UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-20244
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DATA RESEARCH ASSOCIATES, INC.
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(Exact name of registrant as specified in its charter)
MISSOURI 43-1063230
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1276 NORTH WARSON RD. ST. LOUIS, MISSOURI 63132
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(Address of principal executive offices) (Zip Code)
(314) 432-1100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-- --
APPLICABLE ONLY TO CORPORATE ISSUERS:
At April 15, 1997 there were 5,536,870 shares of the registrant's common stock
outstanding.
INDEX
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -March 31, 1997
and September 30, 1996
Consolidated statements of income -Three months ended March 31,
1997 and 1996
-Six months ended March 31,
1997 and 1996
Consolidated statements of cash flows -Six months ended March 31,
1997 and 1996
Notes to the unaudited consolidated financial statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
SIGNATURES
2
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, September 30,
1997 1996
(Unaudited)
----------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,201 $ 4,855
Short-term investments 8,708 6,968
Accounts receivable less allowance for doubtful
accounts of $81 at March 31, 1997 and
$269 at September 30, 1996:
Billed 8,491 10,803
Unbilled 3,241 3,878
------ ------
11,732 14,681
Inventories 123 178
Prepaid expenses 987 679
Deferred income taxes 133 166
Other current assets 178 153
------ ------
TOTAL CURRENT ASSETS 27,062 27,680
PROPERTY AND EQUIPMENT
Land and improvements 504 504
Building and improvements 2,433 2,219
Data processing equipment 4,903 4,407
Furniture, fixtures, and other 3,478 2,982
------ ------
11,318 10,112
Less accumulated depreciation 5,068 4,517
------ ------
6,250 5,595
NOTE RECEIVABLE 135 296
DEFERRED SOFTWARE COSTS (net of accumulated
amortization of $1,188 at March 31, 1997
and $1,057 at September 30, 1996) 1,091 522
INTANGIBLE ASSETS (net of accumulated
amortization of $3,151 at March 31, 1997
and $2,744 at September 30, 1996) 2,256 2,568
------ ------
$36,794 $36,661
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,811 $ 1,705
Employee compensation 479 694
Deferred revenue 3,217 3,787
Customer deposits 1,103 1,164
Other accrued liabilities 566 777
Income taxes payable 624 615
------ ------
TOTAL CURRENT LIABILITIES 7,800 8,742
DEFERRED INCOME TAXES 354 473
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01 per share--
1,000,000 shares authorized, no shares issued - -
Common stock, par value $.01 per share--10,000,000
shares authorized, 5,536,870 shares issued at
March 31, 1997, 5,777,520 shares issued at
September 30, 1996 55 58
Additional paid-in capital 5,569 5,700
Foreign currency translation adjustment (105) 53
Retained earnings 23,121 21,910
------ ------
28,640 27,721
Less cost of 265,100 shares of treasury stock - 275
------ ------
TOTAL SHAREHOLDERS' EQUITY 28,640 27,446
------ ------
$36,794 $36,661
====== ======
See notes to unaudited consolidated financial statements.
3
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share data)
Three months ended Six months ended
March 31, March 31,
1997 1996 1997 1996
------ ------ ------ ------
REVENUES
Hardware $ 3,235 $ 5,819 $ 4,631 $ 7,260
Software 2,196 2,216 3,498 3,845
Service and other 4,426 4,139 8,856 7,795
------ ------ ------ ------
9,857 12,174 16,985 18,900
EXPENSES
Cost of revenues
Hardware 2,232 4,758 3,208 5,732
Software 401 318 650 578
Service and other 1,281 1,100 2,142 1,876
------ ------ ------ ------
3,914 6,176 6,000 8,186
Salaries and employee benefits 2,462 2,538 5,024 5,045
General and administrative expenses 1,648 1,603 3,136 2,979
Depreciation and amortization 329 273 623 537
------ ------ ------ ------
8,353 10,590 14,783 16,747
INCOME FROM OPERATIONS 1,504 1,584 2,202 2,153
OTHER INCOME 204 185 406 351
------ ------ ------ ------
Income before income taxes 1,708 1,769 2,608 2,504
PROVISION FOR INCOME TAXES 486 625 845 940
------ ------ ------ ------
NET INCOME $ 1,222 $ 1,144 $ 1,763 $ 1,564
====== ====== ====== ======
Earnings per share $ 0.22 $ 0.21 $ 0.32 $ 0.29
====== ====== ====== ======
Weighted average number
of common shares 5,532,478 5,477,117 5,531,416 5,474,093
========= ========= ========= =========
Dividends declared
per share $ - $ - $ .10 $ -
========= ========= ========= =========
See notes to unaudited consolidated financial statements.
