UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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)
Delaware 77-0188708
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5615 Scotts Valley Drive, California 95066
- ------------------------------------ ----------
(Address of principal executive office) (Zip Code)
(831) 438-3100
(Registrant's telephone number, including area code)
(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 November 9,
1998, was 8,181,434.
Exhibit index on page 21.
Page 1 of 53
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
MERIDIAN DATA, INC.
BALANCE SHEETS September 30, December 31,
- --------------------------------------------------------------------------------
(in thousands, except per share data) 1998 1997
- --------------------------------------------------------------------------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $12,657 $15,167
Marketable securities 9,942 16,722
Accounts receivable (net of allowance
for returns and doubtful accounts of $505
and $543, respectively) 2,685 2,949
Inventories 3,328 1,795
Other assets 178 128
---------- --------
Total current assets 28,790 36,761
Property and equipment at cost,
less accumulated depreciation 691 714
Other assets 16 16
---------- ----------
$29,497 $37,491
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,191 $ 2,371
Accrued payroll and related expenses 1,872 1,787
Accrued advertising and promotion 2,196 1,353
Other accrued liabilities 2,103 1,895
-------- ---------
Total current liabilities 9,362 7,406
--------- ---------
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, 8,852 and 8,785 shares issued
and outstanding 9 9
Additional paid-in capital 66,401 66,207
Accumulated deficit (46,275) (36,131)
------- -------
Total stockholders' equity 20,135 30,085
---------- --------
$29,497 $37,491
======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
MERIDIAN DATA, INC.
STATEMENT OF OPERATIONS Three months ended Nine months ended
September 30, September 30,
(In thousands, except per share data) 1998 1997 1998 1997
------- -------- -------- -------
Revenues:
Product sales $ 4,816 $ 6,151 $ 12,376 $ 14,707
------- ------- ------- -------
Costs and expenses:
Cost of product sales 2,819 2,815 6,939 6,945
Research and development 1,272 1,620 4,763 4,333
Sales and marketing 3,525 2,951 9,994 7,847
General and administrative 576 624 1,922 2,185
------ --- ----- -----
Total costs and expenses 8,192 8,010 23,618 21,310
----- ----- ------ ------
Loss from operations (3,376) (1,859) (11,242) (6,603)
Interest income, net 322 455 1,098 1,528
----- ----- ------- --------
Loss before income taxes (3,054) (1,404) (10,144) (5,075)
------- -------- -------- --------
Net loss $ (3,054) $(1,404) $ (10,144) $(5,075)
======== ======== ======== =======
Net loss per share:
Basic $ (0.35) $ (0.16) $ (1.15) $ (0.55)
======== ======= ======== ========
Diluted $ (0.35) $ (0.16) $ (1.15) $ (0.55)
======== ======= ======== ========
Weighted average common shares
and equivalents:
Basic 8,852 8,716 8,829 9,162
===== ===== ===== =====
Diluted 8,852 8,716 8,829 9,162
===== ===== ===== =====
The accompanying notes are an integral part of these financial statements.
<PAGE>
MERIDIAN DATA, INC.
STATEMENTS OF CASH FLOWS
Nine months ended September 30,
(In thousands) 1998 1997
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (10,144) $ (5,075)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 412 369
Amortization of advance for research and
development arrangements - 800
Changes in assets and liabilities:
Accounts receivable 264 (356)
Inventories (1,533) (451)
Other assets (50) 120
Accounts payable 820 898
Accrued payroll and related expenses 85 974
Accrued advertising and promotion 843 -
Other accrued liabilities 208 888
------------ ------------
Net cash used in operating activities (9,095) (1,833)
-------- ----------
Cash flows from investing activities:
Purchases of property and equipment (389) (306)
Redemption of marketable securities 31,559 36,546
Additions to marketable securities (24,779) (42,338)
--------- -----------
Net cash provided by(used in) investing activities 6,391 (6,098)
---------- -----------
Cash flows from financing activities:
Repurchase of common stock - (3,966)
Issuance of common stock related to stock plans 194 403
----------- -------------
Net cash provided by(used in)financing activities 194 (3,563)
----------- -------------
Net decrease in cash and cash equivalents (2,510) (11,494)
Cash and cash equivalents at:
beginning of period 15,167 24,809
--------- -----------
at end of period $ 12,657 $13,315
======== =======
Statement of cash flow supplemental disclosure:
Total cash paid for interest during the period $ 28 $ 9
Total cash paid for taxes during the period 38 32
The accompanying notes are an integral part of these financial statements.
<PAGE>
MERIDIAN DATA, INC.
NOTES TO FINANCIAL STATEMENTS
For The Three and Nine Months Ended September 30, 1998 and 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 financial position of Meridian
Data, Inc. (the "Company") 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 third quarter and first
nine months of 1998 and 1997 due to the net operating losses. The Company
computes income taxes 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 September 30, 1998.
Note 3. Inventories consist of the following (in thousands):
September 30, 1998 December 31, 1997
---------------------- -----------------
(unaudited)
Raw materials $2,024 $ 1,390
Work-in-progress 1,304 405
------ --------
$3,328 $1,795
======== =======
Note 4. Subsequent event
Bank Credit Facilities. On October 14, 1998 the Company signed a credit
agreement (the "Facility")with a bank (the "Bank") for a $7.5 million revolving
credit line which expires on July 30, 1999. Borrowing under the Facility is at
the Bank's prime rate plus 1/4 %, and is subject to the Company maintaining
certain leverage ratios and net worth requirements. All advances under the
Facility must be repaid by the expiration date of July 30, 1999. Currently,
Meridian has no amounts due under the Facility.
