UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended SEPTEMBER 30, 1997
Commission File Number: 0-20244
DATA RESEARCH ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1063230
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1276 NORTH WARSON RD. ST. LOUIS, MISSOURI 63132
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 432-1100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
- -- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant is $37,125,816 as of November 30, 1997.
At November 30, 1997 there were 5,542,670 shares of the registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated into this Report by reference:
PART III: The definitive proxy statement of the registrant (to be filed
pursuant to Regulation 14A) for the registrant's 1998 Annual Meeting of
Shareholders, which involves the election of directors, is incorporated
by reference into Items 10, 11, 12 and 13 of this Report.
Exhibit Index is on Page 42 of this Report.
Page 1
INDEX
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
PART I.
Item 1. Business.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 4A. Executive Officers of the Registrant.
PART II.
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
SIGNATURES
Exhibit Index
Page 2
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, some of which are discussed below, including under the caption
"Cautionary Statements - Additional Important Factors to Be Considered."
PART I.
ITEM 1. BUSINESS.
GENERAL
Data Research Associates, Inc., a Missouri corporation, and its subsidiaries
(collectively, the "Company" or "DRA") is a leading systems integrator for
libraries and other information providers, offering its own proprietary
information services software; third party software and hardware; Internet,
World Wide Web, and other networking services; and other related support
services. The Company provides a selection of automation systems: the Data
Research System ("DRA Classic"), the INLEX/3000 System, and the MultiLIS
System. Each of these is a comprehensive, fully integrated package of modular
software applications and is designed to allow customers to add applications
without modifying their existing databases, hardware, or software. The
Company also provides a wide variety of services designed to support the
automation of the library. The Company's software packages are adaptable
for use in academic, public, school, and special libraries ranging from single
libraries to large, multi-branch systems and consortia. The Company's library
customer base at November 30, 1997, is more than 800 systems serving over 2,300
individual libraries in the United States, Canada, Europe, South America, and
the Pacific Rim. The Company provides internet services to corporations and
institutions outside of its traditional library market.
Recognizing a trend toward increased sharing of information resources among
libraries, the Company has designed and implemented electronic networking
services that allow libraries to share information resources and reduce their
costs of acquiring and maintaining such resources. DRA has also established
itself as a leader in the development of transparent networking. Products
and services associated with DRA Net, the Company's dedicated, high-speed
telecommunications network, facilitate what management believes is an
evolution toward the "library without walls"--a library whose information
resources are not limited by its physical boundaries.
THE LIBRARY AUTOMATION MARKETPLACE AND CUSTOMERS
Libraries began to use computers in the late 1960s and early 1970s primarily
as a tool to automate manual circulation processes. Automation gradually spread
throughout the library to include other tasks, such as cataloging, acquisitions,
and the replacement of card catalogs with the automated public access catalogs.
DRA was founded in 1975 and entered the library automation marketplace with the
design philosophy of integrating these diverse functions to use a single biblio-
graphic database based on a national standard for machine-readable cataloging
("MARC"). With other automation systems of that time, there was often a
substantial duplication of effort required to maintain different databases
for each of the discrete functions performed in the library. In addition, the
lack of standardization in the format of its bibliographic database often
forced a library to reenter its entire catalog if it changed automation
systems.
The library automation field has undergone dramatic changes since the Company
commenced operations. The emphasis in the marketplace has moved from exclusive,
proprietary applications designed to meet narrowly defined functions to fully
integrated, modular systems that automate all library functions and provide
access to information resources beyond the physical confines of the library.
Far from simple database management systems, library automation systems are
extremely complex. Because of the complexity of these systems, the Company's
sales efforts in each segment of the marketplace have tended to focus on the
largest libraries and migrate downward.
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U.S. AND CANADIAN MARKETS. The library marketplace in the United States and
Canada is segmented by general industry practice into four broad types:
academic, public, school, and special libraries. Combinations of segments exist
in library networks and consortia, which consist of two or more independent
libraries, not necessarily of the same size or even the same type, that
purchase a single automation system to achieve economies of scale and/or
resource-sharing.
Academic, or higher education, libraries include community or junior college,
four-year college and university, and research libraries. School libraries
include those located in schools with students in kindergarten through high
school. Special libraries include corporate libraries and other private,
nonacademic research institutions.
In addition to providing the Data Research System, the INLEX/3000 System and
the MultiLIS System to academic, public, school, and special libraries, the
Company also provides an automated system for an extremely specialized type
of library, the library for the blind and physically handicapped "LBPH", which
is not easily categorized in any of the four standard industry segments. DRA's
LBPH product is used by libraries that account for more than half of the total
circulation by this type of library in the United States.
INTERNATIONAL MARKETS. DRA has offices in Australia, Canada, France, and
Singapore. These offices serve 41 customers in Australia and the Pacific Rim,
140 customers in Canada, 30 customers in France, 1 customer in Chile, and
3 customers in the Caribbean. See Note F to the consolidated financial
statements for geographic segment data.
CURRENT CUSTOMERS. The Company's systems are installed at over 2,300
academic, public, school, and special libraries in the United States, Canada,
Puerto Rico, Australia, New Zealand, Hong Kong, Indonesia, Singapore, France,
Belgium, Chile, and Malaysia. During fiscal 1997, DRA added 20 sites to its
customer base. DRA is not dependent upon a single customer or a few customers,
the loss of any one or more of which would have a material adverse effect on
its business.
PRODUCTS
The Company's automation systems are comprehensive, fully integrated packages
of modular software applications designed for libraries of all sizes, ranging
from single libraries to large, multi-branch library systems and consortia.
The packages run on a variety of hardware platforms and operating systems and
are marketed according to the specific needs of the customers. The packages are
also designed to allow libraries to share the hardware and data while allowing
an individual library to implement its own policies. Through the use of DRA
Net, the Company provides libraries direct access to remote library catalogs
and third-party databases, such as commercially prepared magazine indexes.
The Company's automation systems are year-2000 compliant.
The Company's turnkey, or full-service, systems are priced on the basis of
several separate components: central site hardware (including operating
systems software), applications software, peripheral equipment, conversion,
documentation and training, and other services. The price of initial turnkey
system installations has ranged from less than $10,000 to more than $5 million.
Software product license fees are based on the type of modules licensed, the
number of users permitted, and the size of hardware on which the software is
operating. The price of software-only contracts has ranged from less than
$10,000 to approximately $800,000. The Company also charges a monthly software
maintenance fee typically equal to 1 percent of the software license fee for
its products. Virtually all of DRA's customers purchase software maintenance
services.
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SOFTWARE PRODUCTS
CATALOGING AND AUTHORITY CONTROL. The entry and management of the database
for information about library materials (books, films, cassettes, etc.) are
handled by the bibliographic database management software. The information
about each book or other material is stored in full MARC format, which is a
national and international standard. The bibliographic database management
software allows librarians to create, edit, read, and write bibliographic
information in machine-readable form. The DRA software allows libraries to
connect to national databases that share cataloging information, which
reduces the cost of cataloging for any participating library. The biblio-
graphic database management software also facilitates authority control.
This feature directs the individuals searching the database to the correct
term to be used when locating materials.
CIRCULATION. The Circulation module handles all of the library's circulation
activities, including registering borrowers, checking books in and out,
renewing books, and placing requests for specific titles. An innovative feature
of the Company's circulation software is the extensive, flexible, locally
defined policy file that allows the library automatically to implement its
own policies for library loan periods, fines, library card use, and requests
for library materials. In a multi-library system or consortium, each library
can establish its own set of policies and still share the same computer.
The Circulation module is integrated and thus can accommodate the differences
of each library within the framework of a standardized program using industry-
standard formats.
PUBLIC ACCESS. DRA offers a wide range of products to facilitate the
searching of the local library catalog and remote databases. Industry practice
generally labels any product that takes the place of manual card catalogs
as an On-line Public Access Catalog. For searching a library's local catalog,
the Company offers various user interface options designed to accommodate
differing levels of user sophistication. Among the Company's public access
products is the Information Gateway module, which offers access to materials
and information available outside the physical confines of the library. These
features include full-text delivery for journals; access to numerous databases
via either DRA Net or direct loading on the local computer; creation of and
access to a database that contains detailed listings of local events, social
services, and other programs; creation of and access to an index of newspapers
and serials that are not indexed in commercially prepared citation indexes;
and creation of and access to databases of photographs, illustrations, and
diagrams using "imaging" technology for display on the computer screen. In
fiscal 1994, the Company introduced a public access and research
workstation product called DRA Find, the first product in an evolutionary path
toward a distributed processing extension of the Company's client/server
architecture. DRA Find is a Microsoft Windows-based PC software product that
allows simultaneous searching of multiple databases, as well as retrieval of
data in textual or multimedia formats. In fiscal 1996, the Company introduced
DRA Web, a retrieval device based on the World Wide Web, and DRA Kids, a
children's workstation product. On September 30, 1997, the Company released DRA
Web2, a more powerful retrieval device that incorporates the object-oriented
technology of the Company's new Taos product line. See discussion of cautionary
statements at exhibit 99.1.
ACQUISITIONS. The Acquisitions module is designed to handle the purchase
of library materials. It aids librarians in creating lists of books they wish
to order, creating the actual orders that are sent to book publishers or book
suppliers, and maintaining a full audit trail of the funds used by the library
to purchase the materials. Statistics of interest to the library regarding
publisher or supplier performance are maintained and can be reported using
the software's report system.
SERIALS. The Serials module is a comprehensive module for management of
magazine and journal collections. The module contains a check-in function,
records the receipt of all magazine issues, and maintains a list of items
that have an exception status. It also records receipt of special issues.
Statistics of interest to the library regarding performance are maintained
and can be reported using the software's report system.
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REPORTS. Because of their funding structures, libraries are required to
produce numerous reports about their collections, usage, and borrowers. The
DRA software offers extensive standard reporting capabilities and, as an
option, report writer modules for specialized reporting needs. The report
writer modules are based on third-party software products that are modified
by the Company to meet unique requirements of the library environment.
JOURNAL CITATION. The Journal Citation module allows users of the Public
Access module to search for magazine articles and then determine if the
library subscribes to the magazine or journal in which the articles are
published. If so, the module then alerts the patron as to where the magazine
or journal is located within the library. It is also possible for the user to
place a photocopy request on-line.
MEDIA BOOKING. Libraries frequently use a separate management system for
handling 16 millimeter films, audiovisual equipment, and video cassettes.
Libraries also require the ability to place holds on material for a specific
number of days, allow for inspection time before they are again ready for
circulation, and allow for shipment of materials between library facilities,
when necessary. The Media Booking module performs these functions and also
monitors the collection of fees for materials that pass through the booking
process. Media Booking is a sub-module of Circulation but must be purchased
separately. In addition, the Company offers an alternative for media booking
by use of a third-party software package interfaced with the DRA software.
LIBRARY FOR THE BLIND AND PHYSICALY HANDICAPPED--LBPH. The LBPH system,
which can stand alone from the DRA software, provides automated materials
selection and circulation according to preferences provided by homebound
blind and physically handicapped patrons.
NETWORKING
Libraries have begun to recognize that printed works are only a small
subset of the information resources demanded by their patrons. More and
more information is becoming available in electronic formats. At the same
time, traditional sources of library funding have diminished, and the costs of
printed works have increased. The Company has therefore focused much of its
development efforts on networking products because it believes that such
products allow libraries to provide access to information without having to
bear the full expense of buying, maintaining, and storing such information.
Management believes that the Company has established a leadership position
in the design and implementation of electronic networks as a means for
libraries to share resources. DRA originally introduced its telecommunications
network, DRA Net, in 1980 to provide large libraries an alternative resource
for MARC-formatted catalog records. In the past few years, additional features
have been added to DRA Net to provide network participants with access to a
wide variety of information resources and support services, including third-
party magazine indexes, databases containing the full text of magazine and
journal articles, access to catalogs and other resources of other network
members, and the ability to lend materials to and borrow materials from other
members of the network.
DRA Net is one of thousands of networks that are commonly and collectively
referred to as the Internet. Today all library subscriptions include, at no
additional charge, the option of using DRA Net to establish the library's
presence on the Internet. The Company has connected its network with DS-3
(extremely high-speed and high-bandwidth) links to multiple Internet access
points. In addition, DRA is a member of the MIT World Wide Web Consortium
(W3C), which was formed to develop standards for the evolution of the World
Wide Web, and the Commercial Internet eXchange, a major industrial trade
association. The World Wide Web has become the primary means of accessing the
Internet. The Company markets Internet access to corporations and institutions
outside of its traditional library marketplace.
As of November 30, 1997, over 200 library customers, including some of the
Company's largest multi-branch systems and consortia, were using DRA Net.
With the availability of additional services, decreases in networking hardware
costs, and advances in networking technologies, management believes that the
utilization of DRA Net could increase among the network members and that
DRA Net could become more attractive to the Company's customers that are
not network members.
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TRANSPARENT NETWORKING. Management believes that the transparency of its
networking technology is a key product characteristic that differentiates
the Company from its competitors in the library automation industry.