4
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six months ended
March 31,
1997 1996
------- -------
OPERATING ACTIVITIES
Net income $ 1,763 $ 1,564
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,056 1,031
Provision for deferred income taxes (87) 55
Changes in operating assets
and liabilities:
Accounts receivable 2,876 (3,150)
Inventories 54 (17)
Prepaid expenses and
other current assets (303) (82)
Accounts payable and
other current liabilities (877) 451
Note receivable 161 45
------- -------
NET CASH PROVIDED BY (USED BY)
OPERATING ACTIVITIES 4,643 (103)
------- -------
INVESTING ACTIVITIES
Purchase of property and equipment (1,235) (1,291)
Purchase of short-term investments (36,251) (6,013)
Proceeds from sales of short-term investments 34,511 4,000
Purchased software (48) (158)
Deferred software cost (700) (140)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (3,723) (3,602)
------- -------
FINANCING ACTIVITIES
Proceeds from options exercised 141 35
Dividends paid (552) -
------- -------
NET CASH (USED BY) PROVIDED BY
FINANCING ACTIVITIES (411) 35
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (163) (23)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 346 (3,693)
------- -------
Cash and cash equivalents at
beginning of period 4,855 9,036
------- -------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 5,201 $ 5,343
======= =======
See notes to unaudited consolidated financial statements.
5
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. Basis of Presentation
The unaudited consolidated financial statements of Data Research Associates,
Inc. (the "Company" or "DRA") have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements and,
therefore, should be read in conjunction with the Company's consolidated
financial statements and the notes thereto for the year ended September 30,
1996, contained in the Company's annual report for the year ended
September 30, 1996. In the opinion of management, all adjustments (consisting
only of normal recurring items) considered necessary for a fair presentation
have been included. The results of operations for the six months ended
March 31, 1997, are not necessarily indicative of the results that may be
expected for the year ending September 30, 1997.
2. Inventories
Inventories consist primarily of computer equipment and supplies which are
stated at the lower of cost (first-in, first-out method) or market and the
unamortized cost of computer software purchased for resale. The Company had
only finished goods in inventory at March 31, 1997, and September 30, 1996.
3. Income Taxes
The provision for income taxes is computed using the liability method. The
difference between the effective income tax rate and the U.S. federal income
tax rate is a result of state taxes and the difference between the financial
statement and federal income tax recognition of foreign losses.
4. Treasury Stock Retirement
On February 12, 1997, the Company retired the 265,100 shares of common stock
held in treasury.
6
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company's revenues are derived from three sources: (i) computer
hardware sales; (ii) software licenses; and (iii) sales of services,
including training, conversion, networking, database access, system support
and product maintenance. Revenue is recognized on hardware sales and software
licenses upon shipment of the product. Revenue from hardware and software
maintenance contracts is recognized monthly over the term of the maintenance
contract. Other service revenues are recognized upon completion of the
services. The components of the cost for development of software primarily
include salaries and employee benefits and are expensed as incurred. All
costs qualifying for deferral are reported on the balance sheet as deferred
software costs and amortized over the estimated useful life of the product.
The amortization of capitalized software is allocated as a direct cost of
licensing DRA software. The Company typically experiences greater gross
margin on software licenses than on sales of hardware or services. The
Company's profitability depends in part on the mix of its revenue components
and not necessarily on total revenues.
The Company's revenues and earnings can fluctuate from quarter to quarter
depending upon, among other things, such factors as the complexity of
customers' procurement processes, new product and service introductions by
the Company and other vendors, delays in customer purchases due to timing
of library professional conferences and trade shows, installation scheduling
and customer delays in facilities preparation. In addition, a substantial
portion of the Company's revenues for each quarter is attributable to a
limited number of orders and tends to be realized towards the end of each
quarter. Thus, even short delays or deferrals of sales near the end of a
quarter can cause quarterly results to fluctuate substantially. In the future,
the Company's revenues will be increasingly dependent on sales of its next-
generation system which is currently being developed. The timing of the
completion of this system, which is based on object-oriented client/server
design, may be affected by multiple factors, including rapid technological
change, dependence on third-party suppliers and the relative scarcity of
qualified technical staff.
