. - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of stockholders was held on April 22, 1998. Matters voted on
at that meeting were the election of directors, a proposal to increase the
number of shares authorized under the Company's 1997 Incentive Stock Option
Plan, a proposal to increase the number of shares authorized under the Company's
1992 Employee Stock Purchase Plan, and a proposal to confirm the appointment of
Price Waterhouse LLP as the Company's independent accountants for the 1998
fiscal year. Tabulation for each proposal and individual director were as
follows:
Proposal I: Election of Directors
FOR WITHHELD
Charlie Bass 7,571,249 736,346
Peter R. Johnson 7,573,591 734,004
Gianluca U. Rattazzi 7,573,657 733,938
Mario M. Rosati 7,561,691 745,904
Pierluigi Zappacosta 7,570,991 736,604
Proposal II: To approve an amendment to the Company's 1997 Incentive Stock
Option Plan to increase the number of shares of Common Stock
reserved for issuance thereunder.
FOR AGAINST ABSTAIN NO VOTE
2,460,175 1,314,014 23,504 4,509,902
Proposal III: To approve an amendment to the Company's 1992 Employee Stock
Purchase Plan to increase the number of shares of Common Stock
reserved thereunder.
FOR AGAINST ABSTAIN NO VOTE
3,599,561 244,640 22,434 4,440,960
Proposal IV: To confirm the appointment of Price Waterhouse LLP as the Company's
independent accountants for the 1998 fiscal year.
FOR AGAINST ABSTAIN NO VOTE
8,242,060 36,350 29,185 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-K.
(a) Exhibits.
2.0 Agreement and Plan of Reorganization among Parallan Computer, Inc.,
PAC Acquisition Subsidiary, Inc. and Meridian Data, Inc. dated
December 1, 1994 previously filed as Exhibit 2 to the Current Report
on Form 8-K and incorporated herein by reference.
2.2 Agreement and Plan of Merger between Meridian Data, Inc., a California
corporation, and Meridian Data, Inc., a Delaware corporation, dated
May 29,1997 previously filed as Exhibit 2.2 to Registration of
Securities of Certain Successor Issues on Form 8-B and incorporated
herein by reference.
3.1 Certificate of Incorporation of Meridian Data, Inc., a Delaware
corporation, previously filed as Exhibit 3.1 to Registration of
Securities of Certain Successor Issues on Form 8-B and incorporated
herein by reference.
3.2 Bylaws of Meridian Data, Inc., a Delaware corporation, previously
filed as Exhibit 3.2 to Registration of Securities of Certain
Successor Issues on Form 8-B and incorporated herein by reference..
4.1 Specimen Common Stock certificate of Meridian Data, Inc., a Delaware
corporation, previously filed as Exhibit 4.1 to the Quarterly Report
on Form 10-Q for the period ended September 30, 1997, and incorporated
herein by reference.
4.2 Fourth Article of Certificate of Incorporation of Meridian Data, Inc.,
a Delaware Corporation (see Exhibit 3.1)
10.1 Form of Indemnification Agreement by and among Meridian Data, Inc., a
Delaware corporation, and its directors and officers previously filed
as Exhibit 10.1B to Registration of Securities of Certain Successor
Issues on Form 8-B and incorporated herein by reference.
10.2 Restated and Amended 1988 Incentive Stock Plan and forms of agreements
thereunder previously filed under Registration Statement on Form S-8
(Registration No. 333-3934) and incorporated herein by reference.
10.3 1992 Incentive Stock Plan and form of agreement thereunder previously
filed as Exhibit 10.3 to Registration Statement on Form S-1
(Registration No. 33-57976) and incorporated herein by reference.
10.4 1992 Key Employee Stock Plan and form of agreement thereunder
previously filed as Exhibit 10.4 to Registration Statement on Form S-1
(Registration No. 33-57976) and incorporated herein by reference.
10.5 Amended and Restated 1992 Employee Stock Purchase Plan and form of
subscription agreement thereunder.
10.9 Marketing Agreement dated as of June 1, 1992 between Parallan
Computer, Inc. and IBM Corporation previously filed as Exhibit 10.9 to
Registration Statement on Form S-1 (Registration No. 33-57976) and
incorporated herein by reference.
10.10 Master Work Agreement dated as of June 1, 1992 between Parallan
Computer, Inc. and IBM Corporation previously filed as Exhibit 10.10
to Registration Statement on Form S-1 (Registration No. 33-57976) and
incorporated herein by reference.