<PAGE>
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations.
GENERAL
Meridian Data, Inc. (the "Company") is engaged in the business of
developing and manufacturing of network storage solutions. The Company has two
main product lines, CD ROM/DVD software and networking systems, and plug and
play network attached storage ("NAS") for PC-LANS.
On March 30, 1998, the Company announced its Snap! Server. The Snap! Server
is a protocol-independent, plug and play NAS device for PC-LANS. 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 $1.8 billion in 1999. The Snap! Server requires different marketing,
sales and distribution strategies than those for the Company's existing 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. 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 failure of the Company's distributors, VARs, and
retailers to successfully market the Company's new products, the Company's
failure to adapt quickly to new technologies, 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 current and potential new 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. The Company
has failed to meet its expectations of future revenues in the past. As a result
of these and other factors, the Company believes that its revenues and operating
results are difficult to predict and are subject to fluctuations from period to
period. 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 Section 27A of the Securities Act of 1933, as amended, and
Section 21G of the Securities Exchange Act of 1934, as amended. 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 11 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 in the third quarter and first nine months of 1998 decreased
by $1.3 million and $2.3 million, or 22% and 16% respectively, over the
corresponding periods of 1997. This decrease was due to a continuing market
driven shift from enterprise-wide CD ROM/DVD servers towards workgroup CD
ROM/DVD servers, which have increased in volume but have lower average price
points. Due to the shift in demand from enterprise-wide CD ROM/DVD servers, the
Company anticipates that revenues from product sales in 1998 will be less than
in 1997. Also included in product sales for the third quarter of 1998 was
approximately $1.2 million in sales related to the Company's new Snap! Server.
The markets for Meridian's products are extremely competitive, and the Company
expects that Meridian's revenue could be adversely impacted as new competitors
enter the market for NAS, and existing competition continues to consolidate,
change and expand product offerings and react to prior market moves made by the
Company.
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 decreased to 41% and 44% in the third quarter
and first nine months of 1998, respectively, from 54% and 53% in the comparable
periods of 1997. The decrease in gross margins is the result of the continuing
shift in the mix of CD ROM/DVD products from enterprise-wide severs to workgroup
servers and sales of the Company's new Snap! Server, which has lower overall
gross margins than Meridian's CD ROM/DVD products.
As a result of the continuing shift in the Company's product sales towards
systems with lower price points and pricing pressures, Meridian anticipates that
gross margins will continue to decrease in 1998. The Company expects that the
Snap! Server product line will also continue to 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
Research and development expense decreased to $1.3 million in the third
quarter of 1998 from $1.6 million for the comparable period of 1997. This
decrease was primarily due to the completion of the first Snap! Server product.
For the nine months ended September 30, 1998, research and development expenses
increased approximately $400,000 over the comparable period of 1997 due to
expenses related to the development of the Snap! Server product. The Company
anticipates that research and development expenses may increase as it begins
development on future products in the Snap! Server 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 CD ROM/DVD engineering resources towards maintaining
software compatablity with new CD ROM/DVD standards. 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 future
Snap! Server products and other new products. As such, Meridian anticipates that
research and development expense may 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 increased to $3.5 million and $10.0 million in
the third quarter and first nine months of 1998, respectively, from $3.0 million
and $7.8 million for the corresponding periods of 1997. These increases were due
primarily to higher marketing and advertising costs related to the Snap! Server
product launch, and continuing Snap! Server marketing efforts. Meridian
anticipates that sales and marketing expenses will continue to increase, both in
absolute dollars and as a percent of sales. Sales and marketing expense consists
primarily of payroll and related expenses (including commissions), and
advertising and promotional related expenses.
On March 30, 1998, Meridian 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. Such new competition could
have substantially greater engineering, sales, marketing, and distribution
resources than are available to Meridian. The Company anticipates that it will
continue to incur significantly higher promotional costs related to the
introduction of this new product than it has for other products in the past. In
addition, there can be no assurance that Meridian's sales and marketing efforts
will result in the successful introduction of new products, including the Snap!
Server, or that any of such products 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 to $576,000 in the third
quarter of 1998 from $624,000 in the third quarter of 1997 and decreased
$300,000 to $1.9 million for the nine months ended September 30, 1998 from the
comparable period of 1997. These decreases were due to lower legal expenses
partially offset by higher payroll related expenses.
INTEREST INCOME
Interest income decreased to $322,000 and $1.1 million in the third
quarter and first nine months of 1998 from $455,000 and $1.5 million for the
corresponding periods of 1997, respectively. This decrease was due to lower
invested cash balances and lower interest rates. 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 nine months
of 1998 due to the 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 September 30, 1998.
CAPITAL RESOURCES AND LIQUIDITY
Meridian's cash flow from operations for the first nine months of 1998 was
adversely impacted by the net operating loss of $10.1 million and an increase in
inventories, primarily due to the introduction of the Company's new Snap!
Server. At September 30, 1998, the Company's principal source of liquidity
consisted of cash and marketable securities totaling $22.6 million. Meridian
believes that its current cash and marketable securities and a $7.5 million bank
line will satisfy its working capital and capital expenditures for at least the
next twelve months. All advances under the bank line must be repaid by the
expiration date of July 30, 1999.
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. As a result of the extended payment terms required by
the Company's Snap! Server retail customers, the Company's liquidity may be
adversely impacted by the timing of payments required by its vendors preceding
the receipt of payments from retail customers.
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.