Transparency in a network means that a library user can search the library's
local catalog and then search a magazine index or other remote database that
is not physically located in the library with identical search procedures
resulting in displays of information that are also identical in style.
Without transparency, a library user searching different resources would
have to be familiar with the searching techniques unique to each resource.
Transparency is achieved through use of the Company's proprietary Information
Gateway software or its DRA Find, DRA Web, DRA Kids, and DRA Web2 products.
These products enable a library user to access and search multiple databases
that are either part of the library's own system or accessible over DRA Net.
OPEN SYSTEMS. There has been considerable emphasis in the computer industry
in general and in the library automation industry specifically on the trend
toward "open systems" computing. Management pursues a philosophy that bases
the development of open systems on the interoperability of differing software
systems. Interoperability allows software systems using diverse hardware
platforms and operating systems to interact directly with each other and thus
is very closely related to transparency. Management believes that national
and international standards, particularly the Z39.50 standard, are the only
basis for achieving open systems in library automation.
STANDARDS. DRA is a recognized industry leader in the development,
implementation, and promotion of national and international standards as a
means for achieving network-accessible information. The Company was an early
proponent of standardization of library databases using the MARC standard
and was one of the first vendors to market a system that focused on a single
MARC database. A standardized database is critical to the ability of different
libraries' automation systems to connect to each other and exchange information.
More recently, the Company has taken an active role in the development,
implementation, and promotion of the National Information Standards Organization
("NISO"), Z39.50 standard. Z39.50 provides for transparent exchange of data
between systems that use entirely different hardware, software, and operating
systems. The Company incorporates this standard throughout its software product
line and continues its leadership role in bringing this standard to market.
As part of its standards activities, the Company devotes staff and financial
support to national and international standards organizations. DRA President
and Chief Executive Officer Michael J. Mellinger recently served as Chairman
of the Board of Directors of the NISO, the official U.S. standards
organization for libraries, and other information services and currently
serves as its treasurer.
CUSTOMER SERVICES
Complementing the Company's software products is a broad selection of
customer services. DRA is committed to providing full service to its customers
by offering the following:
INSTALLATION AND CONVERSION. An initial installation usually consists of
a core configuration of the Cataloging and Circulation modules, plus any
option modules desired by the customer at the time of purchase. The Company's
installation personnel include experienced librarians and computer specialists
who assist the library in general preparation for and installation of the
hardware and software (for turnkey sales) or the software only (for software
- -only licenses). DRA has converted a number of different types of library
automation systems developed by its national competitors, as well as local
software developers. The Company's installation personnel minimize the amount
of downtime or disruption of daily activities during a system conversion by
providing advanced training, off-site data conversion, and an efficient backup
circulation system.
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DOCUMENTATION AND TRAINING. All of the Company's software modules are
complemented with full documentation and on-site training. The Company also
distributes to its customers updated, current documentation with each new
release of software. The Company has a comprehensive training program designed
and taught by librarians experienced in automation. Each library's training
program is tailored according to the software and hardware purchased. All
courses are taught in a structured environment using training guides, sample
exercises, and hands-on experience.
MAINTENANCE. The Company offers its own maintenance services for its software
modules. Software maintenance includes ongoing software enhancements, as well
as 24-hour-per-day, seven-day-per-week, staffed telephone support. DRA also
sells maintenance services on certain hardware pursuant to its agreements
with hardware vendors.
AUTHORITY CONTROL PROCESSING SERVICES. Many libraries want their biblio-
graphic database "authorized" as part of their installation. Authorization
involves the verification of subject headings and names contained in a
library's bibliographic files against the Library of Congress files. The
Company has its own proprietary authority processing services and pioneered
the provision of networked authority control processing services and ongoing
authority verification via DRA Net, resulting in cost savings when compared to
traditional authorization techniques.
CUSTOM SOFTWARE. In addition to its software modules designed to automate
fundamental library functions, DRA also provides to its customers certain
application software that is customized to meet their special needs or
supplement the Company's core modules.
MARKETING AND SALES
The Company's application software is licensed either as part of a turnkey
system or a software-only contract. Public institutions and small colleges
have generally preferred the Company's full-service option. Software-only
licenses are commonly provided to customers with existing relationships with
hardware vendors.
The Company markets its products and services by a variety of methods,
including employing a direct sales force, publishing newsletters, participating
in trade shows and library users' conferences, making presentations at
professional meetings, advertising in trade magazines, and assuming leadership
positions in a number of professional organizations. Through its participation
in cooperative marketing agreements with various hardware vendors, the Company
receives sales assistance and promotional assistance from these companies.
DRA sells and licenses products and services through a direct sales force.
Account managers are assigned to specific geographic territories throughout
the world. A sales support staff provides such support as preparation of
quotations and software demonstrations.
The sales process for a library automation system is typically lengthy,
often lasting in excess of 18 months. Libraries procuring automation systems
use such methods as Requests For Information ("RFIs"), Requests For Proposals
("RFPs"), recommendations of consultants, site visits to existing customers,
evaluations at professional conferences, and on-site demonstrations in their
selection processes. Libraries replacing an existing automation system often
undertake even more stringent evaluation procedures before purchase. In
addition to its sales and marketing staffs, the Company employs more than
ten people dedicated to responding to RFIs, RFPs, and other forms of bids.
PRODUCT DEVELOPMENT
DRA identifies customer and marketplace product needs by staying current
with articles in the professional literature, by analyzing competitive
literature and products, and through customer satisfaction surveys and direct
interaction with the users' groups of the Company's respective products.
The users' groups regularly poll their members regarding desired software
improvements and present the results to the Company's management.
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DRA's product development staff is currently involved in a number of product
enhancements and new product developments. In fiscal 1996, DRA released
new versions of software products with electronic document interchange
capabilities, multilingual capabilities, and bindery capabilities. The Company
also released DRA Web, a web server product, and updates to DRA Find and
DRA Kids in fiscal 1996. In fiscal 1997, the Company released DRA Web2, a
more powerful retrieval device that incorporates the object-oriented technology
of the Company's new Taos product line. The Company is also involved in
the development of software for use on standalone research workstations and
other database access and database building products, which will take
advantage of the Company's transparent networking products. The Company is
involved in development of an interlibrary loan product. The Company has
ported its DRA Classic product to a Digital Equipment Corporation (Digital)
UNIX operating system. The Company also routinely establishes joint development
projects with leading libraries to support its product development efforts.
Fifty-one full-time employees are directly involved in product development.
Several members of senior management also devote time to product development
activities. See Note A to the consolidated financial statements for research
development costs and discussion of cautionary statements in exhibit 99.1.
RELATIONSHIP WITH HARDWARE VENDORS
The Data Research System has traditionally operated exclusively on Digital
computers and the Open VMS operating system. Management has taken steps to
move toward support of multiple platforms and operating systems. One of these
steps is migration to next-generation client/server technologies using, in
addition to Digital's Open VMS, the UNIX and Windows NT operating systems.
Due to the purchase of the MultiLIS system, the Company can also now offer
a complete, fully functional system based on the UNIX operating system. In
conjunction with this multi-vendor strategy, the Company has developed
marketing, sales, and product development relationships with numerous
hardware vendors.
Although it is moving away from strong dependence on Digital, DRA maintains
the close business relationship it has had with Digital since 1975. During
fiscal 1997, Digital stopped selling any hardware directly to its value-added
resellers and initiated a partnership among Digital, its resellers,
and its distributors for the purchase of hardware and systems software.
Since January 13, 1997, DRA has been party to a Distribution Value Added
Reseller ("DVAR") agreement between the Company and Hall-Mark Computer
Products ("Hall-Mark"), with Digital regarded as a third-party beneficiary
of the agreement. Under the terms of the DVAR agreement, which expires on
April 13, 1998, and is subject to annual renewal, DRA negotiates volume
discounts directly with Hall-Mark, and Digital continues to provide certain
warranties on the equipment and software and indemnity against copyright or
patent infringement claims relating to the use of Digital products or
documentation. The Company maintains an annually renewable agreement directly
with Digital for the purchase and resale of maintenance on hardware and system
software. The Company also maintains a wide range of volume discount and
reseller arrangements with vendors of support and peripheral equipment and
services.
ACQUISITIONS
The purchase of the MultiLIS library automation system and other assets
from Sobeco Ernst & Young, a Quebec corporation, Avec Technical Services, Inc.,
an Ontario corporation, multiLIS Corporation, a Delaware corporation, and Avec
Technologies Group, Inc., an Ontario corporation, completed on October 14,
1994, added 202 new customers and included establishment of subsidiary offices
in Montreal, Canada, and Paris, France. The MultiLIS system expanded the
Company's selection of hardware platforms to all hardware platforms supported
by the UNIX operating system and extended the Company's market breadth to
include smaller public, academic, school, and special libraries.
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COMPETITION
While its competition is highly fragmented, DRA recognizes ten direct
library competitors, representing a mix of closely held private companies
and divisions of Fortune 100 companies. Certain of the Company's competitors
have greater financial, technical, marketing, and sales resources than DRA.
There can be no assurance that the Company won't continue to expect significant
present competitors or companies that choose to enter the marketplace in the
future will not exert significant competitive pressures on the Company.
Management believes that the principal competitive factors in the library
automation industry include networking, integration, product functionality,
system performance, vendor and product reputation, financial stability,
customer service and support, and timeliness of product enhancements and
upgrades. DRA believes it competes effectively with respect to all of the
above factors despite the possibility that it may be at a competitive
disadvantage against certain competitors with greater financial and marketing
resources. Management also believes the Company holds key competitive
advantages in its networking capabilities through DRA Net, from the standpoint
of both software functionality and customer recognition.
The Company recognizes over 1,000 competitors in supplying Internet access
services to non-library customers. The competition is highly fragmented, with
a range from closely held private companies to Fortune 100 companies. DRA
competes with a substantial number of network providers. Certain of the
Company's competitors have greater financial, technical, marketing, and
sales resources than the Company. There can be no assurance that its present
competitors or companies that choose to enter the marketplace in the future
will not exert significant competitive pressures on DRA. Management believes
that the Company's years of experience in networking have resulted in core
competency that will allow DRA to compete effectively in this area.
BACKLOG
The Company's normal backlog consists of signed contracts or purchase orders
for products and services on which the Company expects to realize revenue upon
shipment of products and performance of services. Backlog fluctuates
significantly due to installation scheduling, new product development, customer
delays in facilities preparation, and other factors both within and outside the
Company's control. Because of these factors and because DRA typically ships
its products within a short period after orders are received, management
believes that backlog does not provide a meaningful indication of future
performance; however, currently the Company has a backlog related to three
significant contracts. These customers are awaiting completion of the Company's
next-generation system named Taos. See discussion of cautionary statements in
exhibit 99.1.
PROPRIETARY RIGHTS AND LICENSES
DRA regards its products as proprietary trade secrets and confidential
information. The Company relies upon its license agreements with customers,
its own security systems, confidentiality procedures, and employee
confidentiality agreements to maintain the trade secrecy of its products.
The Company's proprietary software rights are also protected under copyright
law. There can be no assurance that these means of protection will be
effective against unauthorized reproduction.
DRA believes that, due to the rapid pace of innovation within the computer
industry, factors such as (i) technological and creative skill of personnel,
(ii) knowledge and experience of management, (iii) name recognition,
(iv) maintenance and support of software products and (v) the ability to
develop, enhance, market, and acquire software products, and services are more
important for establishing and maintaining a leading position within
the industry than are patent, copyright, and other legal protections for its
technology. Management believes that the Company has all necessary rights to
market its products, although there can be no assurance that third parties will
not assert infringement claims in the future.
Page 10
EMPLOYEES
As of November 30, 1997, DRA had 204 employees, including 34 in marketing
and sales, 79 in computer operations services and training, and 51 in product
development. None of the Company's employees is represented by a labor union.
Management believes that its employee relations are good. The Company
periodically employees consultants to assist with specific development
projects
ITEM 2. PROPERTIES
The Company's headquarters and principal administrative, product development,
and sales and marketing operations are located in St. Louis, Missouri, where
the Company owns approximately 35,360 square feet of office and warehouse space.
DRA also leases 4,300 square feet in Monterey, California, under a lease that
expires July 31, 1999; 1,056 square feet of office space in Melbourne,
Australia, under a month-to-month lease; 522 square feet of office space in
Singapore under a lease that expires on April 16, 1999; 10,079 square feet of
office space in Montreal, Canada, under a lease that expires January 31, 2001;
and approximately 2,000 square feet of office space in Paris, France, under a
lease that expires March 31, 2005.
Management believes that the Company's facilities are adequate for its
current needs and that suitable additional space will be available as required.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material litigation, nor to its knowledge,
is any of its property subject to any such litigation. The Company is not
aware of any material litigation threatened against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
Page 11
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.*
The executive officers of the Company are:
Name Age Position
---- --- --------
Michael J. Mellinger 48 Chairman, President, and Chief
Executive Officer
Katharine W. Biggs 54 Vice-President, Chief Financial
Officer, and Treasurer
Joseph M. Bonwich 38 Vice-President
Set forth below are descriptions of the backgrounds of the executive officers
of DRA.