10.15 Amendment to the Master Work Agreement and Marketing Agreement dated
as of March 31, 1994, between Parallan Computer, Inc. and IBM
Corporation previously filed as Exhibit 10.15 to the Quarterly Report
on Form 10-Q for the period ended March 31, 1994, and incorporated
herein by reference.
10.16 Meridian Data, Inc. 1987 Incentive Stock Plan and form of subscription
agreement thereunder previously filed as Exhibit 4.3 to Registration
Statement on Form S-8 (Registration No. 33-89162) and incorporated
herein by reference.
10.17 Stock Option Assignment and Exercise Agreement between the Registrant,
International Business Machines Corporation and certain stockholders
of the Registrant dated March 6, 1996 previously filed as Exhibit
10.17 to the Annual Report on Form 10-K for the year ended December
31, 1995, and incorporated herein by reference.
10.18 Meridian Data, Inc. 1995 Director Stock Plan and form of subscription
agreement thereunder previously filed as Exhibit 4.3 to the
Registration Statement on Form S-8 (Registration No. 333-2622) and
incorporated herein by reference.
10.19 Meridian Data, Inc. 1997 Incentive Stock Plan and form of agreement
thereunder previously filed as Exhibit 10.19 to Registration of
Securities of Certain Successor Issues on Form 8-B and incorporated
herein by reference.
16.1 Letter regarding change in accountants previously filed as Exhibit
16.1 to Registration Statement on Form S-1 (Registration No. 33-57976)
and incorporated herein by reference.
27 Financial Data Schedule
(b) Reports on Form 8-K.
none
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
MERIDIAN DATA, INC.
Date: May 14, 1998 /s/GIANLUCA U. RATTAZZI
Gianluca U. Rattazzi, President
and Chief Executive Officer.
Date: May 14, 1998 /s/ERIK E. MILLER
Erik E. Miller, Sr. Vice President,
Finance and Chief Financial Officer
(Principal Financial and Accounting
Officer)
<PAGE>
MERIDIAN DATA, INC.
INDEX TO EXHIBITS
Exhibit Item Page
- ------- ------------------------------------------------------- ----
10.5 Amended and Restated 1992 Employee Stock Purchase
Plan and form of subscription agreement thereunder. 21
27 Financial Data Schedule 33
<PAGE>
MERIDIAN DATA, INC.
1992 EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED EFFECTIVE APRIL 22, 1998)
1. Purpose. The purpose of the Plan is to provide employees of the Company and
its Designated Subsidiaries with an opportunity to purchase Common Stock of the
Company through accumulated payroll deductions. It is the intention of the
company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Meridian Data, Inc.
(e) "Compensation" shall mean base straight time gross earnings,
commissions, overtime and shift premium, exclusive of payments for
incentive compensation, incentive payments, bonuses, and other
compensation; provided that for individuals who are subject to Section 16
of the Securities Exchange Act of 1934, as amended, Compensation shall not
include commissions.
(f) "Designated Subsidiaries" shall mean the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an employee of the Company
for purposes of tax withholding under the Code whose customary employment
with the Company or any Designated Subsidiary is at least twenty (20) hours
per week and more than five (5) months in any calendar year. For purposes
of the Plan, the employment relationship shall be treated as continuing
intact while the individual is on sick leave or other leave of absence
approved by the Company. Where the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed either by statute or
by contract, the employment relationship will be deemed to have terminated
on the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering Period.
(i) "Exercise Date" shall mean the last day of each Offering Period.
(j) "Fair Market Value" shall mean, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sale price for the
Common Stock (or the mean of the closing bid and asked prices, if no
sales were reported), as quoted on such exchange (or the exchange with
the greatest volume of trading in Common Stock) or system on the date
of such determination, as reported in THE WALL STREET JOURNAL or such
other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in THE
WALL STREET JOURNAL or such other source as the Board deems reliable;
or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Board.
(k) "Offering Period" shall mean a period of approximately six (6) months,
commencing on the first Trading Day on or after May 1 and terminating on
the last Trading Day in the period ending the following October 30, or
commencing on the first Trading Day on or after November 1 and terminating
on the last Trading Day in the period ending the following April 30. The
duration, commencement and termination of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair Market
Value of a share of Common Stock on the Enrollment Date or on the Exercise
Date, whichever is lower.