YEAR 2000 ISSUE
The Year 2000 (Y2K) Issue refers to computer programs which use two
digits rather than four to define a given year and which therefore might read a
date using "00" as the year 1900 rather than the year 2000. The critical areas
being addressed by Meridian are its internal computer systems, products made by
the Company and relationships with external organizations. Meridian is
addressing both information technology ("IT") and non-IT systems, which
typically include embedded technology, such as microcontrollers. There are no
known non-IT issues that will adversely impact the Company's information systems
or manufacturing capabilities.
Meridian considers a product to be "Y2K ready" if the product's
performance and functionality are unaffected by processing of dates prior to,
during and after the Year 2000, but only if the product and all of its component
products (for example hardware, software and firmware) properly exchange
accurate date data. The Company believes that its Snap! Servers, CD ROM/DVD
systems, and CD ROM/DVD networking software manufactured or released after
December 31, 1997 are transparent to Year 2000 requirements, and rely primarily
on software found in operating systems and applications to function properly.
The assessment of whether Meridian's software products will operate
correctly depends on the computer system and/or network on which the software is
installed. For many end-users this will include BIOS, software and components
provided by companies other than Meridian Data. After testing, the Company
believes its products manufactured or released after December 31, 1997 are Y2K
ready, although products manufactured or released prior to that date may not be
Y2K ready.
In early 1999, the Company plans to initiate formal communications with
its significant suppliers, contract manufacturers and financial institutions to
evaluate their Y2K compliance plans and state of readiness and to determine
whether any Y2K issues will impede the ability of such suppliers, contract
manufacturers, or financial institutions to continue to provide goods and
services to the Company. However, our suppliers, contract manufacturers, and
financial institutions are under no contractual obligation to provide such
information to the Company. Accordingly, the Company may not be able to
accurately evaluate the Y2K impact on its operations of products and services
delivered by these third parties. Meridian has established procedures to ensure
that products and internal systems from new suppliers are Y2K compliant. As a
general matter, Meridian is vulnerable to any failure by its key suppliers and
contract manufacturers to remedy their own Y2K issues, which could delay
shipments of essential components and systems, thereby disrupting or halting the
Company's manufacturing operations. Further, Meridian also relies upon
governmental agencies, utility companies, telecommunication service companies
and other service providers outside of the Company's control. There is no
assurance that such suppliers, governmental agencies, financial institutions, or
other third parties will not suffer business disruptions caused by a Y2K issue,
and there is little practical opportunity for Meridian to test or require Y2K
compliance from many of those large agencies, companies or providers. Such
failures could have a material adverse effect on the Company's business,
financial condition and results of operations. Commencing in 1999, Meridian
plans to develop a contingency plan designed to address problems which might
arise from the failure of its suppliers or contract manufacturers to timely and
adequately address their Y2K issues.
To date, the Company has not incurred material costs related to
assessment and remediation of Y2K readiness. A formal budget has not been
established, and the cost to Meridian of achieving Y2K readiness is evolving;
however, it is not currently expected to have a material effect on the Company's
business, financial condition, or results of operations. During 1998, Meridian
completed the installation of upgraded computer software for the Company's
financial, accounting, inventory control, order processing and other management
information systems which the vendors maintain are Y2K ready.
Risk Factors
The following risk factors should be considered carefully in addition to
the other information presented in this report. This report contains
forwardlooking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21G of the Securities Exchange Act of 1934,
as amended, that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forwardlooking
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. The
Company has failed to meet its expectations of future revenues in the past. As a
result of these and other factors, the Company believes that its revenues and
operating results are difficult to predict and are subject to fluctuations from
period to period. There can be no assurance that the Company will return to
profitability, or that if profitability is 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 may operate at a substantial net operating loss through the end of 1999.
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 and annual 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."
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. 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.
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.
SNAP! SERVER. The Company is actively developing additional products for its
Snap! Server family of products. This enatils further expansion into non-CD
ROM/DVD networking markets, in which the company has minimal experience. 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 Snap! Server, or related products. There can be
no assurance that the Company will be successful in marketing its 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
future Snap! Server products or other new products, or that its 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 current and future Snap! Server products 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 likely will be 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 future Snap!
Server products 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 continue to offer the functionality and ease-of-use that it believes
future Snap! Server products require 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 may operate at a substantial net operating loss through the
end of 1999.
DEPENDENCE ON NEW DISTRIBUTION CHANNELS. The Company anticipates that VARs,
catalogs, and business-to-business retailers will play a significant role in its
Snap! Server sales strategy. In addition, as the market for the company's CD
ROM/DVD products transition from enterprise- to workgroup-servers, the company
anticipates that catalogs and business-to-business retailers will account for an
increasingly greater proportion of the company's revenues. Early in 1998, some
of the Company's existing CD ROM/DVD workgroup-server products began utilizing
the same new distribution channels as the company's Snap! Server, in addition to
the company traditional channels, distributors, VARs and direct
sales/telemarketing. The Company must implement marketing strategies designed to
indirectly generate end-user demand thru such new distribution channels. There
can be no assurance that the Company will be able to effectively design and
implement such strategies or that such strategies will be successful in
generating such end-user demand. The Company's agreements or purchase orders
with its catalog and business-to-business retailers typically allow for extended
payment terms and substantial rights of return. While the Company will provide
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
catalog or business-to-business retailers' inventory strategies, which could
occur rapidly, and may be unrelated to end user demand. A failure of the
Company's new distribution channels to successfully market the Company's
products would have a material adverse effect on the Company's business,
financial condition, and results of operations. As a result of the extended
payment terms required by these customers, the Company's liquidity may be
adversely impacted by the timing of payments required by its vendors preceding
the receipt of payments from retail customers.