Mr. Mellinger has served as President, Chief Executive Officer, and Director
of DRA since 1975 and served as Treasurer of the Company from April 1992 to
February 1995. Mr. Mellinger was elected Chairman of the Board in April 1992.
Ms. Biggs was elected Chief Financial Officer and Treasurer of the Company
in February 1995. She has served as Vice-President of the Company since May
1991 and served as Controller of the Company from April 1989 to February 1995.
Mr. Bonwich was elected Vice-President of the Company in February 1996.
He now oversees the Company's marketing, corporate communications, and
customer service groups. He joined DRA as president of the wholly owned and
now dissolved subsidiary formed to handle the Company's advertising and public
relations. From 1994 to 1996, he was Director of Corporate Communications
for DRA. From 1992 to 1994, he was Director of Marketing.
Each of the executive officers serves at the discretion of the Board of
Directors, except Mr. Mellinger, who is a party to an employment agreement
with the Company, which agreement expires September 30, 2002, with an
automatic five-year renewal, unless terminated by Mr. Mellinger or the
Company upon the occurrence of certain events.
__________
*This information is included in Part I as a separate item in accordance with
Instruction 3 to Item 401 (b) of Regulation S-K adopted under the Securities
Exchange Act of 1934.
Page 12
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
MARKET INFORMATION
The common stock is quoted on the NASDAQ National Market System, under the
trading symbol DRAI.
The high and low sales prices, as adjusted for a three-for-two stock
split, effected in the form of a stock dividend, paid August 19, 1996, to
holders of record on August 5, 1996 for the common stock during each of the
quarters of fiscal 1996 and fiscal 1997 were as follows:
Year Ended September 30, 1996:
Quarter High Low
First $13.83 $ 9.33
Second 15.33 11.83
Third 16.17 13.17
Fourth 14.67 12.67
Year Ended September 30, 1997:
Quarter High Low
First $15.00 $12.50
Second 15.75 13.25
Third 14.00 11.50
Fourth 15.50 11.75
HOLDERS
As of October 31, 1997, there were 176 shareholders of record of the common
stock. Management believes that there are between 1,200 to 1,500 beneficial
shareholders.
DIVIDENDS
On November 13, 1997, the Board of Directors increased the annual dividend
to $.12 per share of common stock outstanding, payable on January 28, 1998,
to holders of record at the close of market January 14, 1998. The Board of
Directors anticipates paying an annual cash dividend, but may reconsider
or revise this policy from time to time based upon conditions then existing,
including the Company's earnings, performance, financial condition, and
capital requirements, as well as other factors the Board of Directors may
deem relevant.
Page 13
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data appearing below have been derived from the
Company's audited consolidated financial statements. The selected financial
data should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto appearing elsewhere in this filing.
Income Statement Data
(In thousands, except per share data)
Year Ended September 30
------------------------------------------
1997 1996 1995(1) 1994 1993
---- ------ ---- ---- ----
Revenues:
Hardware $ 9,759 $11,724 $10,905 $ 8,005 $10,650
Software 6,969 9,949 8,513 7,255 6,105
Service and other 18,641 16,909 15,449 10,056 6,960
Total revenues 35,369 38,582 34,867 25,316 23,715
Expenses:
Cost of revenues 12,801 13,657 12,651 9,017 9,918
Salaries and employee benefits 9,193 10,379 9,356 6,128 4,927
General and
administrative expenses 6,166 6,788 6,344 5,090 4,337
Depreciation and amortization 1,339 1,147 993 766 507
Total operating expenses 29,499 31,971 29,344 21,001 19,689
Income from operations 5,870 6,611 5,523 4,315 4,026
Other income (expense), net 788 590 347 211 51
Income before income taxes 6,658 7,201 5,870 4,526 4,077
Provision for income taxes 2,164 2,747 2,236 1,585 1,623
Net income $4,494 $ 4,454 $ 3,634 $ 2,941 $ 2,454
Earnings per common and common
equivalent share (2) $ .81 $ .81 $ .66 $ .54 $ .45
Weighted average number of
common and common
equivalent shares (2) 5,532 5,482 5,494 5,487 5,495
Dividends paid per
common share $ .10 $ - $ - $ - $ -
Balance Sheet Data
(In thousands)
September 30
-------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Working capital $22,189 $18,938 $14,562 $12,925 $11,554
Total assets 41,139 36,661 32,887 27,376 20,782
Long-term obligations - - - 32 58
Shareholders' equity 31,442 27,446 22,813 19,107 16,155
(1) The year ended September 30, 1995, reflects the acquisition of the
MultiLIS System in October 1994. See Note K of the Notes to Consolidated
Financial Statements--Acquisition.
(2) All share and per-share information has been retroactively restated
to reflect the three-for-two stock split effected in the form of a stock
dividend approved by the Board of Directors effective July 18, 1996.
Additionally, common share equivalents represent amounts relating to
issued and outstanding options to purchase common stock. See Note A
of the Notes to Consolidated Financial Statements--Earnings per Common
and Common Equivalent Share.
Page 14
ITEM 7. 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 contracts. 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 under
Financial Accounting Standards Board Statement No. 86 ("FASB 86") are reported
on the balance sheet as deferred software costs and amortized over the
estimated useful life of the product in accordance with FASB 86. 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 and services than on sales of hardware.
The Company's profitability depends in part on the mix of its revenue
components and not necessarily on total revenues.
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, some of which are discussed below, including under the caption
"Cautionary Statements - Additional Important Factors to Be Considered" and
in exhibit 99.1.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 1996
Hardware revenues decreased $1.9 million, or 17%, to $9.8 million in fiscal
1997 from $11.7 million in fiscal 1996. This decrease is primarily due to two
large full-service contracts that generated $4.6 million in hardware revenues
in fiscal 1996 and, in part, due to anticipation of Taos delivery. The gross
margin percentage on hardware was 31% for fiscal 1997 and 28% for fiscal 1996.
The increase is due primarily to a larger percentage of hardware sales being
derived from PCs in fiscal 1996. PCs have historically had a lower gross margin
than other components of integrated hardware systems. Management expects that
customers' increasing ability to buy high-performance systems at lower prices
may negatively impact the growth of hardware revenues in the future.
Software license revenues decreased $2.9 million, or 30%, to $7.0 million
in fiscal 1997 from $9.9 million in fiscal 1996. The decrease is primarily a
result of two large full-service contracts that generated $1.3 million in
software license revenues in fiscal 1996 and, in part, due to anticipation of
Taos delivery. The gross margin percentage on software was 74% for fiscal 1997
and 88% for fiscal 1996. The decrease is due primarily to a decrease in software
license revenues in fiscal 1997 from fiscal 1996, coupled with increased
amortization expense charged to costs of revenues in fiscal 1997. See Note A to
the consolidated financial statements--Software Development.
Service and other revenues increased $1.7 million, or 10%, to $18.6 million
in fiscal 1997 from $16.9 million in fiscal 1996. This increase is primarily
due to the larger installed base of licensed software products that annually
generate maintenance revenues. Maintenance revenues increased $1.5 million in
fiscal 1997. 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 77% in fiscal
1997 and in fiscal 1996.
Cost of revenues decreased $.9 million, or 6%, to $12.8 million in fiscal
1997 from $13.7 million in fiscal 1996. This decrease is primarily a result of
the decrease in hardware revenues in fiscal 1997 over fiscal 1996.
Page 16
Salaries and employee benefits decreased $1.2 million, or 11%, to $9.2
million in fiscal 1997 from $10.4 million in fiscal 1996. This decrease is
primarily attributable to higher capitalization in fiscal 1997 of salaries
and employee benefits related to software development.
General and administrative expenses decreased $.6 million, or 9%, to $6.2
million in fiscal 1997 from $6.8 million in fiscal 1996. This decrease is
primarily attributable to higher capitalization in fiscal 1997 of general
and administrative expenses related to software development.
Income from operations decreased $.7 million, or 11%, to $5.9 million in
fiscal 1997 from $6.6 million in fiscal 1996. This decrease is a result of
decreases in hardware sales and software licenses offset by a decrease in
salaries and benefits and general administrative expenses as discussed above.
Other income (expense) increased $198,000 to $788,000 in fiscal 1997 from
$590,000 in fiscal 1996 due to increased investment income from higher
investment levels.
The Company's consolidated effective tax rate was 32.5% in fiscal 1997 and
38.1% in fiscal 1996. This decrease is primarily attributable to the
utilization of foreign subsidiaries' loss carryforwards in fiscal 1997 for
which no previous benefit had been recognized.
FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 1995
Hardware revenues increased $.8 million, or 8%, to $11.7 million in fiscal
1996 from $10.9 million in fiscal 1995. This increase is primarily due to two
large full-service contracts that generated $4.6 million in hardware revenues
in fiscal 1996. The gross margin percentage on hardware was 28% for fiscal 1996
and 27% for fiscal 1995. Management expects that customers' increasing ability
to buy high-performance systems at lower prices may negatively impact the
growth of hardware revenues in the future. Management also expects hardware
margins may be negatively impacted as a result of Digital Equipment
Corporation's decision to sell to DRA through distributors, instead
of directly to the Company.
Software license revenues increased $1.4 million, or 17%, to $9.9 million
in fiscal 1996 from $8.5 million in fiscal 1995. The increase is primarily a
result of two large full-service contracts that generated $1.3 million in
software license revenues in fiscal 1996. The gross margin percentage on
software was 88% for fiscal 1996 and 85% for fiscal 1995. The increase is due
primarily to an increase in software license revenues in fiscal 1996 from
fiscal 1995, coupled with consistent amortization expense charged to costs
of revenues in fiscal 1996 and fiscal 1995.
Service and other revenues increased $1.5 million, or 9%, to $16.9 million
in fiscal 1996 from $15.4 million in fiscal 1995. This increase is primarily
due to the larger installed base of licensed software products that annually
generate maintenance revenues. Maintenance revenues increased $1.4 million in
fiscal 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 77% in fiscal 1996 from
78% in fiscal 1995. The decrease was primarily due to the increased cost of
operating DRA Net in fiscal 1996.
Cost of revenues increased $1.0 million, or 8%, to $13.7 million in fiscal
1996 from $12.7 million in fiscal 1995. This increase is primarily a result of
the increase in hardware revenues in fiscal 1996 over fiscal 1995 and to
increased costs related to operating DRA Net in fiscal 1996.
Salaries and employee benefits increased $1.0 million, or 11%, to $10.4
million in fiscal 1996 from $9.4 million in fiscal 1995. This increase is
primarily attributable to annual salary increases and performance bonuses
paid in fiscal 1996.
General and administrative expenses increased $.5 million, or 7%, to $6.8
million in fiscal 1996 from $6.3 million in fiscal 1995. This increase is
primarily attributable to increased sales activity in fiscal 1996.
Page 16
Income from operations increased $1.1 million, or 20%, to $6.6 million in
fiscal 1996 from $5.5 million in fiscal 1995. The Company experienced an
increase in revenues from all three sources: (i) computer hardware sales;
(ii) software licenses; and (iii) sales of service and other revenue in fiscal
1996 compared to 1995.
Other income (expense) increased $242,000 to $590,000 in fiscal 1996 from
$348,000 in fiscal 1995 due to a higher yield on investments and higher
investment levels.
The Company's consolidated effective tax rate was 38.1% in fiscal 1996 and
1995.
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 September 30, 1997, the Company's
working capital was $22.2 million, and its ratio of current assets to current
liabilities was 3.7 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. The increase in working capital was primarily attributable to the
continued profitability of the Company.
Net cash provided by operating activities was $12.8 million for fiscal 1997,
compared to $2.2 million for fiscal 1996. The increase in net cash provided by
operations was primarily due to a $6.1 million decrease in the accounts
receivable balance during fiscal 1997, compared to a $3.4 million increase
in the accounts receivable balance during fiscal 1996. The decrease in accounts
receivable relates to the timing of payments received by customers.
Net cash used in investing activities was $4.4 million for fiscal 1997,
compared to $2.7 million for fiscal 1996. The Company's significant investing
activities in fiscal 1997 included $1.8 million for capitalized software, $1.0
million for data processing equipment, and $.5 million for office renovations.
The Company's significant investing activities in fiscal 1996 included
$.5 million for the purchase of an office building in St. Louis and
$1.0 million in data processing equipment.
Net cash used in financing activities was $.4 million for fiscal 1997,
compared to net cash provided by financing activities of $.2 million for
fiscal 1996. The Company's financing activities in fiscal 1997 related to the
exercise of stock options by directors and employees and a $.10 per share
dividend to common stock shareholders. The Company's financing activities
in fiscal 1996 related exclusively to the exercise of stock options by
directors and employees.
During fiscal 1997, 1996, and 1995, the Company incurred capital
expenditures of $2.3 million, $1.8 million, and $1.2 million, respectively.
No material commitments with respect to capital expenditures have been
made for fiscal 1998.
In January 1997, the Company renewed its $6.0 million line of credit, which
will mature in January 1998 and is subject to annual renewal. The line of
credit bears interest at the federal funds rate plus 200 basis points payable
monthly on outstanding balances and is secured by the Company's accounts
receivable, inventory, and equipment. As of September 30, 1997, the applicable
interest rate was 8.09% per annum. There have been no borrowings against the
Company's line of credit since May 1991.