Except for the historical information and statements contained in
Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A"), the matters and items contained in this document,
including MD&A, contain forward looking statements that involve uncertainties
and risks. The Company's future results could differ materially from those
discussed in this document. Factors that could cause a contribution to such
differences, include, but are not limited to, those presented in the Company's
Form 10K for the year ended September 30, 1996.
Results of Operations
Three Months Ended March 31, 1997 compared to Three Months Ended
March 31, 1996
Hardware revenues decreased $2.6 million, or 44%, to $3.2 million in the
three months ended March 31, 1997, from $5.8 million in the three months
ended March 31, 1996. The decrease was primarily due to the shipment of two
large full service contracts that generated $3.5 million in revenue in the
three months ended March 31, 1996. The gross margin percentage on hardware
was 31% in the three months ended March 31, 1997, and 18% in the three
months ended March 31, 1996. The increase is due primarily to a larger
percentage of hardware sales being derived from PC's in the three months
ended March 31, 1996. PC's have historically had a lower gross margin than
other components of integrated hardware systems.
7
Software license revenues remained consistent at $2.2 million in
the three months ended March 31, 1997, and the three months ended March 31,
1996. The gross margin percentage on software decreased to 82% in the three
months ended March 31, 1997, from 86% in the three months ended March 31, 1996.
The decrease is primarily due to the mix of third party software sold. While
all third party software typically has a lower gross margin than
DRA developed software, the margin of third party software varies
according to the type of software and the
terms that DRA has negotiated with the developer of the product. These margins
currently range from 50% to 80% of the list price of the product.
Service and other revenues increased $.3 million, or 7%, to $4.4 million in
the three months ended March 31, 1997, from $4.1 million in the three months
ended March 31, 1996. Management expects that maintenance revenues will
continue to increase as the base of licensed software products increases.
The gross margin percentage on service and other revenues decreased to 71%
for the three months ended March 31, 1997, from 73% for the three months
ended March 31, 1996. This decrease is primarily due to the increase in the
three months ended March 31, 1997, of DRA Net revenues which have a lower
margin than other service revenues.
Salaries and employee benefits remained consistent at $2.5 million in the
three months ended March 31, 1997, and in the three months ended March 31,
1996. Annual salary increases in 1997 were offset by higher capitalization of
salaries and employee benefits related to software development in the three
months ended March 31, 1997, than in the three months ended March 31, 1996.
General and administrative expenses remained consistent at $1.6 million in
the three months ended March 31, 1997, and in the three months ended March 31,
1996.
Income from operations decreased $.1 million, or 5%, to $1.5 million in the
three months ended March 31, 1997, from $1.6 million in the three months ended
March 31, 1996.
The Company's consolidated effective tax rate was 28% for the three month
period ended March 31, 1997, and 35% for the three month period ended
March 31, 1996. The rates reflect the change in the valuation of the Company's
foreign subsidiaries' losses. The Company expects to utilize net operating
losses of certain of the Company's foreign subsidiaries in 1997, accordingly,
the Company's effective tax rate for the three month period ended March 31,
1997, reflects a reduction in the effective tax rate in order to approximate
the expected effective rate for the fiscal year ending September 30, 1997.
8
Results of Operations
Six Months Ended March 31, 1997 compared to Six Months Ended
March 31, 1996
Hardware revenues decreased $2.7 million, or 36%, to $4.6 million in the
six months ended March 31, 1997, from $7.3 million in the six months
ended March 31, 1996. The decrease was primarily due to the shipment of two
large full service contracts that generated $3.5 million in revenue in the
six months ended March 31, 1996. The gross margin percentage on hardware
was 31% in the six months ended March 31, 1997, and 21% in the six months
ended March 31, 1996. The increase is due primarily to a larger percentage
of hardware sales being derived from PC's in the six months ended March 31,
1996. PC's have historically had a lower gross margin than other components
of integrated hardware systems.