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., and Hewlett Packard, Inc.. 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, Hewlett Packard and IBM, adding additional disk
drives from manufacturers such as Seagate Technology, Inc. and Maxtor
Corporation to existing servers, and potential new competition from
semiconductor manufacturers, such as Intel Corporation. These companies in
particular and others similar to them, 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.
DEPENDENCE ON THIRD PARTY DISTRIBUTORS. The Company derives substantially all of
its product sales through distributors, VARs, and retailers. 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, VARs,
or retailers 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, VARs, and retailers can generally be
canceled upon notice to the Company. Certain of the Company's distributors,
VARs, and retailers also act as distributors for competitors of the Company and
could devote greater effort and resources to marketing competitive products. In
addition, effective distributors, VARs, and retailers 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, VARs, and retailers
will continue to market the Company's products effectively or that economic or
industry conditions will not adversely affect such distributors, VARs, and
retailers. Because the Company sells a significant portion of its products
through distributors, VARs, and retailers 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' or retailers inventory
strategies, which could occur rapidly, and may be unrelated to end user demand.
There can be no assurance that the Company's distributors, VARs, and retailers
will to continue to market the Company's existing products. A failure of the
Company's distributors, VARs, and retailers 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's contracts with distributors and purchase orders from retailers
typically allow 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 and could require substantial modification of the company's
products to ensure compatibility. There can be no assurance that any additional
source would be available to the Company at all or on a timely basis or at a
cost acceptable to the Company. Any disruption or reduction or termination 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 be 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 or subassembly
manufacturers 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; and Obsolesce. 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 hardware or software 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 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.
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."
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.
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.
10.20 Loan and Security Agreement dated July 31, 1998 between Silicon Valley
Bank and Meridian Data, Inc.
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: January 22, 1999 /S/Gianluca U. Rattazzi
--------------------------- --------------------------
GIANLUCA U. RATTAZZI, President
and Chief Executive Officer.
Date: January 22, 1999 /S/Erik R. 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
- ------- --------------------------------------------------------------
10.20 Loan and Security Agreement dated July 31, 1998
between Silicon Valley Bank and Meridian Data, Inc. 22
27 Financial Data Schedule 53
<PAGE>
EXHIBIT 10.20
LOAN AND SECURITY AGREEMENT
MERIDIAN DATA, INC.
<PAGE>
TABLE OF CONTENTS
Page
1ACCOUNTING AND OTHER TERMS.................................................23
2LOAN AND TERMS OF PAYMENT..................................................23
2.1 Advances.............................................................23
2.2 Interest Rate, Payments..............................................23
2.3 Fees.................................................................24
3CONDITIONS OF LOANS........................................................24
3.1 Conditions Precedent to Initial Advance..............................24
3.2 Conditions Precedent to all Advances.................................24
4CREATION OF SECURITY INTEREST..............................................24
4.1 Grant of Security Interest...........................................24
5REPRESENTATIONS AND WARRANTIES.............................................25
5.1 Due Organization and Authorization...................................25
5.2 Collateral...........................................................25
5.3 Litigation...........................................................25
5.4 No Material Adverse Change in Financial Statements...................25
5.5 Solvency.............................................................25
5.6 Regulatory Compliance................................................25
5.7 Subsidiaries.........................................................26
5.8 Full Disclosure......................................................26
6AFFIRMATIVE COVENANTS......................................................26
6.1 Government Compliance................................................26
6.2 Financial Statements, Reports, Certificates..........................26
6.3 Inventory; Returns...................................................27
6.4 Taxes................................................................27
6.5 Insurance............................................................27
6.6 Primary Accounts.....................................................27
6.7 Financial Covenants..................................................27
6.8 Further Assurances...................................................28
7NEGATIVE COVENANTS.........................................................28
7.1 Dispositions.........................................................28
7.2 Changes in Business, Ownership, Management or Business Locations.....28
7.3 Mergers or Acquisitions..............................................28
7.4 Indebtedness.........................................................28
7.5 Encumbrance..........................................................28
7.6 Distributions; Investments...........................................29
7.7 Transactions with Affiliates.........................................29
7.8 Subordinated Debt....................................................29
7.9 Compliance...........................................................29
8EVENTS OF DEFAULT..........................................................29
8.1 Payment Default......................................................29
8.2 Covenant Default.....................................................29
8.3 Material Adverse Change..............................................30
8.4 Attachment...........................................................30
8.5 Insolvency...........................................................30
8.6 Other Agreements.....................................................30
8.7 Judgments............................................................30
8.8 Misrepresentations...................................................30
9BANK'S RIGHTS AND REMEDIES.................................................31
9.1 Rights and Remedies..................................................31
9.2 Power of Attorney....................................................31
9.3 Accounts Collection..................................................32
9.4 Bank Expenses........................................................32
9.5 Bank's Liability for Collateral......................................32
9.6 Remedies Cumulative..................................................32
9.7 Demand Waiver........................................................32
10NOTICES...................................................................32
11CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER...............................33
12GENERAL PROVISIONS........................................................33
12.1 Successors and Assigns..............................................33
12.2 Indemnification.....................................................33
12.3 Time of Essence.....................................................33
12.4 Severability of Provision...........................................33
12.5 Amendments in Writing, Integration..................................33
12.6 Counterparts........................................................34
12.7 Survival............................................................34
12.8 Confidentiality.....................................................34
12.9 Attorneys'Fees, Costs and Expenses..................................34
13DEFINITIONS...............................................................34
13.1 Definitions.........................................................34
<PAGE>
This LOAN AND SECURITY AGREEMENT dated July 31, 1998, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 and MERIDIAN DATA, INC. ("Borrower"), whose address is 5615
Scotts Valley Drive, Scotts Valley,California 95066 provides the terms on which
Bank will lend to Borrower and Borrower will repay Bank. The parties agree as
follows:
ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed following
GAAP Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and "includes" always mean "including (or includes) without limitation," in this
or any Loan Document. This Agreement shall be construed to impart upon Bank a
duty to act reasonably at all times.