Page 17
Management believes that with the current cash position of $19.7 million,
accounts receivable of $8.6 million, continued cash flow from operations,
availability of a $6.0 million line of credit, and total current liabilities
of $8.3 million, the Company will be able to meet both its liquidity needs
and capital expenditure needs for the next 12 months. Management believes
that with total long-term liabilities of less than $1.4 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.
CAUTIONARY STATEMENTS--ADDITIONAL IMPORTANT FACTORS TO BE CONSIDERED
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, the following:
RAPID TECHNOLOGICAL CHANGE. The software industry is characterized by rapid
change
and uncertainty due to new and emerging technologies. The pace of change has
recently accelerated due to the Internet, on-line services, networking, and new
programming languages. There can be no assurance that DRA will be successful in
developing or acquiring product enhancements and new products necessary to keep
pace with the changing technologies.
CUSTOMER ACCEPTANCE. While the Company performs extensive usability and beta-
testing of its new products, user acceptance and market penetration rates
ultimately dictate the success of development and marketing efforts. The
Company is currently in the later stages of development of a new system called
Taos.
CONTRACTS WITH GOVERNMENTAL ENTITIES. A substantial portion of the Company's
business is conducted with governmental entities. Both the award and execution
of its governmental contracts are subject to numerous conditions, including the
availability and appropriation of sufficient funding.
PRODUCT SHIP SCHEDULES. Because 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, even short delays in new-product
releases or delays in the customers' procurement processes can cause results
to fluctuate substantially. Delays in the release of Taos could have a
significantly negative impact on the Company's sales and results of operations.
Because of the complexities inherent in developing software products as
sophisticated as those sold by the Company and the lengthy testing periods
associated with such products, no assurance can be given that future product
introductions by the Company will not be delayed. In the future, the Company's
revenues will be increasingly dependent on sales of Taos, 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.
COMPETITION. The library automation industry is highly competitive. A number of
companies offer products that target the library automation market. DRA competes
with software vendors whose products operate on Digital hardware platforms and
software vendors whose products operate on different platforms. Certain of the
Company's competitors have substantially greater financial, technical,
marketing, and sales resources than DRA.
DEPENDENCE ON AND RELATIONSHIP WITH DIGITAL. Although DRA is moving away from a
strong dependence on Digital computers, a substantial portion of the Company's
revenues are still derived from Digital hardware and licensing of the Company's
software, which was originally designed to operate on Digital computers.
DEPENDENCE ON KEY PERSONNEL. DRA's continued success depends in large part on
certain key personnel, including Michael J. Mellinger, its founder, President,
and Chief Executive Officer. The loss of the services of Mr. Mellinger and the
inability of the Company to attract and retain a suitable replacement could have
a material adverse effect on the Company.
PRINCIPAL SHAREHOLDERS. Michael J. Mellinger and F. Gilbert Bickel III combined
own in excess of 45 percent of the common stock outstanding. As a result, Mr.
Mellinger and Mr. Bickel may be able to effectively control the outcome of
certain matters requiring a shareholder vote.
Page 18
POSSIBLE ACQUISITIONS. The Company may make acquisitions in the future.
Acquisitions involve numerous risks, including difficulties in the assimilation
of the operations and products of the acquired companies, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or little direct experience, and potential loss of
key employees of the acquired companies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Auditors 20
Consolidated Balance Sheets as of September 30,
1997 and 1996 21
Consolidated Statements of Income for the years ended
September 30, 1997, 1996, and 1995 23
Consolidated Statements of Shareholders' Equity for the
years ended September 30, 1997, 1996, and 1995 24
Consolidated Statements of Cash Flows for the years
ended September 30, 1997, 1996, and 1995 25
Notes to Consolidated Financial Statements 26
Page 19
Report of Independent Auditors
Board of Directors and Shareholders
Data Research Associates, Inc.
We have audited the accompanying consolidated balance sheets of Data Research
Associates, Inc. and subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended September 30, 1997. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We did not audit the
financial statements of DRA Information Inc., a wholly owned subsidiary, which
statements reflect total assets constituting 7% in 1997 and 6% in 1996, and
total revenues constituting 13% in 1997, 12% in 1996, and 13% in 1995 of the
related consolidated totals. We also did not audit the 1995 financial
statements of MultiLIS Europe, S.A., a wholly owned subsidiary, which
statements reflect total revenues constituting 1% in 1995 of the related
consolidated total. Those financial statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it relates
to data included for DRA Information Inc. as of and for each of the three years
ended September 30, 1997 and for MultiLIS Europe, S.A. as of and for the year
ended September 30, 1995 is based solely on the reports of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the reports
of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Data Research Associates, Inc. and
subsidiaries at September 30, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
St. Louis, Missouri
November 5, 1997
Page 20
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
September 30
------------------------------
1997 1996
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $19,734 $11,823
Accounts receivable less allowance for
doubtful accounts of $119 in 1997
and $269 in 1996:
Billed 7,689 10,803
Unbilled 869 3,878
------- -------
8,558 14,681
Income taxes receivable 735 -
Inventories 76 178
Prepaid expenses 1,053 679
Deferred income taxes 183 166
Other current assets 171 153
------- -------
TOTAL CURRENT ASSETS 30,510 27,680
PROPERTY AND EQUIPMENT:
Land and improvements 504 504
Building and improvements 2,570 2,219
Data processing equipment 5,562 4,407
Furniture, fixtures, and other 3,713 2,982
------- -------
12,349 10,112
Less accumulated depreciation 5,708 4,517
------- -------
6,641 5,595
DEFERRED SOFTWARE COSTS
(net of accumulated amortization
of $1,360 in 1997
and $1,057 in 1996) 2,051 522
NOTES RECEIVABLE 99 296
INTANGIBLE ASSETS
(net of accumulated amortization
of $3,685 in 1997
and $2,744 in 1996) 1,838 2,568
------- -------
$41,139 $36,661
======= =======
Page 21
(Dollars in thousands, except per share data)
September 30
-------------------------------
1997 1996
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,792 $ 1,705
Employee compensation 328 694
Deferred revenue 4,047 3,787
Customer deposits 1,035 1,164
Other accrued liabilities 528 777
Income taxes payable 591 615
------- -------
TOTAL CURRENT LIABILITIES 8,321 8,742
DEFERRED INCOME TAXES 1,376 473
COMMITMENTS AND CONTINGENCIES--
(Notes C and I)
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, 5,538,870
shares issued in 1997 and
5,777,520 in 1996 55 58
Additional paid-in capital 5,612 5,700
Foreign currency translation adjustment (77) 53
Retained earnings 25,852 21,910
------- -------
31,442 27,721
Less cost of 265,100 shares of treasury stock - 275
------- -------
TOTAL SHAREHOLDERS' EQUITY 31,442 27,446
------- -------
$41,139 $36,661
======= =======
See accompanying notes to consolidated financial statements.
Page 22
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Year ended September 30
------------------------------------------
1997 1996 1995
------------ ------------ ------------
REVENUES
Hardware $ 9,759 $ 11,724 $10,905
Software 6,969 9,949 8,513
Service and other 18,641 16,909 15,449
------- ------- -------
35,369 38,582 34,867
EXPENSES
Cost of revenues
Hardware 6,751 8,500 7,954
Software 1,814 1,213 1,250
Service and other 4,236 3,944 3,447
------ ------ ------
12,801 13,657 12,651
Salaries and employee benefits 9,193 10,379 9,356
General and administrative
expenses 6,166 6,788 6,344
Depreciation and amortization 1,339 1,147 993
------ ------ -------
29,499 31,971 29,344
------ ------ ------
INCOME FROM OPERATIONS 5,870 6,611 5,523
OTHER INCOME (EXPENSE)
Interest 751 502 347
Other 37 88 -
------ ------ ------
INCOME BEFORE INCOME TAXES 6,658 7,201 5,870
PROVISION FOR INCOME TAXES 2,164 2,747 2,236
------ ------- ------
NET INCOME $ 4,494 $ 4,454 $ 3,634
====== ======= ======
Earnings per common and common
equivalent share $ .81 $ .81 $ .66
====== ====== ======
Weighted average number of common
and common equivalent shares 5,531,813 5,482,222 5,494,050
========= ========= =========
See accompanying notes to consolidated financial statements.
Page 23
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except for per share data)
Additional Foreign
Common Stock Paid-In Currency Retained Treasury Stock
Shares Amount Capital Translation Earnings Shares Cost
--------- ------- ---------- --------- -------- ------- --------
Balance at
September 30,
1994 5,736,169 $57 $5,492 $11 $13,822 265,100 $275
Net income - - - - 3,634 - -
Foreign
currency
translation
adjustment - - - 72 - - -
---------- ---- ------ --- ------ ------- ----
Balance at
September 30,
1995 5,736,169 57 5,492 83 17,456 265,100 275
Options
exercised 41,351 1 208 - - - -
Net income - - - - 4,454 - -
Foreign
currency
translation
adjustment - - - (30) - - -
--------- ---- ------ --- -------- ------- ----
Balance at
September 30,
1996 5,777,520 58 5,700 $53 21,910 265,100 275
Retirement
of treasury
stock (265,100) (3) (272) - - (265,100) (275)
Options
exercised 26,450 - 184 - - - -
Net income - - - - 4,494 - -
Cash
dividends
($.10 per
share) - - - - (552) - -
Foreign
currency
translation
adjustment - - - (130) - - -
--------- --- ------ ----- ------- ------- -------
Balance at
September 30,
1997 5,538,870 $55 $5,612 ($77) $25,852 - $ -
========= === ====== ======== ======= ======= =======
See accompanying notes to consolidated financial statements.
Page 24
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands, except per share data)
Year ended September 30
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
OPERATING ACTIVITIES
Net income $ 4,494 $ 4,454 $ 3,634
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 2,543 2,222 2,124
Provision for deferred
income taxes 885 202 (36)
(Gain) loss on disposal of
property and equipment (3) (2) 16
Changes in operating assets
and liabilities:
Accounts receivable 6,020 (2,845) (1,355)
Note receivable 196 (36) 106
Inventories 101 (42) 42
Prepaid expenses and
other current assets (408) (224) (42)
Accounts payable and
other current liabilities (981) (1,496) 448
------- -------- --------
NET CASH PROVIDED
BY OPERATING ACTIVITIES 12,847 2,233 4,937
INVESTING ACTIVITIES
Purchase of property
and equipment (2,312) (1,844) (1,186)
Deferred software costs (1,832) (382) (231)
Proceeds from disposal
of property and equipment - 9 47
Purchase of assets of MultiLIS - - (1,951)
Purchase of software (281) (442) -
------- ------- --------
NET CASH USED IN
INVESTING ACTIVITIES (4,425) (2,659) (3,321)
FINANCING ACTIVITIES
Proceeds from options exercised 184 209 -
Cash dividends paid (552) - -
Principal payments on notes
payable and long-term debt - - (58)
------- ------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (368) 209 (58)
Effect of exchange rate changes
on cash and cash equivalents (143) (19) 85
------- ------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 7,911 (236) 1,643
Cash and cash equivalents
at beginning of year 11,823 12,059 10,416
-------- -------- --------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $19,734 $11,823 $12,059
======== ======== ========
See accompanying notes to consolidated financial statements.
Page 25
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
NOTE A--BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business: Data Research Associates, Inc. and subsidiaries (the Company)
develops, markets, and supports application software and turnkey systems
for libraries. The Company also provides product support, implementation,
consulting, education, custom programming, and systems integration services
to its customers.
Principles of Consolidation: The consolidated financial statements include
the accounts of Data Research Associates, Inc. and its wholly owned
subsidiaries in Australia, Canada, France, and Singapore. All intercompany
accounts and transactions have been eliminated.
The Company's wholly owned subsidiary in France, MultiLIS Europe, S. A.
(MultiLIS), has been consolidated based upon a fiscal period ending
June 30, which the subsidiary utilizes in order to satisfy certain
statutory requirements. Operations of MultiLIS for the three months ended
September 30, 1997 and 1996, were not significant.
Cash Equivalents: All highly liquid investments with a maturity of three
months or less when purchased are considered to be cash equivalents. The cash
and cash equivalents include marketable securities of $14,909,000 and $9,968,000
at September 30, 1997 and 1996, respectively. The Company's marketable
securities include mortgage-backed securities and U.S. corporate debt
securities which are classified as held-to-maturity since the Company
has the positive intent and ability to hold these securities to maturity.
Held-to-maturity securities are stated at amortized cost which approximates
fair value.
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.
Property and Equipment: Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Depreciation expense for the years
ended September 30, 1997, 1996, and 1995 was $1,256,000, $953,0000, and
$758,000, respectively.
Revenue Recognition: Revenue from sales of turnkey systems sold under
contractual arrangements is recognized upon shipment of the hardware and
software to the customer. Revenue from hardware and software maintenance
contracts is recognized monthly. Revenue from custom software sales is
recognized when the product is shipped. Revenue from installation and
conversion, documentation and training, and authority control processing
services is recognized as the services are performed.
Warranty: The Company is a reseller of hardware and passes through to its
customers the standard warranties provided by the hardware manufacturers.