Software license revenues decreased $.3 million, or 9%, to $3.5 million in
the six months ended March 31, 1997 from $3.8 million in the six months ended
March 31, 1996. The decrease is primarily due to a reduction of third
party software sold during the six months ended March 31, 1997. The gross
margin percentage on software decreased to 81% in the six months ended March
31, 1997, from 85% in the three months ended March 31, 1996. The decrease is
primarily due to the mix of third party software sold. While all third party
software typically has a lower gross margin than DRA developed software, the
margin of third party software varies according to the type of software and the
terms that DRA has negotiated with the developer of the product. These margins
currently range from 50% to 80% of the list price of the product
Service and other revenues increased $1.1 million, or 14%, to $8.9 million in
the six months ended March 31, 1997, from $7.8 million in the six months
ended March 31, 1996. Management expects that maintenance revenues will
continue to increase as the base of licensed software products increases.
The gross margin percentage on service and other revenues remained consistent
at 76% for the six months ended March 31, 1997, and for the six months
ended March 31, 1996.
Salaries and employee benefits remained consistent at $5.0 million in the
six months ended March 31, 1997, and in the six months ended March 31,
1996. Annual salary increases in 1997 were offset by higher capitalization of
salaries and employee benefits related to software development in the six
months ended March 31, 1997, than in the six months ended March 31, 1996.
General and administrative expenses increased $.1 million, or 5%, to $3.1
million in the six months ended March 31, 1997, from $3.0 million in the three
months ended March 31, 1996.
Income from operations remained consistent at $2.2 million, for the
six months ended March 31, 1997, and for the six months ended March 31, 1996.
The Company's consolidated effective tax rate was 32% for the six month
period ended March 31, 1997, and 38% for the six month period ended
March 31, 1996. The rates reflect the change in the valuation of the Company's
foreign subsidiaries' losses. The Company expects to utilize net operating
losses of certain of the Company's foreign subsidiaries in 1997, accordingly,
the Company's effective tax rate for the six month period ended March 31,
1997, reflects a reduction in the effective tax rate in order to approximate
the expected effective rate for the fiscal year ending September 30, 1997.
9
Liquidity and Capital Resources
The Company's cash needs are primarily for working capital and capital
expenditures and historically have been met by cash flows from operations,
bank borrowings, and equipment leases. At March 31, 1997, the Company's
working capital was $19.3 million and its ratio of current assets to current
liabilities was 3.5 to 1, as compared to working capital of $18.9 million
and a ratio of current assets to current liabilities of 3.2 to 1 at
September 30, 1996.
Net cash provided by operating activities was $4.6 million for
the six months ended March 31, 1997, compared to $.1 million used by
operating activities for the six months ended March 31, 1996. The increase
in cash provided by operating activities is primarily due to $4.5 million
of unbilled accounts receivable at March 31, 1996. This amount related to
two contracts and has been billed and collected as of March 31, 1997.
Net cash used by investing activities was $3.7 million for the six months
ended March 31, 1997, compared to $3.6 million for the six months ended
March 31, 1996. The increase in net cash used by investing activities is
primarily a result of an increase in capitalization of deferred software
costs offset by a decrease in the net purchases of short-term investments
in the six months ended March 31, 1997, compared to the six months ended
March 31, 1996.
Financing activities for the six months ended March 31, 1997, include the
payment of a $.10 per share dividend in January 1997. Also in January 1997,
management extended the Company's $6.0 million line of credit to January 1998.
All terms remain the same. The line of credit bears interest at federal
funds rate plus 200 basis points payable monthly on outstanding balances.
There have been no borrowings against the Company's line of credit since
May 1991.
Management believes that, with the current cash position of $5.2 million,
short-term investments of $8.7 million, accounts receivable of $11.7 million,
continued cash flow from operations, availability of the $6.0 million line of
credit, and total current liabilities of $7.8 million, the Company will be
able to meet both its short-term liquidity needs and short-term capital
expenditure needs. The Company has made no material commitments with respect
to capital expenditures planned for fiscal 1997. Management believes that with
total long-term liabilities of approximately $.4 million and no other known
long-term commitments or demands, the Company will be able to satisfy its
known long-term liabilities and liquidity needs through the funding sources
identified above.
10
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders of the Company
(the "Annual Meeting") was held on February 12, 1997.
Of the 5,522,620 shares entitled to vote at the Annual
Meeting, 5,206,307 shares were present at such meeting
in person or by proxy.
(b) Not applicable.
(c) At the Annual Meeting, the shareholders of the Company elected
Carole Cotton as a Class B Director of the Company, to hold office
until the annual meeting of the Company's shareholders in 2000 and
until her successor has been duly elected and qualified, by a vote
of 5,197,482 for and 8,825 withheld.