LOAN AND TERMS OF PAYMENT
Advances.
Borrower will pay Bank the unpaid principal amount of all Advances and
interest on the unpaid principal amount of the Advances.
Revolving Advances.
Bank will make Advances not exceeding the Committed Revolving Line. Amounts
borrowed under this Section may be repaid and reborrowed during the term of this
Agreement.
To obtain an Advance, Borrower must notify Bank by facsimile or telephone
by 3:00 p.m. Pacific time on the Business Day the Advance is to be made.
Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
The Committed Revolving Line terminates on the Revolving Maturity Date,
when all Advances and other amounts due under this Agreement are immediately
payable.
Interest Rate, Payments.
Interest Rate. Advances accrue interest on the outstanding principal
balance at a per annum rate of 0.25 of one percentage point above the Prime
Rate. After an Event of Default, Obligations accrue interest at 5 percent above
the rate effective immediately before the Event of Default. The interest rate
increases or decreases when the Prime Rate changes. Interest is computed on a
360 day year for the actual number of days elapsed.
Payments. Interest due on the Committed Revolving Line is payable on the
last day of each month. Bank may debit any of Borrower's deposit accounts
including Account Number ________________________ for principal and interest
payments or any amounts Borrower owes Bank. Bank will notify Borrower when it
debits Borrower's accounts. These debits are not a set-off. Payments received
after 12:00 noon Pacific time are considered received at the opening of business
on the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.
Fees.
Borrower will pay:
Facility Fee. A fully earned, non-refundable Facility Fee of $28,125 due on
the Closing Date; and
Bank Expenses. All Bank Expenses (including reasonable attorneys' fees and
expenses) incurred through and after the date of this Agreement, are payable
when due.
CONDITIONS OF LOANS
Conditions Precedent to Initial Advance.
Bank's obligation to make the initial Advance is subject to the condition
precedent that it receive the agreements, documents and fees it requires.
Conditions Precedent to all Advances.
Bank's obligations to make each Advance, including the initial Advance, is
subject to the following:
timely receipt of any Payment/Advance Form; and
the representations and warranties in Section 0 must be materially true on
the date of the Payment/Advance Form and on the effective date of each Advance
and no Event of Default may have occurred and be continuing, or result from the
Advance. Each Advance is Borrower's representation and warranty on that date
that the representations and warranties of Section 0 remain true.
CREATION OF SECURITY INTEREST
Grant of Security Interest.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
Due Organization and Authorization.
Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause a Material Adverse Change.
Collateral.
Borrower has good title to the Collateral, free of Liens except Permitted
Liens. All Inventory is in all material respects of good and marketable quality,
free from material defects.
Litigation.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
No Material Adverse Change in Financial Statements.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
Solvency.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
Regulatory Compliance.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all taxes, except those being contested in good faith with adequate
reserves under GAAP. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to continue
its business as currently conducted.
Subsidiaries.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
Full Disclosure.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
AFFIRMATIVE COVENANTS
Borrower will do all of the following:
Government Compliance.
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could have a material adverse
effect on Borrower's business or operations. Borrower will comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
Financial Statements, Reports, Certificates.
Borrower will deliver to Bank: (i) as soon as available, but no later than
30 days after the last day of each month, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during the period, in a form and certified by a Responsible Officer acceptable
to Bank; (ii) as soon as available, but no later than 90 days after the last day
of Borrower's fiscal year, audited consolidated financial statements prepared
under GAAP, consistently applied, together with an unqualified opinion on the
financial statements from an independent certified public accounting firm
acceptable to Bank; (iii) a prompt report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of $100,000 or more; and (iv) budgets, sales
projections, operating plans or other financial information Bank requests.
Within 30 days after the last day of each month, Borrower will deliver to
Bank with the monthly financial statements a Compliance Certificate signed by a
Responsible Officer in the form of Exhibit C.
During the occurrence and continuation of an Event of Default, Bank shall
have the right to audit Borrower's Accounts at Borrower's expense.
Inventory; Returns.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $100,000.
Taxes.
Borrower will make, and cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments, except those
being contested in good faith by proper proceedings with adequate reserves under
GAAP, and will deliver to Bank, on demand, appropriate certificates attesting to
the payment.
Insurance.
Borrower will keep its business and the Collateral insured for risks and in
amounts, as Bank requests. Insurance policies will be in a form, with companies,
and in amounts that are satisfactory to Bank. All property policies will have a
lender's loss payable endorsement showing Bank as an additional loss payee and
all liability policies will show the Bank as an additional insured and provide
that the insurer must give Bank at least 20 days notice before canceling its
policy. At Bank's request, Borrower will deliver certified copies of policies
and evidence of all premium payments. Proceeds payable under any policy will, at
Bank's option, be payable to Bank on account of the Obligations.
Primary Accounts.
Borrower will maintain its primary depository and operating accounts with
Bank.
Financial Covenants.
Borrower will maintain as of the last day of each month:
(i) Quick Ratio [Adjusted]. A ratio of Quick Assets to Current Liabilities
minus Deferred Revenue of at least 1.00 to 1.00.
(ii) Tangible Net Worth. A Tangible Net Worth of at least $10,000,000.
(iii) Liquidity Coverage. A ratio of unrestricted cash (and equivalents)
and marketable securities plus 50% of Accounts divided by outstanding Advances
of not less than 2.00 to 1.00.