The Company warrants its applications software products to perform in
accordance with the written user documentation and the agreements negotiated
with the customer. Since the Company does not customize its applications
software, warranty costs are insignificant and are expensed as incurred.
Unbilled Accounts Receivable: Unbilled accounts receivable consist of products
that have been delivered to customers but are not yet billable under the terms
and conditions of the Company's contract with the customer. The manner and
timing of billings are based on the contract and on the Company's credit
policies and are not a function of acceptance by the customer. There are no
significant vendor obligations subsequent to delivery of the Company's systems.
Customer Deposits: Customer deposits typically consist of a 10 to 15% down
payment required under sales contracts and are due on signing the contract.
Page 26
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE A--BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Software Development: The Company has a comprehensive line of software
products and maintains a programming group to service, update, and enhance
those products. Research and development costs associated with products
outside of its existing line were expensed as incurred and amounted to
$1,265,000, $1,900,000, and $1,600,000 for the years ended September 30, 1997,
1996, and 1995, respectively. Development costs of $1,832,000 in 1997,
$382,000 in 1996, and $232,000 in 1995 associated with significant enhancements
to its existing software products and development of new products incurred
subsequent to attaining technological feasibility were capitalized.
Amortization is computed on an individual product basis and is the greater
of (a) the ratio of current gross revenues for a product to the total
current and anticipated future gross revenues for that product or
(b) the straight-line method over the estimated economic useful life
of the product. Currently, the Company is using an estimated economic useful
life of two to five years for all capitalized software costs. Amortization
expense for the years ended September 30, 1997, 1996, and 1995 was $303,000,
$194,000, and $230,000, respectively.
Income Taxes: The provision for income taxes is computed using the liability
method. The primary difference between financial statement and taxable income
results from the use of different methods of computing depreciation,
capitalized software development costs, prepaid expenses, and customer deposits.
Stock-Based Compensation: As permitted by Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), "Accounting for Stock Based Compensation,"
the Company has elected to continue following Accounting Principles Board No.
25 ("APB 25"), "Accounting for Stock Issued to Employees," for measurement and
recognition of stock-based transactions with employees and adopted the
disclosure-only provisions of SFAS No. 123. Under APB 25, generally no
compensation expense is recognized because the exercise price of the options
equals the fair value of the stock at the grant date.
Earnings per Common and Common Equivalent Share: Earnings per common and
common equivalent share are computed using the weighted average number of
common and common equivalent shares outstanding during each year. Common
stock equivalents consist of outstanding stock options.
Translation of Foreign Currency: Each foreign subsidiary's asset and liability
accounts, which are originally recorded in the appropriate local currencies,
are translated for consolidated financial reporting purposes, into U.S. dollar
equivalents at year-end exchange rates. Revenue and expense accounts are
translated at an average of exchange rates in effect during the year.
Intangible Assets: Intangible assets consist of purchased software, customer
lists, and a covenant not to compete. Amortization is computed using the
straight-line method over the estimated useful lives of the respective assets.
Currently, the Company is using an estimated economic useful life of two to
five years for all intangible assets.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Reclassifications: Certain amounts in the 1996 and 1995 financial statements
have been reclassified to conform with the 1997 presentation.
Page 27
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE A--BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Standards: In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128
applies to entities with publicly held common stock or potential common
stock and is effective for financial statements issued for periods ending
after December 15, 1997. Under SFAS No. 128, the presentation of primary
earnings per share is replaced with a presentation of basic earnings per
share. SFAS No. 128 requires dual presentation of basic and diluted
earnings per share for entities with complex capital structures.
Basic earnings per share includes no dilution and is computed by dividing
net income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in
the earnings of the entity, similar to fully diluted earnings per
share. Management believes the adoption of SFAS No. 128 will not have a
material effect on the financial statements.
NOTE B-NOTE PAYABLE
The Company has a $6,000,000 line of credit with a local bank which allows the
Company to borrow periodically, primarily to finance hardware purchases and
meet short-term borrowing needs. Interest is payable monthly at the federal
funds rate plus 200 basis points, and the line is collateralized by accounts
receivable, inventory, and equipment. The terms of the loan agreement require,
among other things that the Company maintain certain working capital and net
worth amounts and meet certain financial ratios. There were no outstanding
borrowings during 1997 and 1996. The line is scheduled for renewal in January
1998.
NOTE C-LEASES AND COMMITMENTS
The Company leases equipment and office space under various operating leases.
The Company has two minimum monthly purchase commitments for telecommunication
services at September 30, 1997. The following summarizes the operating leases
and purchase commitments for telecommunication services (in thousands):
Operating Telecommunication
Leases Services
1998 $ 171 $ 840
1999 163 840
2000 98 620
2001 49 600
2002 33 600
Thereafter 82 -
------ ------
$ 596 $3,500
====== ======
Rental expense on operating leases for the years ended September 30, 1997,
1996, and 1995 was $270,000, $245,000, and $340,000, respectively. Rental
expense included amounts paid to a company that is owned by the president of
the Company totaling $20,000 for each of the years ended September 30, 1997,
1996, and 1995.
Page 28
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE D--BENEFIT PLANS
The Company sponsors a defined contribution 401(k) plan covering full-time
employees in the United States who have at least one month of service and are
21 years of age or older. An employee can defer up to 15% of covered
compensation under the plan. The plan provides for a maximum annual Company
match of $2,000 plus discretionary Company profit sharing contributions.
In April 1994, the Company included the Company's common stock as an investment
election under the plan and at that time reserved 100,000 shares of common
stock for future issuance under the plan. The Company also sponsors a group
retirement plan covering Canadian employees who have at least six months of
service. Under the group retirement plan, the Company annually matches
employee contributions up to $2,000 per participant. Contributions made by
the Company to these plans for the years ended September 30, 1997, 1996, and
1995 were $202,000, $200,000, and $180,000, respectively.
The Company sponsors a stock purchase plan covering directors, officers, and
substantially all employees. Under the plan, each participant can contribute
up to 10% of his or her salary per relevant pay period or, in the case of a
non employee director, the greater of 10% of such director's monthly fees or
$50 per month, to purchase Company common stock. The Company will match up to
15% of participants' contributions. The plan can be terminated at any time by
the Board of Directors. The Company reserved 100,000 shares of common stock
for future issuance under the plan. The Company made contributions of
$14,000, $14,000, and $9,000 for the years ended September 30, 1997, 1996, and
1995, respectively.
Page 29
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE E--INCOME TAXES
The components of income before income taxes were as follows (in thousands):
Year ended September 30
---------------------------------
1997 1996 1995
------- ------- -------
Domestic $5,086 $7,291 $5,415
Foreign 1,572 (90) 455
------- ------- -------
$6,658 $7,201 $5,870
======= ======= =======
The components of income tax expense were as follows (in thousands):
Year ended September 30
------------------------------------
1997 1996 1995
---------- ---------- ----------
Current:
Federal $ 903 $2,162 $1,750
Foreign 271 45 334
State 105 338 188
------- ------- -------
1,279 2,545 2,272
Deferred expense (credit) 885 202 (36)
------- ------- -------
$2,164 $2,747 $2,236
======= ======= =======
The difference between the effective income tax rate and the U.S. federal
income tax rate is explained as follows (in thousands):
Year ended September 30
-------------------------------------
1997 1996 1995
---------- ----------- -----------
Tax expense at U.S.
statutory tax rate $2,260 $2,450 $1,996
State taxes,
net of federal benefit 200 284 124
Effect of foreign subsidiaries (186) 77 179
Research and development credits (161) (65) (76)
Other items 51 1 13
------- ------- -------
$2,164 $2,747 $2,236
======= ======= =======
Page 30
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE E--INCOME TAXES (Continued)
The tax effects of temporary differences which give rise to deferred income
tax assets and liabilities are summarized as follows (in thousands):
September 30
-------------------------
1997 1996
---------- ----------
Current deferred income taxes:
Loss carryforwards $695 $742
Allowance for doubtful accounts 31 31
Vacation accrual 61 57
Customer deposits 220 195
Prepaids (225) (142)
Intercompany interest - 163
Other 96 25
------ ------
878 1,071
Less valuation allowance (695) (905)
------ ------
$ 183 $ 166
====== ======
Non current deferred income taxes:
Deferred software $ (775) $(198)
Property and equipment (334) (286)
Other (267) 11
------- ------
$(1,376) $(473)
======= ======
Income tax payments for the years ended September 30, 1997, 1996, and 1995
were $2,200,000, $3,100,000, and $2,100,000, respectively.
The Company has a federal loss carryforward of $740,000 at September 30, 1997,
that expires in the years 2004 through 2009. This loss carryforward resulted
from the Company's 1994 acquisition of Multicore, a U.S. subsidiary of MultiLIS
(see Note K). The use of the loss carryforward by the Company is limited to an
annual amount determined under the Internal Revenue Code. In addition, the
Company's French subsidiary has loss carryforwards at September 30, 1997 of
approximately $1,100,000. The loss carryforwards for the French subsidiary
expire in 1999 and 2000. A valuation allowance has been established to
offset the deferred tax asset related to loss carryforwards.
Undistributed earnings of certain subsidiaries outside the United States are
considered to be permanently reinvested. Accordingly, no provision for United
States income taxes was made for undistributed earnings of such subsidiaries,
which aggregated $922,000 as of September 30, 1997.
Page 31
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F--GEOGRAPHIC SEGMENT DATA
Substantially all of the Company's assets, sales, and operating results are
employed in or derived from the sale of application software and turnkey
systems to libraries.
Financial information, summarized by geographic area, is as follows
(in thousands):
Year ended September 30, 1997
United Australia/
States Canada Asia Europe Eliminations Consolidated
----------- ---------- -------- -------- ------------ -----------
Net Sales:
Unaffiliated
customers $31,553 $2,584 $ 689 $543 $ - $35,369
Interarea
transfers 690 1,863 705 - (3,258) -
------- ------ ------ ---- ------- -------
Total $32,243 $4,447 $1,394 $543 $(3,258) $35,369
======= ====== ====== ==== ======== =======
Income (loss)
from
operations
Unaffiliated $5,790 $372 ($148) ($144) $ - $5,870
Interarea
transfers (1,482) - 704 778 -
------- ---- ---- ------ ---- ------
$4,308 $372 $556 ($144) $778 $5,870
======= ==== ==== ====== ==== ======
Identifiable
assets $38,393 $1,860 $552 $334 $ - $41,139
======= ====== ==== ==== ==== =======
Year ended September 30, 1996
United Australia/
States Canada Asia Europe Eliminations Consolidated
----------- ---------- -------- -------- ------------ -----------
Net Sales:
Unaffiliated
customers $34,145 $2,727 $721 $989 $ - $38,582
Interarea
transfers 854 1,861 267 - (2,982) -
------- ------ ---- ---- ------- -------
Total $34,999 $4,588 $988 $989 $(2,982) $38,582
======= ====== ==== ==== ======== =======
Income (loss)
from
operations $6,714 $128 $(217) $(14) $ - $6,611
====== ==== ====== ===== ===== ======
Identifiable
assets $32,964 $1,999 $1,158 $540 $ - $36,661
======= ====== ====== ==== ===== =======
Page 32
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE F--GEOGRAPHIC SEGMENT DATA (Continued)
Year ended September 30, 1995
United Australia/
States Canada Asia Europe Eliminations Consolidated
----------- ---------- -------- -------- ------------ -----------
Net Sales:
Unaffiliated
customers $30,205 $3,281 $916 $465 $ - $34,867
Interarea
transfers 496 1,355 - - (1,851) -
------- ------ ---- ---- -------- -------
Total $30,701 $4,636 $916 $465 $(1,851) $34,867
======= ====== ==== ==== ======== =======
Income (loss)
from
operations $4,860 $1,073 $ 97 $(507) $ - $5,523
====== ====== ==== ====== ==== ======
Identifiable
assets $27,000 $2,850 $2,303 $734 $ - $32,887
======= ====== ====== ==== ==== =======
Export sales to Canada from the United States were $1,708,000, $1,563,000, and
$1,362,000 for the years ended September 30, 1997, 1996, and 1995, respectively.
Export sales to Singapore from the United States were $45,000 and $1,013,000
in fiscal 1997 and 1996, respectively. The transfers between geographic areas
are priced consistent with pricing to nonaffiliated entities.
Most services of the Company are provided on an integrated worldwide basis.
Because of the integration of U.S. and non-U.S. services, it is not practical
to separate precisely the U.S.-oriented services from services resulting from
operations outside the United States and performed for customers outside the
United States. Accordingly, the separation set forth in the above table is
based upon internal allocations, which involve certain management judgments.
Page 33
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE G--RELATED PARTY TRANSACTIONS
The Company incurred consulting and legal expenses to entities related to
shareholders and directors of the Company for the years ended September 30,
1997, 1996, and 1995 of $31,000, $90,000, and $56,000, respectively.
In addition, legal fees paid to related parties of $39,000 in 1995 were
capitalized in connection with acquisitions made by the Company.