At the Annual Meeting, the shareholders of the Company elected
Donald P. Gallop as a Class B Director of the Company, to hold
office until the annual meeting of the Company's shareholders in
2000 and until his successor has been duly elected and qualified,
by a vote of 5,196,557 for and 9,750 withheld.
The First Amendment to Data Research Associates, Inc. Director
Stock Option Plan (the "Amendment") was adopted by the Board of
Directors November 21, 1996, and was submitted to the shareholders
of the Company for their approval at the Annual Meeting. The
Amendment increased the aggregate number of shares available to be
issued under the Data Research Associates, Inc. Director Stock
Option Plan from 75,000 to 175,000. The Amendment was approved by
the shareholders by a vote of 5,155,088 for, 35,594 against, and
8,614 abstentions and broker nonvotes.
(d) Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Employment Agreement
27 Financial Data Schedule
(b) No reports on Form 8-K were required to be filed during the three
months ended March 31, 1997.
11
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATA RESEARCH ASSOCIATES, INC.
May 9, 1997 /s/ Michael J. Mellinger
- ----------------- ------------------------------
Date Michael J. Mellinger
Chairman, President, and
Chief Executive Officer
(Principal Executive Officer)
May 9, 1997 /s/Katharine W. Biggs
- ----------------- ------------------------------
Date Katharine W. Biggs
Vice President, and
Chief Financial Officer
(Principal Accounting Officer)
12
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 17th day of April, 1997, (hereinafter called the
"Commencement Date"), by and between DATA RESEARCH ASSOCIATES, INC., a Missouri
corporation (hereinafter called the "Employer") and Michael J. Mellinger, an
individual presently residing at 910 Kent Road, St. Louis, Missouri 63124
(hereinafter called the "Employee").
WHEREAS, Employee is presently the President and the Chief Executive Officer of
Employer and has made significant contributions to Employer during the term of
his employment; and
WHEREAS, Employer wishes to assure itself both of the continued availability of
the services of Employee in the event of a "Change of Control," (as defined in
Schedule I) and to assure itself of the availability of Employee's services in
the absence of a Change of Control; and
WHEREAS, Employee wishes to continue to be employed subsequent to any Change
of Control and is agreeable to the terms of continued employment set forth
herein; and
WHEREAS, the parties believe that it is to their mutual benefit to enter into
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the parties hereto mutually agree as follows:
FIRST: EMPLOYMENT OF THE EMPLOYEE. Employer, subject to the terms and
provisions and for the term hereinafter set forth, hereby employs Employee
to perform the duties of the President and the Chief Executive Officer of
Employer. Employer hereby represents and warrants to Employee that the Board
of Directors of Employer (hereinafter called the "Board"), at a meeting duly
held, has authorized and approved this Agreement. Employee hereby agrees to
perform the duties described herein faithfully and to the best of his ability.
SECOND: DUTIES. The Employee, as the President and the Chief Executive
officer of Employer, shall perform those duties and responsibilities
required by law and as set forth in the Articles of Incorporation and
Bylaws of Employer and as may from time to time be assigned to him by the
Board in its reasonable discretion, and in such capacity agrees that during
the term of his employment hereunder, he will devote substantially all of
his working time and attention to the business and affairs of Employer.
THIRD: SALARY AND BENEFITS.
(a)
Employer will pay Employee for. his services during the term of his employment
hereunder an annual base rate of compensation (hereinafter called. the "Base
Compensation") of Four Hundred Thousand Dollars ($400,000.00), which Base
Compensation shall be payable at such intervals as the Employer pays its
other senior executive employees, but in any event, not less frequently than
monthly. Each fiscal year (commencing with fiscal year 1998), the
Compensation Committee of the Board (the "Compensation Committee") will set
the Employee's Base Compensation for that fiscal year, taking into account
the performance of the Employee, the total compensation paid to the chief
executive officers of similar companies of comparable size to that of the
Employer and such other factors deemed relevant by the Board, but in no event
shall such Base Compensation for any annual period be less than the Base
Compensation set for the immediately preceding annual period.