Further Assurances.
Borrower will execute any further instruments and take further action
as Bank requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.
NEGATIVE COVENANTS
Borrower will not do any of the following:
Dispositions.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
Changes in Business, Ownership, Management or Business Locations.
Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses currently engaged in by Borrower or have a material change
in its ownership of greater than 25%. Borrower will not, without at least 30
days prior written notice, relocate its chief executive office or add any new
offices or business locations.
Mergers or Acquisitions.
(i) Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, provided no Event of Default has occurred and is
continuing or would result from such action during the term of this Agreement
and result in a decrease of more than 25% of Tangible Net Worth; or (ii) merge
or consolidate a Subsidiary into another Subsidiary or into Borrower.
Indebtedness.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
Encumbrance.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.
Distributions; Investments.
Directly or indirectly acquire or own any Person, or make any Investment in
any Person, other than Permitted Investments, or permit any of its Subsidiaries
to do so. Pay any dividends or make any distribution or payment or redeem,
retire or purchase any capital stock, other than the purchase of up to
$3,000,000 in Borrower's stock, provided, the Borrower is in compliance with all
of its covenants and the purchase of the stock will not cause a covenant
default.
Transactions with Affiliates.
Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.
Subordinated Debt.
Make or permit any payment on any Subordinated Debt, except under the terms
of the Subordinated Debt, or amend any provision in any document relating to the
Subordinated Debt without Bank's prior written consent.
Compliance.
Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Advance for that purpose; fail to meet the minimum funding
requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards
Act or violate any other law or regulation, if the violation could have a
material adverse effect on Borrower's business or operations or cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.
EVENTS OF DEFAULT
Any one of the following is an Event of Default:
Payment Default.
If Borrower fails to pay any of the Obligations;
Covenant Default.
If Borrower does not perform any obligation in Section 0 or violates any
covenant in Section 0 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement
between Borrower and Bank and as to any default under a term, condition or
covenant that can be cured, has not cured the default within 10 days after it
occurs, or if the default cannot be cured within 10 days or cannot be cured
after Borrower's attempts within 10 day period, and the default may be cured
within a reasonable time, then Borrower has an additional period (of not more
than 30 days) to attempt to cure the default. During the additional time, the
failure to cure the default is not an Event of Default (but no Advances will be
made during the cure period);
Material Adverse Change.
(i) If there occurs a material impairment in the perfection or priority of
the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 0 during the next
succeeding financial reporting period.
Attachment.
If any material portion of Borrower's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Advances will be made
during the cure period);
Insolvency.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Advances will be made before any
Insolvency Proceeding is dismissed);
Other Agreements.
If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change;
Judgments.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Advances
will be made before the judgment is stayed or satisfied); or
Misrepresentations.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
BANK'S RIGHTS AND REMEDIES
Rights and Remedies.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
Declare all Obligations immediately due and payable (but if an Event of
Default described in Section 0 occurs all Obligations are immediately due and
payable without any action by Bank);
Stop advancing money or extending credit for Borrower's benefit under this
Agreement or under any other agreement between Borrower and Bank;
Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;
Make any payments and do any acts it considers necessary or reasonable to
protect its security interest in the Collateral. Borrower will assemble the
Collateral if Bank requires and make it available as Bank designates. Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank's rights or remedies;
Apply to the Obligations any (i) balances and deposits of Borrower it
holds, or (ii) any amount held by Bank owing to or for the credit or the account
of Borrower;
Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell the Collateral; and
Dispose of the Collateral according to the Code.
Power of Attorney.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Advances terminates.
Accounts Collection.
When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank and,
if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
Bank Expenses.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 0, and take any action under the policies
Bank deems prudent. Any amounts paid by Bank are Bank Expenses and immediately
due and payable, bearing interest at the then applicable rate and secured by the
Collateral. No payments by Bank are deemed an agreement to make similar payments
in the future or Bank's waiver of any Event of Default.
Bank's Liability for Collateral.
If Bank complies with reasonable banking practices it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral.
Remedies Cumulative.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.
Demand Waiver.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.
CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Santa Clara County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
GENERAL PROVISIONS
Successors and Assigns.
This Agreement binds and is for the benefit of the successors and permitted
assigns of each party. Borrower may not assign this Agreement or any rights
under it without Bank's prior written consent which may be granted or withheld
in Bank's discretion. Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, negotiate, or grant participation in all or any
part of, or any interest in, Bank's obligations, rights and benefits under this
Agreement.
Indemnification.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
Time of Essence.
Time is of the essence for the performance of all obligations in this
Agreement.
Severability of Provision.
Each provision of this Agreement is severable from every other provision in
determining the enforceability of any provision.
Amendments in Writing, Integration.
All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.
Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
Survival.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 0 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
Confidentiality.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
Attorneys' Fees, Costs and Expenses.
In any action or proceeding between Borrower and Bank arising out of
the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys' fees and other costs and expenses incurred, in addition to
any other relief to which it may be entitled.
DEFINITIONS
Definitions.
In this Agreement:
"Accounts" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" is a loan advance (or advances) under the Committed
Revolving Line.
"Affiliate" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"Bank Expenses" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"Borrower's Books" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"Business Day" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"Closing Date" is the date of this Agreement.
"Code" is the California Uniform Commercial Code.
"Collateral" is the property described on Exhibit A.
"Committed Revolving Line" is an Advance of up to $7,500,000.
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Current Liabilities" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"Deferred Revenue" is all amounts received in advance of performance under
contracts and not yet recognized as revenue.
"Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"GAAP" is generally accepted accounting principles.