NOTE H--STOCK OPTION PLANS
The Company maintains two stock option plans which provide for the issuance of
stock to certain key employees and directors of the Company. The option price
under the plans equals the fair market value of the common stock at
the date of grant. In 1997 and 1996, an additional 100,000 and 225,000
shares were authorized by the shareholders under the plans, respectively.
Options granted in 1997 and 1996 will be fully vested in 1999 and 1998,
respectively.
The following table summarizes the status of the two plans.
Year ended September 30:
1997 1996
------- -------
Authorized shares to be granted 550,000 450,000
======= =======
Available shares to be granted 392,575 313,875
======= =======
Options granted, exercised, and canceled:
Year ended Year ended Year ended
September 30, 1997 September 30, 1996 September 30, 1995
----------------------- ----------------------- -----------------------
Price
per Exer- Exer- Exer-
share Granted cised Canceled Granted cised Canceled Granted cised Canceled
- ------ ------- ------ -------- ------- ------ -------- ------- ------ --------
$4.67 - 11,250 - - 33,750 - - - -
6.50 - 6,200 700 - 1,601 4,500 - - 2,400
6.83 - 9,000 - - 6,000 - 27,300 - -
9.33 - - 4,500 30,750 - 2,625 - - -
13.625 32,750 - 6,250 - - - - - -
------ ------ ------ ------ ------ ----- ------ ----- -----
32,750 26,450 11,450 30,750 41,351 7,125 27,300 - 2,400
====== ====== ====== ====== ====== ===== ====== ===== =====
Options outstanding and exercisable:
September 30, 1997 September 30, 1996
------------------------ -----------------------
Price Expiration
per Share Date Outstanding Exercisable Outstanding Exercisable
- --------- ------------ ----------- ------------ ----------- -----------
$4.67 4/22/1997 - - 11,250 11,250
6.50 6/23/1999 6,199 3,599 8,299 1,700
6.50 11/17/1999 3,300 3,300 8,100 -
6.50 11/17/1998 15,000 15,000 15,000 15,000
6.83 11/18/1996 - - 9,000 9,000
8.50 11/16/1997 15,000 15,000 15,000 15,000
9.33 11/16/2000 8,625 - 13,125 -
9.33 11/16/1999 15,000 15,000 15,000 15,000
13.625 11/21/2001 11,500 - - -
13.625 11/21/2000 15,000 15,000 - -
------ ------ ------ ------
89,624 66,899 94,774 66,950
====== ====== ====== ======
Page 34
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE H--STOCK OPTION PLANS (Continued)
If the Company had elected to recognize compensation costs for
stock-based compensation plans based on the fair value at grant dates of awards
under those plans consistent with the method prescribed by SFAS No. 123, net
income and earnings per share would have changed to the pro forma amounts
indicated below:
Year ended Year ended
September 30, September 30,
1997 1996
------------ -------------
Net income As reported $4,494,000 $4,454,000
Pro forma $4,401,000 $4,387,000
Earnings per share As reported $ .81 $ .81
Pro forma $ .80 $ .80
The fair value of the stock options used to compute pro forma income and
earnings per share disclosures is the value at grant date using the Black-
Scholes option pricing model with the following weighted average assumptions
for 1997 and 1996:
1997 1996
------ ------
Expected dividend yield 0.01% 0.00%
Expected volatility 37.30% 38.00%
Expected holding period in years 3 to 4 3 to 4
Risk-free interest rate 6.50% 6.50%
Weighted average value of
options granted during the year $3.98 $3.36
NOTE I--EMPLOYMENT AGREEMENT
The Company has an employment agreement with the president of the Company
which expires September 30, 2002. The agreement, which contains provisions
for an automatic five-year renewal, requires total minimum annual payments in
the form of base compensation of $400,000 and an annual bonus. Base compensation
in excess of $400,000 and the annual bonus are at the discretion of the Board
of Directors and subject to termination provisions as defined by the
agreement.
Page 35
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE J--QUARTERLY FINANCIAL DATA (UNAUDITED)
The results of operations by quarter for 1997 and 1996 were as follows
(in thousands, except per share data):
Quarter ended
--------------------------------------------------
September 30, June 30, March 31, December 31,
1997 1997 1997 1996
------- ------ ------- ------
Revenues $9,682 $8,702 $9,857 $7,128
Income from operations 2,186 1,482 1,504 698
Net income 1,700 1,031 1,222 541
Earnings per common and
common share equivalent .31 .19 .22 .10
Quarter ended
--------------------------------------------------
September 30, June 30, March 31, December 31,
1996 1996 1996 1995
------- ------ ------- ------
Revenues $10,771 $8,911 $12,174 $6,726
Income from operations 2,659 1,799 1,584 569
Net income 1,716 1,174 1,144 420
Earnings per common and
common share equivalent .31 .21 .21 .08
NOTE K--ACQUISITION
In October 1994, the Company completed the purchase of the MultiLIS library
automation system and certain related assets for a cash price of approximately
$2,000,000 and the assumption of approximately $2,000,000 in liabilities. The
acquisition was accounted for under the purchase method of accounting, and
the consolidated financial statements include the results of the MultiLIS
automation system from the date of acquisition.
Page 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
Page 37
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the caption "INFORMATION ABOUT THE NOMINEE
AND DIRECTORS CONTINUING IN OFFICE" in the Company's definitive proxy statement
to be filed pursuant to Regulation 14A for the Company's 1998 annual meeting of
shareholders, which involves the election of directors, is incorporated
herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "EXECUTIVE COMPENSATION" in the
Company's definitive proxy statement to be filed pursuant to Regulation 14A for
the Company's 1998 annual meeting of shareholders, which involves the election
of directors, is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the captions "VOTING SECURITIES, VOTING
RIGHTS AND PRINCIPAL SECURITY HOLDERS" and "SECURITY OWNERSHIP OF MANAGEMENT"
in the Company's definitive proxy statement to be filed pursuant to
Regulation 14A for the Company's 1998 annual meeting of shareholders,
which involves the election of directors, is incorporated herein by
this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "TRANSACTIONS WITH ISSUER AND
OTHERS" in the Company's definitive proxy statement to be filed pursuant to
Regulation 14A for the Company's 1998 annual meeting of shareholders, which
involves the election of directors, is incorporated herein by this reference.
Page 38
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a.) 1. Financial Statements Page
The following consolidated financial statements of Data Research
Associates, Inc. and its subsidiaries are included in Item 8.
Report of Independent Auditors 20
Consolidated Balance Sheets as of September 30,
1997 and 1996 21
Consolidated Statements of Income for the years ended
September 30, 1997, 1996, and 1995 23
Consolidated Statements of Shareholders' Equity for the
years ended September 30, 1997, 1996, and 1995 24
Consolidated Statements of Cash Flows for the years ended
September 30, 1997, 1996, and 1995 25
Notes to Consolidated Financial Statements 26
(a.) 2. Financial Statement Schedule
The following consolidated financial statement schedule is included in this
report in accordance with Item 8 and paragraph (d) of Item 14:
Page
Schedule II - Valuation and Qualifying Accounts 40
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been omitted.
(a) 3. See Exhibit Index
The following is a list of each management contract or compensatory plan
or arrangement required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14(c) of this report:
Employment Agreement dated April 17, 1997, by and between the Registrant
and Michael J. Mellinger
Data Research Associates, Inc. 401(k) Profit Sharing Plan
Data Research Associates, Inc. 1992 Stock Option Plan
Data Research Associates, Inc. Stock Purchase Plan
Data Research Associates, Inc. Director Stock Option Plan
(b) Reports on 8-K
No reports on Form 8-K were filed during the fourth quarter of the
Registrant's fiscal year ended September 30, 1997.
Page 39
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Years ended September 30, 1997, 1996, and 1995
Col. A Col. B Col. C Col. D Col. E
- ------------------------ ---------- -------------------- ---------- ---------
Additions
-------------------
Charged Charged Balance
Balance at to Costs to Other at
Beginning and Accounts- Deductions- End of
Description of Period Expenses Describe Describe Period
- ------------------------ ---------- --------- --------- ---------- ---------
1997
- ----
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts $269,000 $ - $ - $150,000(3) $ 119,000
Accumulated amortization
of deferred software
costs 1,056,628 303,372 - - 1,360,000
Accumulated amortization
of purchased software
costs 2,743,629 941,371 - - 3,685,000
Valuation Allowance for
deferred tax assets 905,000 - - 210,000(4) 695,000
1996
- ----
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts $138,000 $131,000 $ - $ - $ 269,000
Accumulated amortization
of deferred software
costs 862,787 193,841 - - 1,056,628
Accumulated amortization
of purchased software
costs 1,691,824 1,051,805 - - 2,743,629
Valuation Allowance for
deferred tax assets 777,000 128,000 - - 905,000
1995
- ----
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts $ 81,000 $ 57,000 $ - $ - $ 138,000
Accumulated amortization
of deferred
software costs 633,142 229,645 - - 862,787
Accumulated amortization
of purchased
software costs 449,355 1,242,469 - - 1,691,824
Valuation Allowance for
deferred tax assets 164,575 253,425 401,500(1) 42,500(2) 777,000
_______________
(1) Valuation allowance for foreign loss carryforwards at acquisition date.
(2) Effect of foreign subsidiaries income on reserve for foreign loss
carryforward.
(3) Collect amounts previously reserved.
(4) Utilization of foreign net operating loss carryforwards.
Page 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of
St. Louis, State of Missouri, on December 10, 1997.
DATA RESEARCH ASSOCIATES, INC.
By: /s/ Michael J. Mellinger
- -----------------------------------
Michael J. Mellinger, President
and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Data Research Associates, Inc.,
hereby severally and individually constitute and appoint Michael J. Mellinger
the true and lawful attorney and agent of each of us, with full power of
substitution and resubstitution to execute in the name, place and stead of
each of us (individually and in any capacity stated below) this Form 10-K and
any and all amendments to and all instruments necessary or advisable in
connection therewith and to file the same with the Securities and Exchange
Commission, said attorney and agent to have power to act and to have full power
and authority to do and perform in the name and on behalf of each of the
undersigned every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as any of the undersigned
might or could do in person, and we hereby ratify and confirm our signatures
as they may be signed by our said attorney and agent to any and all such
reports, amendments and instruments.
Name Title Date
/s/ Michael J. Mellinger Director, President, 12/10/97
- ------------------------ ---------------------------- --------
Michael J. Mellinger and Chief Executive Officer
(Principal Executive Officer)
/s/ Katharine W. Biggs Vice-President and 12/10/97
- ------------------------ ---------------------------- --------
Katharine W. Biggs Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ F. Gilbert Bickel III Director 12/10/97
- ------------------------ ---------------------------- --------
F. Gilbert Bickel III
/s/ Carole Cotton Director 12/10/97
- ------------------------ ---------------------------- --------
Carole Cotton
/s/ Donald P. Gallop Director 12/10/97
- ------------------------ ---------------------------- --------
Donald P. Gallop
/s/ Howard L. Wood Director 12/10/97
- ------------------------ ---------------------------- --------
Howard L. Wood
Page 41
EXHIBIT INDEX
Exhibit Number Description Page
3.1 Restated Articles of Incorporation of the Registrant,
incorporated herein by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1,
Reg. No. 33-47350 (the "Form S-1"). N/A
3.2 Amended and Restated Bylaws of the Registrant, as amended,
incorporated herein by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993 (the "1993 Form 10-K"). N/A
10.1 Employment Agreement dated April 17, 1997, by and between the
Registrant and Michael J. Mellinger, incorporated herein by
reference to Exhibit 10.1 on Form 10-Q for the quarter ended
March 31, 1997, and as amended, by Exhibit 10.1 on Form 10-Q
for the quarter ended June 30, 1997. N/A
10.2 Data Research Associates, Inc. 401(k) Profit Sharing Plan
as amended October 1, 1994, incorporated herein by reference
to Exhibit 10.9 to the 1995 Form 10-K. N/A
10.3 Data Research Associates, Inc. 1992 Stock Option Plan, as amended,
incorporated herein by reference to Exhibit 4 to the
Registrant's Registration Statement on Form S-8,
Reg. No. 333-2372. N/A
10.4 Data Research Associates, Inc. Stock Purchase Plan, as amended,
incorporated herein by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1992. N/A
10.5 Equipment Lease dated April 15, 1991, by and between the
Registrant and Davandy Management, Inc. incorporated
herein by reference to Exhibit 10.7 to the Form S-1. N/A
10.6 Data Research Associates, Inc. Director Stock Option Plan,
as amended, incorporated herein by reference to Exhibit 4.1
to the Registrant's Registration Statement on Form S-8,
Reg. No. 333-22887. N/A
10.7 Time Sharing Agreement dated October 1, 1997, by and between
the Registrant and Charter Communications, Inc. 44
10.8 Data Research Associates, Inc. Cafeteria Plan as restated. 48
10.9 Value Added Reseller Agreement dated January 13, 1997, by and
between the registrant and Hall-Mark Computer Products. 63
10.10 Extension of the Value Added Reseller Agreement dated
November 18, 1997, by and between the registrant and
Hall-Mark Computer Products. 86
11 Statement Re: Computation of Per Share Earnings. 87
Page 42
EXHIBIT INDEX (Continued)
Exhibit
Number Description Page
21 Subsidiaries of the Registrant. 88
23 Consent of Ernst & Young LLP, independent auditors. 89
23.1 Consent of Price Waterhouse, independent auditors. 90
23.2 Consent of BDA/Deloitte Touche Tohmatsu,
independent auditors. 91
24 Power of Attorney (set forth on signature page). 41
27 Financial Data Schedule 98
99.1 Cautionary Statements--Additional Important Factors
To Be Considered 92
99.2 Report of Price Waterhouse, independent auditors. 94
99.3 Report of Price Waterhouse, independent auditors. 95
99.4 Report of Price Waterhouse, independent auditors. 96
99.4 Report of BDA/Deloitte Touche Tohmatsu,
independent auditors. 97
Page 43
Exhibit 10.7
TIME SHARING AGREEMENT
This Agreement, made and entered into this 1st day of October, 1997, by
and between Data Research Associates, Inc., a corporation incorporated under
the laws of the State of Missouri, with principal offices at 1276 N. Warson
Road, St. Louis, Missouri 63132-1806 (hereinafter referred to as "OWNER"),
and Charter Communications, Inc., a corporation under the laws of the State of
Delaware, with principal offices at 12444 Powerscourt Drive, St. Louis,
Missouri 63131 (Hereinafter referred to as "LESSEE"):
WITNESSETH, that
WHEREAS, OWNER is the registered OWNER of that certain civil AIRCRAFT
bearing the United States Registration Number N441M ("the AIRCRAFT" or
"AIRCRAFT"); and of the type Cessna Conquest II;
WHEREAS, OWNER and LESSEE desire to lease said AIRCRAFT on a TIME SHARING
basis as defined in Section 91.501(c)(1)* of the Federal Aviation Regulations
[FAR].