(n) "Reserves" shall mean the number of shares of Common Stock covered by
each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the
Plan but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock exchanges and
the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given Enrollment
Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee
shall be granted an option under the Plan (i) to the extent, immediately
after the grant, such Employee (or any other person whose stock would be
attributed to such Employee pursuant to Section 424(d) of the Code) would
own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent his or her rights to
purchase stock under all employee stock purchase plans of the Company and
its subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand
Dollars ($25,000) worth of stock (determined at the fair market value of
the shares at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive Offering
Periods with a new Offering Period commencing on the first Trading Day on or
after May 1 and November 1 each year, or on such other date as the Board shall
determine, and continuing thereafter until terminated in accordance with Section
19 hereof. The Board shall have the power to change the duration of Offering
Periods (including the commencement and/or termination dates thereof) with
respect to future offerings without stockholder approval if such change is
announced at least five (5) days prior to the schedule beginning of the first
Offering Period to be effected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by completing
a subscription agreement authorizing payroll deductions in the form of
Exhibit A to this Plan and filing it with the Company's Human Resources
Department prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription agreement, he
or she shall elect to have payroll deductions made on each pay day during
the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period, and the aggregate of such payroll deductions during the Offering
Period shall not exceed ten percent (10%) of the participant's Compensation
during said Offering Period.
(b) All payroll deductions made for a participant shall be credited to his
or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan as
provided in Section 10 hereof, or may increase or decrease the rate of his
or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change
in payroll deduction rate. The Board may, in its discretion, limit the
number of participation rate changes during any Offering Period. The change
in rate shall be effective with the first full payroll period following
five (5) business days after the Company's receipt of the new subscription
agreement unless the Company elects to process a given change in
participation more quickly. A participant's subscription agreement shall
remain in effect for successive Offering Periods unless terminated as
provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply with
Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during
an Offering Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of
the first Offering Period which is scheduled to end in the following
calendar year, unless terminated by the participant as provided in Section
10 hereof.
(e) At the time the option is exercised, in whole or in part, or at the
time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise
upon the exercise of the option or the disposition of the Common Stock. At
any time, the Company may, but will not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to
make available to the Company any tax deductions or benefits attributable
to sale or early disposition of Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than a
number of Shares determined by dividing $12,500 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and
shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as provided
in Section 10 hereof, his or her option for the purchase of shares will be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on which a
purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his
or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's
payroll deductions credited to his or her account will be paid to such
participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period will be automatically
terminated, and no further payroll deductions for the purchase of shares
will be made during the Offering Period. If a participant withdraws from an
Offering Period, payroll deductions will not resume at the beginning of the
succeeding Offering Period unless the participant delivers to the Company a
new subscription agreement.
(b) Upon a participant's ceasing to be an Employee, for any reason,
including by virtue of him or her having failed to remain an Employee of
the Company for at least twenty (20) hours per week during an Offering
Period in which the Employee is a participant, he or she will be deemed to
have elected to withdraw from the Plan and the payroll deductions credited
to such participant's account during the Offering Period but not yet used
to exercise the option will be returned to such participant or, in the case
of his or her death, to the person or persons entitled thereto under
Section 14 hereof, and such participant's option will be automatically
terminated.
(c) A participant's withdrawal from an Offering Period will not have any
effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock which shall
be made available for sale under the Plan shall be 400,000 shares, subject
to adjustment upon changes in capitalization of the Company as provided in
Section 18 hereof. If on a given Exercise Date the number of shares with
respect to which options are to be exercised exceeds the number of shares
then available under the Plan, the Company shall make a pro rata allocation
of the shares remaining available for purchase in as uniform a manner as
shall be practicable and as it shall determine to be equitable.
(b) The participant will have no interest or voting right in shares covered
by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant
and his or her spouse.
13. Administration.
(a) Administrative Body. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine
eligibility and to adjudicate all disputed claims filed under the Plan.
Every finding, decision and determination made by the Board or its
committee shall, to the full extent permitted by law, be final and binding
upon all parties.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise
Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required
for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant 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 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.
15. Transferability. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in Section 14 hereof) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds from
an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each participant in the
Plan. Statements of account will be given to participating Employees at least
annually, which statements will set forth the amounts of payroll deductions, the
Purchase Price, the number of shares purchased and the remaining cash balance,
if any.