"Indebtedness" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"Insolvency Proceeding" are proceedings by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Inventory" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"Investment" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"Material Adverse Change" is defined in Section 0.
"Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"Permitted Indebtedness" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other Loan
Document;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business;
(e) Indebtedness secured by Permitted Liens;
(f) Other Indebtedness, not otherwise permitted by Section 7.4 not
exceeding $100,000 in the aggregate outstanding at any time; and
(g) Extensions, refinancings, modifications, amendments and restatements of
any items of Permitted Indebtedness (a) through (f) above, provided that the
principal amount thereof is not increased or the terms thereof are not modified
to impose more burdensome terms upon Borrower or its Subsidiary, as the case may
be.
"Permitted Investments" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
(b) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States or its agency or any State maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 1 year after its
creation and having the highest rating from either Standard & Poor's Corporation
or Moody's Investors Service, Inc., and (iii) Bank's certificates of deposit
issued maturing no more than 1 year after issue.
(c) Investments consisting of the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
business;
(d) Investments consisting of receivables owing to Borrower or its
Subsidiaries by Persons and advances to customers or suppliers, in each case, if
created, acquired or made in the ordinary course of business; provided that this
paragraph (d) shall not apply to Investments owing by Subsidiaries to Borrower;
(e) Investments consisting of (i) compensation of employees, officers and
directors of Borrower or its Subsidiaries so long as the Board of Directors of
Borrower determines that such compensation is in the best interests of Borrower,
(ii) travel advances, employee relocation loans and other employee loans and
advances in the ordinary course of business, (iii) loans to employees, officers
or directors relating to the purchase of equity securities of Borrower or its
Subsidiaries pursuant to employee stock purchase plans approved by Borrower's
Board of Directors, (iv) other loans to officers and employees approved by the
Board of Directors in an aggregate amount not in excess of $50,000 outstanding
at any time;
(f) Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of customers or suppliers and in
settlement of delinquent obligations of, and other disputes with, customers or
suppliers arising in the ordinary course of business;
(g) Investments pursuant to or arising under currency agreements or
interest rate agreements entered into in the ordinary course of business;
(h) Investments consisting of prepaid royalties and other credit extensions
to, customers and suppliers who are not Affiliates, in the ordinary course of
business;
(i) Investments constituting acquisitions permitted under Section 7.3;
(j) Deposit accounts of Borrower in which Bank has a Lien prior to any
other Lien;
(k) Deposit accounts of any Subsidiaries maintained in the ordinary course
of business;
(l) Investments accepted in connection with Transfers permitted by Section
7.1;
(m) Other Investments aggregating not in excess of $100,000 at any time;
(n) Investments consistent with any documented investment program approved
by the board of directors of the Borrower.
"Permitted Liens" are:
(a) Liens existing on the Closing Date and shown on the Schedule or arising
under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower or
its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the ordinary
course of Borrower's business and any interest or title of a lessor, licensor or
under any lease or license, if the leases, subleases, licenses and sublicenses
permit granting Bank a security interest;
(e) Liens arising from judgments, decrees or attachments in circumstances
not constituting an Event of Default under Section 8.7;
(f) Easements, reservations, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances affecting real
property not constituting a Material Adverse Effect;
(g) Liens that are not prior to the Lien of Bank which constitute rights of
set-off of a customary nature or bankers' Liens with respect to amounts on
deposit, whether arising by operation of law or by contract, in connection with
arrangements entered into with banks in the ordinary course of business;
(h) Earn-out and royalty obligations existing on the date hereof or entered
into in connection with an acquisition permitted by Section 7.3; and
(i) Liens incurred in connection with the extension, renewal or refinancing
of the indebtedness secured by Liens of the type described above, provided that
any extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"Prime Rate" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"Quick Assets" is, on any date, the Borrower's consolidated, unrestricted
cash, cash equivalents, net billed accounts receivable and investments with
maturities of fewer than 12 months determined according to GAAP.
"Responsible Officer" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" is July 30, 1999.
"Schedule" is any attached schedule of exceptions.
"Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's
debt to Bank (and identified as subordinated by Borrower and Bank).
"Subsidiary" is for any Person, or any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.
"Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt.
"Total Liabilities" is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
BORROWER:
Meridian Data, Inc.
By:
Title:
BANK:
SILICON VALLEY BANK
By:
Title:
<PAGE>
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
Notwithstanding the foregoing, the security interest granted herein shall not
extend to and the term "Collateral" shall not include any license or contract
rights that are nonassignable by their terms, provided this exclusion shall not
extend to accounts, chattel paper or general intangibles for money due or to
become due in accordance with Section 9318(4) of the Code. Except as disclosed
on the Schedule, Borrower is not a party to, nor is bound by, any license or
other agreement that prohibits or otherwise restricts Borrower from granting a
security interest in Borrower's interest in such license or agreement or any
other property. Without prior notice to Bank, Borrower shall not enter into, or
become bound by, any such license or agreement. Borrower shall take such steps
as Bank requests to obtain the consent of, or waiver by, any person whose
consent or waiver is necessary for Bank to have a security interest that might
otherwise be restricted or prohibited by the terms of any such license or
agreement whether now existing or entered into in the future. Bank's lien and
security interest in the Collateral will continue until Borrower fully satisfies
its Obligations.
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
FAX#: (408) 496-2426 TIME:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FROM: Meridian Data, Inc.