NEW THEREFORE, OWNER AND LESSEE, declaring their intention to enter into
and be bound by this TIME SHARING AGREEMENT, and for the good and valuable
consideration set forth below, hereby covenant and agree as follows:
1. OWNER agrees to lease the AIRCRAFT to LESSEE pursuant to the
provisions of FAR 91.50(c)(1) for the period of one year, commencing on
October 1, 1997, and terminating on October 1, 1998.
2. LESSEE shall pay OWNER for each Flight conducted under this
Agreement the actual expenses of each specific flight as authorized
by FAR Part 91.501(d). These expenses include:
(a) Fuel, oil, lubricants, and other additives.
(b) Hangar and tie down costs away from the AIRCRAFT's base of
operation.
(c) Insurance obtained for the specific flight.
_______________________
*Formerly Section 91.181 et seq. FAR Part 91 has been reorganized for 1990.
The section numbers referenced in this Contract represent the newly assigned
section numbers which go into effect on August 18, 1990.
(d) Landing fees, airport taxes and similar assessments.
(e) Customs, foreign permit, and similar fees directly related to the
flight.
(f) In-flight food and beverages.
(g) Passenger ground transportation.
(h) Flight planning and weather contract services.
(i) An additional charge equal to 100% of the expenses listed in
subparagraph (a) of this paragraph.
Page 44
3. OWNER will pay all expenses related to the operation of the AIRCRAFT
when incurred, and will provide an invoice and bill LESSEE for the expenses
enumerated in paragraph 2 above on the last day of the month in which any
flight or flights for the account of LESSEE occur. LESSEE shall may OWNER for
said expenses within fifteen (15) days of receipt of the invoice and bill
therefore.
4. LESSEE will provide OWNER with requests for flight time and proposed
flight schedules as fare in advance of any given flight as possible, and in
any case, at least 48 hours in advance of LESSEE's planned departure.
Requests for flight time shall be in a form, whether oral or written, mutually
convenient to, and agreed upon by the parties.
5. OWNER shall have final authority over the scheduling of the AIRCRAFT,
provided, however, that OWNER will use its best efforts to accommodate
LESSEE's needs and to avoid conflicts in scheduling.
6. OWNER shall be solely responsible for securing maintenance,
preventative maintenance and required or otherwise necessary inspections on
the AIRCRAFT, and shall take such requirements into account in scheduling the
AIRCRAFT. No period of maintenance, preventative maintenance or inspection
shall be delayed or postponed for the purpose of scheduling the AIRCRAFT
unless said maintenance or inspection can be safely conducted at a later time
in compliance with all applicable laws and regulations, and within the
sound discretion of the pilot in command. The pilot in command shall
have final and complete authority to cancel any flight for any reason
or condition which in his judgment would compromise the safety of the flight.
7. In accordance with applicable Federal Aviation Regulations, the
qualified flight crew provided by Data Research Associates, Inc., will
exercise all of its duties and responsibilities in regard to the safety of
each flight conducted hereunder. LESSEE specifically agrees that the flight
crew, in its sole discretion, may terminate any flight, refuse to commence any
flight, or take any other action which in the considered judgment of the Pilot
in Command is necessitated by considerations of safety. No such action of the
Pilot in Command shall create or support any liability for loss, injury,
damage or delay to LESSEE or any other person. The parties further agree that
OWNER shall not be liable for delay or failure to furnish the AIRCRAFT
pursuant to this Agreement when such failure is caused by government
regulation or authority, mechanical difficulty, war, civil commotion, strikes
or labor disputes, weather conditions, or acts of God.
8. OWNER will provide such additional insurance coverage as LESSEE
shall request or require, provided, however, that the cost of such
additional insurance shall be borne by LESSEE as set forth in
paragraph 2(c) hereof.
9. LESSEE warrants that:
(a) It will use the AIRCRAFT for and on account of its own business
only, and will not use the AIRCRAFT for the purposes of providing
transportation of passengers or cargo in air commerce for
compensation or hire;
(b) it shall refrain from incurring any mechanics or other lien in
connection with the inspection, preventative maintenance or
storage of the AIRCRAFT, whether permissible or impermissible
under this Agreement, nor shall there be any attempt by any party
hereto to convey, mortgage, assign, lease or any way alienate the
AIRCRAFT or create any kind of lien or security interest
involving the AIRCRAFT or do anything or take any action that
might mature into such a lien; and
(c) during the term of this Agreement, it will abide by and conform
to all such laws, governmental and airport orders, rules and
regulations, as shall from time to time be in effect relating in
any way to the operation and use of the AIRCRAFT by a TIME
SHARING Lessee.
10. For purposes of this Agreement, the permanent base of operation of
the AIRCRAFT shall be 533 Bell Avenue, Hangar A, Spirit of St. Louis Airport.
Page 45
11. Neither this Agreement nor any party's interest herein shall be
assignable to any other party whatsoever. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their heirs,
representatives and successors.
IN WITNESS WHEREOF, the parties hereto have caused the signatures of
their authorized representatives to be affixed below on the day and year first
above written. The persons signing below warrant their authority to sign.
TRUTH IN LEASING STATEMENT UNDER SECTION 91.23 (FORMERLY 91.54) OF THE
FEDERAL AVIATION REGULATIONS.
(a) DATA RESEARCH ASSOCIATES, INC. (OWNER), HEREBY CERTIFIES THAT
THE AIRCRAFT HAS BEEN INSPECTED AND MAINTAINED WITHIN THE 12
MONTH PERIOD PRECEDING THE DATE OF THS AGREEMENT IN ACCORDANCE
WITH THE PROVISIIONS OF FAR PART 91 AND ALL APPLICABLE
REQUIREMENTS FOR THE MAINTENANCE AND INSPECTION THEREUNDER HAVE
BEEN MET.
(b) DATA RESEARCH ASSOCIATES, INC. (OWNER), AGREES, CERTIFIES AND
KNOWINGLY ACKNOWLEDGES THAT WHEN THE AIRCRAFT IS OPERATED UNDER
THIS AGREEMENT, OWNER SHALL BE KNOWN AS, CONSIDERED, AND SHALL IN
FACT BE THE OPERATOR OF THE AIRCRAFT.
(c) THE PARTIES UNDERSTAND THAT AN EXPLANATION OF FACTORS AND
PERTINENT FEDERAL AVIATION REGULATIONS BEARING ON OPERATIONAL
CONTROL CAN BE OBTAINED FROM THE ST. LOUIS FSDO (the nearest FAA
Flight Standards District Office, GADO, or ACDO). LESSEE FURTHER
CERTIFIES THAT IT WILL SEND A TRUE COPY OF THIS EXECUTED
AGREEMENT TO: FLIGHT STARDS TECHNICAL DIVISION, P.O. BOX 25724,
OKLAHOMA CITY, OKLAHOMA 73125, WITHIN 24 HOURS OF ITS EXECUTION,
AS PROVIDED BY FAR 91.23(C)(1).
OWNER:
BY: /s/ Michael J. Mellinger
------------------------
President
ATTEST:
/s/ Sherri Richardson
- ---------------------
Secretary
LESSEE:
BY: /s/ Howard Wood
---------------
Vice Chairman
ATTEST:
/s/ Diana LeBean
- ----------------
Secretary
A copy of this Agreement must be carried in the AIRCRAFT while being
operated hereunder.
Page 46
SUPPLEMENT
Charter Communications, Inc., shall pay Data Research Associates, Inc.
the sum of $750.00 per flight hour which includes the 10% transportation
tax payable to the Internal Revenue Service. Billing for deadhead time
will be for fuel burned only and based upon the time from engine start
to engine shutdown. (Average fuel consumption is 75 gallons per hour
at approximately $2.00 per gallon.)
OWNER:
BY: /s/ Michael J. Mellinger
------------------------
President
ATTEST:
/s/ Sherri Richardson
- ---------------------
Secretary
LESSEE:
BY: /s/ Howard Wood
---------------
Vice Chairman
ATTEST:
/s/ Diana LeBean
- ----------------
Secretary
Page 47
Exhibit 10.8
DATA RESEARCH ASSOCIATES, INC. CAFETERIA PLAN
The Data Research Associates, Inc. Cafeteria Plan (the "Plan") is designed
to provide eligible Employees with a choice between current compensation and
the payment by their Employer of certain medical insurance premiums and
dependent care assistance expenses. The Plan is intended to qualify as a
cafeteria plan under section 125 of the Internal Revenue Code of 1986, as
amended, and is to be interpreted in a manner consistent with the requirements
of that section. The Plan, originally adopted effective May 1, 1991 is
hereby restated in its entirety effective July 1, 1997.
ARTICLE I
DEFINITIONS
1.01 "Anniversary Date" means the first day of any subsequent Plan Year.
1.02 "Annual Benefit" means a benefit elected hereunder and provided
during the Plan Year.
1.03 "Benefit Election Form" means the form promulgated by the Plan
Administrator by which a Participant enrolls and elects Benefits
in accordance with Article III and otherwise agrees to a reduction
of his salary or other compensation to provide funds for the
benefits described in this Plan.
1.04 "Benefits" means those benefits or coverages available for election
by a Participant under Article VI.
1.05 "Board of Directors" means the duly elected Board of Directors of
the Company, as constituted from time to time.
1.06 "Code" means the Internal Revenue Code of 1986, as amended.
1.07 "Company" means Data Research Associates, Inc., the sponsor of the
Plan.
1.08 "Compensation" means the salary paid to an Employee by an Employer,
including:
(a)any elective contribution made to the 401(k) Plan maintained
by the Company as the result of any salary reduction agreement
entered into by the Participant under Section 401(k) of the
Code; and
(b)any Employer contributions made to the Plan as the result of a
salary reduction agreement pursuant to Section 5.01.
1.09 "Effective Date" means May 1, 1991 with respect to the Plan. This
restatement of the Plan shall be effective July 1, 1997.
1.10 "Election Period" means the 30-day period immediately preceding
any Anniversary Date.
1.11 "Employee" means any individual who is employed by an Employer.
Page 48
1.12 "Employer" means Data Research Associates, Inc. or any affiliate
or successor of either that subsequently adopts this Plan. Such
term includes any other organization that is a member of a
controlled
group of businesses with any Employer within the meaning of Sections
414(b), (c), and (m) of the Code.
1.13 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.14 "Fiduciary" means any person who has discretionary authority with
respect to administration of the Plan, handling of the Plan's
assets,
or acts as a professional investment advisor or fund manager with
respect to the Plan's assets.
1.15 "Life Event" means, and is limited to a Participant's marriage
or divorce; the death of a Participant's spouse or child; the
birth or adoption of a Participant's child; or the termination
of employment of the Participant's spouse; a change in employment
status from full-time to part-time (or vice versa) by the
Participant or the Participant's spouse; taking of an unpaid leave
of absence by either the Participant or the Participant's spouse;
or a significant change in the Participant's health benefits
coverage, or of such coverage related to the spouse's employment.
1.16 "Named Fiduciary" means the Company, an Employer, the Plan
Administrator.
1.17 "Participant" means an Employee who becomes a Participant
pursuant to Article II.
1.18 "Plan" means the Data Research Associates, Inc. Cafeteria
Plan and related Trust created by this Agreement, as it may
hereafter be amended from time to time.
1.19 "Plan Administrator" means the person appointed by the
Company with authority and responsibility to manage and direct
the operation and administration of the Plan. If no such person
is named, the Plan Administrator shall be the Company.