(b)
Employer will also pay Employee a bonus for each fiscal year during the term
hereof, which will be determined on the basis of a formula (the "Bonus
Formula"), as follows: for the fiscal year ending September 30, 1997, the bonus
will be in the amount of 10% of the increase in Employer's income before income
taxes and bonuses for such fiscal year compared to the prior fiscal year,
determined by the Company's independent auditors in accordance with generally
accepted accounting principles, consistently applied, and payable within ninety
(90) days of the end of such fiscal year. For the fiscal year ending September
30, 1998, and for each fiscal year thereafter, Employer will pay Employee a
bonus to be determined on the basis of a Bonus Formula, to be determined for
such fiscal year by the Compensation Committee.
(c)
Employer agrees to reimburse Employee for all reasonable business expenses
incurred by Employee in the performance of his duties hereunder for Employer,
which expenses shall be substantiated in accordance with the procedures of
Employer.
(d)
Employer shall provide Employee, at Employer's expense, with health, accident,
long-term disability, major medical and such other insurance coverages as are
generally available to the senior executive officers of the Employer.
(e)
During each fiscal year of the Corporation, Employee shall be entitled to six
(6) weeks of paid vacation.
(f)
Employee shall also be entitled to participate in all other insurance and
retirement plans, retirement benefits, death benefits, salary continuation
benefits, stock option plans and other fringe benefits and other plans
generally available for the senior executive officers of Employer, but in
no event shall such fringe benefits be less than the benefits provided to
Employee for the immediately preceding annual period.
(g)
Employer shall, at Employer's expense, furnish such other executive
prerequisites at least equal in value to those furnished to the senior
executive officers of the Employer.
(h)
Employer shall allow Employee use of the corporate aircraft for person use
for 100 flight hours each fiscal year, such use to be reported as required
by Internal Revenue Service regulations.
(i)
Employer shall provide Employee with adequate Internet and telephone service
and appropriate office furniture and computing equipment to allow the conduct
of Employer's business at both of Employee's homes.
(j)
To the extent not otherwise provided by the Employer in subparagraph (f) of
this paragraph THIRD, Employer shall, at Employer's sole cost and expense,
maintain in full force and effect an insurance policy or policies providing
term life insurance coverage on the life of Employee in an aggregate amount
of not less than two times Employee's Base Compensation, for the benefit of
the beneficiaries named by Employee, or such beneficiaries as may be otherwise
designated from time to time by Employee. Employer shall maintain such insurance
coverage in full force and effect throughout the Employee's employment with
Employer, and for a period of sixty days following termination of said
employment, (or such shorter period as provided in the policy, if the insurance
coverage is provided under a group plan). The failure to maintain such term
insurance because of the noninsurability of Employee shall not constitute a
default by Employer hereunder. Subject to the provisions of the policy
providing for the insurance required by this subparagraph (h), if such
insurance is provided through individual policies, Employer does hereby offer
to sell and assign to Employee, and Employee is hereby granted an option to
purchase, all of Employer's right, title and interest in and to such policy or
policies with respect to insurance coverage on the life of Employee, which offer
(option) shall be accepted (exercised), if at all, by Employee at any time
from the date upon which Employee's termination of his employment hereunder
shall occur (regardless of the reason for such termination) through the close
of business on the sixtieth (60th) day following such termination of his
employment. The purchase price to be paid by Employee to Employer for the
Employer's right, title and interest in and to the subject policy (or policies)
shall be an amount equal to a fraction of the total prepaid premiums, if any,
paid by Employer thereon, the numerator of which shall be the remaining term
of the subject policy or policies (expressed in days) and the denominator of
which shall be the total original term of the subject policy or policies
(expressed in days).
FOURTH: TERM OF EMPLOYMENT. The initial term of the Employee's employment
under this Agreement (hereinafter called the "Initial Term") shall be for a
period commencing on the Commencement Date and continuing until September 30,
2002, unless sooner terminated as hereinafter provided. Following the Initial
Term, this Agreement shall automatically continue in effect for an additional
term of five (5) years (hereinafter called the "Additional Term") unless either
party, by written notice delivered to the other not less than ninety (90) days
prior to the termination of the Initial Term, indicates the intention not to
enter into the Additional Term. At the termination of the Initial Term or the
Additional Term, as the case may be, the obligation of Employer to pay further
compensation or expenses to Employee shall cease, provided, however, that any
obligations hereunder of either party to the other party at the time of such
termination shall not be affected thereby.