18. Adjustments Upon Changes in Capitalization.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to
an option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Offering Period will terminate immediately
prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Offering Period then in
progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the
Company's proposed sale or merger. The Board shall notify each participant
in writing, at least ten (10) business days prior to the New Exercise Date,
that the Exercise Date for the participant's option has been changed to the
New Exercise Date and that the participant's option shall be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section
10 hereof.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 18
hereof, no such termination can affect options previously granted, provided
that an Offering Period may be terminated by the Board of Directors on any
Exercise Date if the Board determines that the termination of the Plan is
in the best interests of the Company and its stockholders. Except as
provided in Section 18 hereof, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law or
regulation), the Company shall obtain stockholder approval in such a manner
and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during
an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding
in excess of the amount designated by a participant in order to adjust for
delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied
toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant's Compensation, and
establish such other limitations or procedures as the Board (or its
committee) determines in its sole discretion advisable which are consistent
with the Plan.
20. Notices. All notices or other communications by a participant to the Company
under or in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with respect
to an option unless the exercise of such option and the issuance and delivery of
such shares pursuant thereto shall comply with all applicable provisions of law,
domestic or foreign, including, without limitation, the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person
exercising such option to represent and warrant at the time of any such exercise
that the shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to occur of
its adoption by the Board of Directors or its approval by the stockholders of
the Company. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 19 hereof.
<PAGE>
EXHIBIT A
MERIDIAN DATA, INC.
1992 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in
the Meridian Data, Inc. 1992 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribes to purchase shares of
the Company' s Common Stock in accordance with this Subscription
Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 1 to 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete "Employee Stock Purchase Plan."
I understand that my participation in the Employee Stock Purchase Plan
is in all respects subject to the terms of the Plan. I understand that
the grant of the option by the Company under this Subscription
Agreement is subject to obtaining stockholder approval of the Employee
Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse Only):
6. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Enrollment Date (the first day of
the Offering Period during which I purchased such shares), I will be
treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount equal to the
excess of the fair market value of the shares at the time such shares
were purchased by me over the price which I paid for the shares. I
HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE
DATE OF ANY DISPOSITION OF SHARES AND I WILL MAKE ADEQUATE PROVISION
FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH
ARISE UPON THE DISPOSITION OF THE COMMON STOCK. The Company may, but
will not be obligated to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of
Common Stock by me. If I dispose of such shares at any time after the
expiration of the 2-year holding period, I understand that I will be
treated for federal income tax purposes as having received income only
at the time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of
(1) the excess of the fair market value of the shares at the time of
such disposition over the purchase price which I paid for the shares,
or (2) 15% of the fair market value of the shares on the first day of
the Offering Period. The remainder of the gain, if any, recognized on
such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) _________________________________________________
(First) (Middle) (Last)
_______________________________ ________________________________
Relationship
________________________________
(Address)
Employee's Social
Security Number: ________________________________
Employee's Address: ________________________________
________________________________
________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: ___________________ ________________________________
Signature of Employee
________________________________
Print Name
________________________________
Spouse's Signature (If beneficiary other
than spouse)
________________________________
Print Name
<PAGE>
EXHIBIT B
MERIDIAN DATA, INC.
1992 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Meridian
Data, Inc. 1992 Employee Stock Purchase Plan which began on _____________ 19____
(the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
--------------------------------
--------------------------------
--------------------------------
Signature:
--------------------------------
Date:___________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
MERIDIAN DATA, INC.
Financial Data Schedule
Article 5 of Regulation SX
This schedule contains summary financial information extracted from the
Quarterly Report on Form 10-Q for the period ended March 31, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000864568
<NAME> Meridian Data, Inc.
<MULTIPLIER> 1000
<CURRENCY> US dollars
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 17,533
<SECURITIES> 12,012
<RECEIVABLES> 2,000
<ALLOWANCES> 393
<INVENTORY> 2,003
<CURRENT-ASSETS> 159
<PP&E> 1,942
<DEPRECIATION> 1,268
<TOTAL-ASSETS> 34,396
<CURRENT-LIABILITIES> 6,516
<BONDS> 0
0
0
<COMMON> 66,241
<OTHER-SE> (4)
<TOTAL-LIABILITY-AND-EQUITY> 34,396
<SALES> 3,323
<TOTAL-REVENUES> 3,323
<CGS> 1,753
<TOTAL-COSTS> 1,753
<OTHER-EXPENSES> 4,198
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (402)
<INCOME-PRETAX> (2,226)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,226)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,226)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