- --------------------------------------------------------------------------------
CLIENT NAME (BORROWER)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REQUESTED BY:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PHONE NUMBER:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
- --------------------------------------------------------------------------------
PRINCIPAL INCREASE (ADVANCE) $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL PAYMENT (ONLY) $
- --------------------------------------------------------------------------------
INTEREST PAYMENT (ONLY) $
- --------------------------------------------------------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OTHER INSTRUCTIONS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
All Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for and Advance confirmed by this Borrowing Certificate; but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that date.
- --------------------------------------------------------------------------------
BANK USE ONLY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Authorized Requester Phone #
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Received By (Bank) Phone #
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Authorized Signature (Bank)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: MERIDIAN DATA, INC.
The undersigned authorized officer of Meridian Data, Inc. ("Borrower")
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending _______________ with all required covenants
except as noted below and (ii) all representations and warranties in the
Agreement are true and correct in all material respects on this date. Attached
are the required documents supporting the certification. The Officer certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) consistently applied from one period to the next except as
explained in an accompanying letter or footnotes. The Officer acknowledges that
no borrowings may be requested at any time or date of determination that
Borrower is not in compliance with any of the terms of the Agreement, and that
compliance is determined not just at the date this certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column.
Reporting Covenant Required Complies
Monthly financial statements Monthly within 30 days Yes No
+Comp. Cert
Annual (Audited) FYE within 90 days Yes No
Financial Covenant Required Actual Complies
Maintain on a Monthly Basis:
Minimum Tangible Net Worth $10,000,000 $________ Yes No
Min. Adjusted Quick Ratio 1.00:1.00 ______:1.00 Yes No
Min. Liquidity 2.00:1.00 ______ :1.00
- --------------------------------------------------------------------------------
BANK USE ONLY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Received by:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTHORIZED SIGNER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Verified:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTHORIZED SIGNER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Compliance Status: Yes No
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Comments Regarding Exceptions: See Attached.
Sincerely,
Meridian Data, Inc.
SIGNATURE
TITLE
DATE
<PAGE>
// <<MY Initials>>
CORPORATE BORROWING RESOLUTION
Borrower: Meridian Data, Inc. Bank: Silicon Valley Bank
5615 Scotts Valley Drive 3003 Tasman Drive
Scotts Valley, CA 95066 Santa Clara, CA 95054-1191
I, the undersigned Secretary or Assistant Secretary of Meridian Data, Inc.
("Borrower"), HEREBY CERTIFY that Borrower is a corporation duly organized and
existing under and by virtue of the laws of the State of Delaware.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by other
duly authorized corporate action in lieu of a meeting), duly called and held, at
which a quorum was present and voting, the following resolutions were adopted.
BE IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of Borrower, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
acting for and on behalf of Borrower and as its act and deed be, and they hereby
are, authorized and empowered:
Borrow Money. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers of Borrower
and Bank, such sum or sums of money as in their judgment should be borrowed.
Execute Loan Documents. To execute and deliver to Bank the loan documents
of Borrower, on Bank's forms, at such rates of interest and on such terms as may
be agreed upon, evidencing the sums of money so borrowed or any indebtedness of
Borrower to Bank, and also to execute and deliver to Bank one or more renewals,
extensions, modifications, refinancings, consolidations, or substitutions for
one or more of the loan documents, or any portion of the loan documents.
Grant Security. To grant a security interest to Bank in any of Borrower's
assets, which security interest shall secure all of Borrower's obligations to
Bank
Negotiate Items. To draw, endorse, and discount with Bank all drafts, trade
acceptances, promissory notes, or other evidences of indebtedness payable to or
belonging to Borrower or in which Borrower may have an interest, and either to
receive cash for the same or to cause such proceeds to be credited to the
account of Borrower with Bank, or to cause such other disposition of the
proceeds derived therefrom as they may deem advisable.
Letters of Credit. To execute letter of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
Foreign Exchange Contracts. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount as, in the
judgment of the officer or officers herein authorized.
Issue Warrants. To issue warrants to purchase Borrower's capital
stock, for such class, series and number, and on such terms, as an officer
of Borrower shall deem appropriate.
Further Acts. In the case of lines of credit, to designate additional
or alternate individuals as being authorized to request advances
thereunder, and in all cases, to do and perform such other acts and things,
to pay any and all fees and costs, and to execute and deliver such other
documents and agreements, including agreements waiving the right to a trial
by jury, as they may in their discretion deem reasonably necessary or
proper in order to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of Borrower's agreements or commitments in effect at the
time notice is given.
I FURTHER CERTIFY that the persons named above are principal officers of the
Borrower and occupy the positions set opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Borrower; and that
they are in full force and effect and have not been modified or revoked in any
manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on July 31, 1998 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X ______________________________________________
*Secretary or Assistant Secretary
X ______________________________________________
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.
<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 September 30, 1998 and is
qualified in its entirety by reference to such financial statements
Category Response
</LEGEND>
<CIK> 0000864568
<NAME> Meridian Data, Inc.
<MULTIPLIER> 1000
<CURRENCY> US dollars
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 12,657
<SECURITIES> 9,942
<RECEIVABLES> 3,190
<ALLOWANCES> 505
<INVENTORY> 3,328
<CURRENT-ASSETS> 28,790
<PP&E> 2,250
<DEPRECIATION> 1,559
<TOTAL-ASSETS> 29,497
<CURRENT-LIABILITIES> 9,362
<BONDS> 0
0
0
<COMMON> 66,410
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29,497
<SALES> 12,376
<TOTAL-REVENUES> 12,376
<CGS> 6,939
<TOTAL-COSTS> 6,939
<OTHER-EXPENSES> 16,679
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,098)
<INCOME-PRETAX> (10,144)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,144)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,144)
<EPS-PRIMARY> (1.15)
<EPS-DILUTED> (1.15)
</TABLE>