FIFTH: TERMINATION. Employer shall have the right to terminate this Agreement
if any of the following events shall occur during the Initial or Additional
Term hereof: (a) Employee's willful failure or refusal to render services as
required hereunder after written notice from Employer and a reasonable
opportunity on the part of Employee to correct any deficiency in performance
specified in such written notice from Employer to the satisfaction of the
Board, or as otherwise required by applicable law, (b) Acts of fraud,
dishonesty, breach of fiduciary duty involving personal profit and the
conviction of a felony committed in connection with the business of Employer
shall be grounds for termination of this Agreement upon at least two (2)
days' prior written notice but without the opportunity to cure; or (c)
The permanent disability of Employee, which, for the purposes hereof, shall
be deemed to have occurred upon the commencement of benefits under any policy
maintained by the Company providing for long-term disability coverage; or
(d) The death of Employee. Except as expressly set forth herein, the
obligation of Employer to pay further compensation or expenses of Employee
shall cease as of the day on which termination under this Article FIFTH
shall occur.
SIXTH: CHANGE OF CONTROL. Employer and Employee agree that the following
provisions shall immediately and automatically become operational upon the
occurrence of a Change of Control (as described in Schedule I hereof),
without further action on the part of either Employer or Employee: (a)
In the event of the involuntary termination or significant reduction in the
position, duties or responsibilities of Employee, for reasons other than
those defined in paragraphs (a), (b), (c) and (d) of Article FIFTH hereof
(herein collectively referred to as a "Termination"), Employee shall be
entitled to an additional bonus, payable within sixty (60) days of the
occurrence of the Termination, equal to a percentage of the greater of the
Base Compensation in effect as of the date of such Change of Control or such
Termination as follows: (i) one hundred and fifty percent (150%) if the
Termination occurs within the first year following a Change of Control; (ii)
one hundred percent (100%) if the Termination occurs within the second year
following a Change of Control; and (iii) fifty percent (50%) if the Termination
occurs within the third year following a Change of Control. (b) All
options to purchase shares of the common stock of Employer held by Employee
pursuant to a stock option plan of Employer (the "Stock Options") shall be
fully vested and exercisable. (c) At the sole discretion of the Board,
Employee may be awarded a bonus (the "Special Executive Bonus") on a "grossed
up" basis (to take into account the taxability for federal income purposes
of the Special Executive Bonus to the Employee) equal to the amount of federal
income tax payable by the Employee arising from the vesting of Employee's
interests in the Stock Options, assuming the maximum statutory rate of federal
income tax then applicable to an individual taxpayer
SEVENTH: INDEMNIFICATION. Employer shall indemnify, defend and hold harmless
Employee for any and all acts or decisions made by Employee, in good faith, in
connection with the performance by Employee of services for Employer, which
indemnification shall be to the fullest extent permitted by law. Employer
shall use its best efforts to insure its obligations under this paragraph
SEVENTH which insurance coverage shall expressly include all expenses
(including, without limitation, attorneys' fees) actually and necessarily
incurred by or on behalf of the Employee in connection with the defense of
any suit or proceeding (including appeals therefrom), which coverage shall,
to the fullest extent permitted by law, include the cost of out-of-court
settlements.
EIGHTH: GOVERNING LAW. This Agreement is executed and delivered in the
State of Missouri and shall be construed and enforced in accordance with, and
shall be governed by, the laws of such State.
NINTH: NOTICE. All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing and shall
be deemed sufficient if delivered by certified or registered mail, return
receipt requested, postage paid, in the case of Employee to his last known
address on file with Employer, and, in the case of Employer, to its principal
office. Such notice shall be effective upon deposit in the United States mail
or actual delivery, as the case may be.
TENTH: SUMS DUE TO EMPLOYEE. If any amount payable to Employee or vesting
of Stock Options pursuant to Article SIXTH, or portion thereof, constitutes a
"parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") (determined without regard to this Article
TENTH), then such payment shall be reduced and such Stock Options shall not vest
pursuant to Article SIXTH, as determined by Employer in its sole discretion,
to the extent, and only to the extent, necessary to prevent any such payment or
vesting of Stock Options, or portion thereof, from constituting a "parachute
payment"; provided, however,
that any such reduction in payments otherwise payable
pursuant to Article SIXTH or nonvesting of Stock Options that would otherwise
vest pursuant to Article SIXTH shall occur if and only if, after taking into
account the twenty percent (20%) tax set forth in Section 4999 of the Code,
such reduction and/or nonvesting causes Employee to realize a greater after-tax
benefit than Employee would realize if such reduction and/or nonvesting pursuant
to this Article TENTH had not occurred. Employee shall be entitled to "rollover"
any sums payable hereunder into individual retirement accounts or similar
entities to the fullest extent provided by law.
ELEVENTH: SEVERABILITY AND INTERPRETATION. Whenever possible, each
provision of this Agreement and any portion thereof shall be interpreted in
such a manner as to be effective and valid under applicable law, rules and
regulations. If any covenant or other provision of this Agreement (or portion
thereof) is invalid, illegal, or incapable of being enforced, by reason of any
rule of law rule, regulation, administrative order, judicial decision or public
policy, all other conditions and provisions of this Agreement shall,
nevertheless, remain in full force and effect, and no covenant or provision
shall be deemed dependent upon any other covenant or provision (or portion)
unless so expressed herein. The parties hereto desire and consent that the
court or other body making such determination shall, to the extent necessary
to avoid any unenforceability, so reform such covenant, term, condition or
other provision or portion of this Agreement to the minimum extent necessary so
as to render the same enforceable in accordance with the intent herein
expressed.
TWELFTH: ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties relative to the employment by Employer of Employee and any
and all prior representations, agreements, correspondence or memoranda with
respect thereto are superseded hereby. No promises, covenants or
representations of any character or nature other than those expressly stated
herein have been made to induce either party to enter into this Agreement.
This Agreement shall not be modified, waived or discharged except in a writing
duly signed by each of the parties or their permitted assignees, and shall
be binding upon, and inure to the benefit of, the successors of the parties
hereto.
THIRTEENTH: ASSIGNABILITY. The services to be performed by Employee hereunder
are personal in nature and therefore Employee shall not assign all or any
portion of his right, or delegate all or any portion of his obligations, under
this Agreement, and any attempted or purported assignment or delegation not
expressly permitted by Employer in writing shall be null and void, ab initio.
FOURTEENTH: SUCCESSORS. Subject to the provisions of paragraph FOURTEENTH
hereof, this Agreement shall be binding upon and shall inure to the benefit
of Employer and Employee and their respective heirs, executors, administrators,
legal administrators, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
DATA RESEARCH ASSOCIATES, INC.
EMPLOYER
By: /S/ Katharine W. Biggs
__________________________________________
Title: Vice President and Chief Financial Officer
__________________________________________
/s/ Michael J. Mellinger
________________________________
Michael J. Mellinger
EMPLOYEE
SCHEDULE I
Definition of Change of Control
A Change of Control shall be deemed to have occurred upon the happening of
any of the following events: (a) the acquisition by any person of more than
50% of the Employer's outstanding common stock or any other class of stock
representing more than 50% of the aggregate voting power of all classes of
stock as a whole; or (b) a merger or consolidation of the Employer with any
other corporation pursuant to which the resulting aggregate ownership of
Employer (or the parent or surviving corporation resulting from such merger
or consolidation) held by or attributable to those persons who were stock-
holders of Employer immediately prior to such merger or consolidation is less
than 50% of the aggregate common stock of Employer (or the parent or surviving
corporation resulting from such merger or consolidation) outstanding as a
result of such merger or consolidation; the term "merger" shall include a
reorganization effected by means of a sale of 'Employer's assets or any other
substantial portion of the assets of the Employer; or (c) election to the Board
of Directors of the Employer at any stockholders meeting of any nominee other
than a nominee on whose behalf proxies were solicited by or on behalf of the
incumbent management or directors of the Employer; or (d) removal by the
stockholders of all or any of the incumbent directors of the Employer other
than a removal for cause.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from
the Form 10-Q for the quarter ended March 31, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,201
<SECURITIES> 8,708
<RECEIVABLES> 11,732
<ALLOWANCES> 81
<INVENTORY> 133
<CURRENT-ASSETS> 27,062
<PP&E> 11,318
<DEPRECIATION> 5,068
<TOTAL-ASSETS> 36,794
<CURRENT-LIABILITIES> 7,800
<BONDS> 0
0
0
<COMMON> 55
<OTHER-SE> 28,585
<TOTAL-LIABILITY-AND-EQUITY> 36,794
<SALES> 16,985
<TOTAL-REVENUES> 16,985
<CGS> 6,000
<TOTAL-COSTS> 14,783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (406)
<INCOME-PRETAX> 2,608
<INCOME-TAX> 845
<INCOME-CONTINUING> 1,763
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,763
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