1.20 "Plan Year" means the annual accounting period of the Plan,
which shall begin January 1 of each year and end on December 31
of each year.
1.21 "Qualified Benefit" means any benefit excluded from taxation
under Chapter I of the Code (other than Sections 117, 124, 127,
or 132), including (a) any group-term life insurance coverage that
is includible in gross income only by virtue of exceeding the dollar
limitation on nontaxable coverage under Section 79 of the Code; and
(b) any other benefit permitted by the Income Tax Regulations.
1.22 "Reimbursable Expense" means any out-of-pocket expense of a
Participant that qualifies for reimbursement under the Dependent
Care Assistance Benefit.
1.23 "Service" means the performance of service for an Employer as an
Employee for at least one hour during a month in the 12-consecutive
month period beginning on an Employee's hire date, and each
anniversary thereof, for which the Employee is compensated or
entitled to be compensated.
Page 49
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.01 Eligibility to Participate
Each Employee of the Company shall be eligible to participate in the
Plan on the first day of the month coincident with, or next following, the day
on which the Employee has completed and filed a Benefit Election Form in
accordance with Article III.
Notwithstanding the elective provisions as to benefits contained
herein, it is provided that participation in the Insurance Premium Benefits
described in Article VI shall be automatic for any Employee who has previously
elected any form of payroll deduction for insurance premiums for any benefit
described in Article VI, and the adjustments to any such Employee's taxable
wages occasioned by the salary reduction provisions of the proposed or final
Income Tax Regulations under Section 125 of the Code shall be deemed to have
been consented to, unless the Employee has elected to cancel any such
insurance
coverage during any applicable enrollment period for health insurance or has
filed a negative election with the Plan Administrator relative to the
applicability of Section 125 to such payroll deductions.
2.02 Termination of Participation
Participation shall terminate on the last day of the month
that an Employee ceases to be an Employee.
Subject to any specific limitations for any particular benefit
which the Participant has elected, (a) participation shall be continued
during a leave of absence for which the Participant continues to receive a
salary from his or her employer and (b) participation shall be suspended
during an unpaid leave of absence; provided, however, nothing in this Section
shall prevent a Participant on unpaid leave from utilizing any available
Reimbursement Account benefits, as provided below, as if such Participant
were otherwise actively employed by the Company.
Notwithstanding any other provision herein, nothing contained in
this Plan shall have the effect of negating the rights of any Participant, or
beneficiary of any Participant, to continuation of medical-type benefits, as
may otherwise be required by Code or by ERISA.
ARTICLE III
BENEFIT ELECTIONS
3.01 Benefit Election and Salary Reduction Agreement Form Contents
The Benefit Election and Salary Reduction Agreement form shall
contain the following information:
(a) Name of the Participant;
(b) Benefits elected by the Participant pursuant to Article VI, including
any negative election relative to any Insurance Premium Benefit;
(c) The Plan Year, or other period of time, for which such elections are
effective;
(d) Specific amounts to be allocated to the Benefit Account for each elected
Benefit (provided that an election to participate in the Insurance Premium
Benefits of the Plan shall be deemed to be made at the Participant's share of
the insurance premium expense);
A provision by which an Employee agrees to a salary reduction to the
extent that employee contributions are required to purchase benefits elected
under the Plan;
Such additional information as the Plan Administrator shall deem
appropriate.
Page 50
3.02 Election of Benefits
(a) An Employee who is a Participant must complete, sign and file an Benefit
Election Form with the Plan Administrator prior to July 1, 1997 in order to
become a Participant for the 1997 Plan Year; provided, however, no affirmative
election shall be required by a Participant who is participating only in the
Insurance Premium Benefit portion of the Plan.
(b) An Employee who becomes eligible to become a Participant after the July
1, 1997 must complete, sign and file an initial Benefit Election Form with the
Plan Administrator during the 30 day period beginning on the day the Employee
first becomes eligible to participate in the Plan. If an Employee first
becomes eligible to become a Participant after the end of an annual Election
Period, the elections made on the initial Benefit Election Form shall be
effective, subject to Section 3.05, for the period beginning on the first day
of participation and ending on the last day of the Plan Year within which such
participation began.
(c) An Eligible Employee who fails to complete, sign and file a Benefit
Election Form with the Plan Administrator in accordance with paragraph (a) or
(b) above during an initial election period may become a participant on a
later date in accordance with Section 3.03 or 3.04.
3.03 Annual Benefit Election Period
Each Employee who is a Participant or who is eligible to become a
Participant must complete, sign and file a Benefit Election Form during the
Election Period. The elections made by the Participant on this Benefit
Election Form shall be effective, subject to Section 3.04, for entire
Plan Year beginning on the Anniversary Date. An Employee who is a Participant
and who fails to complete, sign and file a Benefit Election Form as required
by this Section 3.03 shall seemed to have elected to continue the same
benefits and coverages then in effect for such Participant.
3.04 Changes of Benefit Elections
(a) A Participant may change or terminate the election of benefits (and any
salary reduction agreement referenced in Section 5.01) within 30 days of the
occurrence of a Life Event. An Employee who is eligible to become a
Participant but failed to complete a Benefit Election Form during the initial
Election Period pursuant to Section 3.02(a) or (b) may become a Participant
and file a Benefit Election Form within 30 days of the occurrence of a Life
Event. Elections made pursuant to this Section 3.04 shall be effective for the
balance of the Plan Year in which the election is made and beginning on the
first day of the pay period next following the day the new Benefit Election
Form is filed with the Plan Administrator, other than as provided in Section
3.04(b), below.
(b) A Participant may revoke a prior election, or elect alternate coverage,
with respect to the balance of the Plan Year if any independent, third-party
provider of medical benefits previously elected by the Participant either
significantly increases the premiums for such coverage, or significantly
curtails or terminates such plans, during the Plan Year coverage period. A
Participant otherwise entitled to make a revocation or alternate election
under this Section must do so within 30 days of receipt of written notice from
the Plan Administrator of the significant change in cost or composition of the
benefit originally elected. Accordingly, the Plan Administrator shall have the
affirmative duty of providing Participants with written notification of such
changes as soon as is administratively feasible.
3.05 Termination of Election
A Participant may revoke a prior election upon termination of
employment. Likewise, failure to make required contributions for any benefit
elected under this Plan shall automatically terminate any prior election with
respect to such benefit, unless delinquent contributions are brought current
within 30 days of the date that they became delinquent. If revocation occurs
under this Section 3.05, no new election may be made by such Participant
during the remaining coverage period of the Plan Year.
Page 51
ARTICLE IV
PARTICIPANT BENEFIT ACCOUNTS
4.01 Provision for Participant Accounts
The Plan Administrator shall maintain a Participant Account for each
Participant. The Participant Account may be divided into subaccounts
(hereinafter referred to as "Individual Benefit Accounts"). If Dependent Care
Expense benefits are elected, a Dependent Care Expense Individual Benefit
Account shall be created.
4.02 Accounting For Participant Accounts
Amounts shall be credited to the Participant Account in accordance
with Article V and allocated to Individual Benefit Accounts in accordance with
Section 5.02. Individual Benefit Accounts shall be debited in accordance with
Sections 5.04, 5.06, and 6.01(a)-(b).
4.03 Nature of Participant Accounts
No money shall actually be allocated to any Participant Account
or Individual Benefit Account; any such Account shall be of a memorandum
nature, maintained by the Administrator for accounting purposes, and shall not
be representative of any identifiable trust assets. No interest will be
credited to or paid on amounts credited to the Participant Account or any
Benefit Account.
Page 52
ARTICLE V
CREDITS AND DEBITS TO ACCOUNTS
5.01 Source of Credits to Participant Accounts
During the applicable Election Period determined under Article III,
an Employee may enter into a salary reduction agreement with an Employer. The
maximum amount of such salary reduction shall not exceed the limitation
contained in Section 6.03. No money or other contribution shall be paid by any
Participant to his or her Participant Account, other than as provided in this
Article V.
5.02 Allocations to Participant Subaccounts
Amounts credited to a Participant's Account shall be allocated, on
the date credited, to the respective Individual Benefit Accounts of the
Participant pursuant to the elections made by the Participant in accordance
with, Article VI. All payments of benefit amounts under the Plan shall be
debited against the appropriate Benefit Account.
5.03 Allocations Irrevocable During Plan Year
Except as provided in Section 3.04, neither (a) the amounts to be
credited to a Participant Account during a Plan Year pursuant to Sections 5.01
and 5.02, nor (b) the allocation of such amounts to the appropriate Individual
Benefit Accounts of a Participant pursuant to Section 5.02, can be changed
during the Plan Year.
5.04 Unused Benefits
No current or former Participant shall have any right or interest
in unused benefit credits that have not been applied to the payment of
benefits elected hereunder for that Plan Year. Accordingly, any resulting
excess of Participants' contributions over benefits elected plus the
reasonable administrative expenses will be refunded by the Trust to the
Company after the expiration of days after the close of the Plan Year, and
the Company shall be free to apply such refund in any manner it sees fit.
5.05 Reduction of Certain Elections to Prevent Discrimination
The Plan Administrator shall have the unilateral authority to reduce
the benefit elections of certain employees if such a reduction is necessary to
prevent the Plan from becoming discriminatory within the meaning of Section
125(b) of the Code. The Administrator's power to reduce benefits extends to
the
following cases:
(a) In the case that Dependent Care Assistance Benefits have been elected by
an Employee who is a highly compensated individual or an owner within the
meaning of Section 129(d)(2) and (4) of the Code, as amended by the Tax Reform
Act of 1986; and
(b) In each other case of benefits elected, the Employee is considered to be
"Highly Compensated" within the meaning of Section 125(e) of the Code, or is
otherwise a "Key Employee" within the meaning of Section 416(i)(1) of the
Code, and the regulations thereunder.
5.06 Modification of Elections due to Premium Increases
The Plan Administrator may automatically increase or decrease the
amount of a Participant's Salary Reduction during the Plan Year in response to
an appropriate change in the premiums charged by an insurer for any of the
insured benefits elected hereunder, commensurate with the time that the
insurer has made such premium change effective. Unless the Participant is
entitled to a change of election under Section 3.04(b), the adjusted salary
reduction amount shall be in effect until the end of the Plan Year coverage
period, or earlier change in premiums required by the insurer, or by another
insurer providing substituted coverage during the Plan Year.
Page 53
ARTICLE VI
BENEFITS
6.01 Benefits Available Under the Plan
The Qualified Benefits available for election are one or more
of the following:
(a) Dependent Care Expense Reimbursement Benefit. Pursuant to a separate,
written document, the Company maintains a Dependent Care Assistance Plan.
Under such Plan, payment shall be made to the Participant in the form of an
Employer-provided amount through, and in accordance with the provisions of,
the Company's Dependent Care Assistance Plan, a copy of which is attached
hereto and made a part hereof, established and maintained under Section 129
of the Code. The maximum amount provided under this form of benefit during any
Plan Year may not exceed the earned income of an unmarried Participant, or the
lesser of the earned income of the Participant or the Participant's spouse, if
he or she is married. In no event may the annual benefit provided for any
Participant during any Plan Year under this Section exceed $5,000, or, if the
Participant is married and files a separate tax return, $2,500. To receive
benefits under this Section, the Participant must file a written claim for
benefits with the Plan Administrator which shall include substantiation of any
such claims prior to being eligible to receive reimbursement for eligible
dependent care expenses under this part. The Plan Administrator shall be
entitled to rely on any written statements made by the Participant or any of
his dependents concerning compliance with Sections 21 and 129 of the Code, and
shall be under no duty to make investigation of the accuracy of such
statements.
(b) Insurance Premium Benefit. Payments shall be made to the appropriate
Insurer of amounts equal to the premiums otherwise payable by (or on behalf
of)the Participant during the Plan Year, for coverage of the Participant, or
the Participant's spouse or dependents, under the insurance programs
maintained by the Company pursuant to this Plan, as set out below. Each
Participant shall have the right to select that portion of his or her
available benefit funds to be used to provide such benefit. The maximum
benefit under this Section shall be the amount of premiums due during the Plan
Year. In the event of premium changes that become effective during a Plan
Year, a Participant's existing election as to a salary reduction shall
automatically be adjusted to reflect the increases or decreases, as provided
in Section 5.06, above.
6.02 Cash Benefit
In lieu of the Qualified Benefits herein provided, to the extent
that a Participant waives benefits thereunder, such Participant shall be
deemed to have elected to receive equivalent amounts as a taxable benefit
in the form of cash compensation.
6.03 Overall Limitation on Annual Benefits
The maximum dollar amount of Employer contributions that may be
applied for the benefit of any individual Participant hereunder toward the
purchase of nontaxable benefits provided herein during any Plan Year shall
be the sum of the limitations set forth in paragraphs (a) and (b) of Section
6.01.
6.04 Requirement that Participant Contributions Be by Salary Reduction
Any employee contributions required toward the purchase of the
qualified benefits selected under Article VI shall be made by a reduction
in the Participant's taxable compensation (to the extent such benefits would
be considered to be tax-free under Chapter I of the Code), and by after tax
salary deduction where the elected benefit is not tax-free, as indicated on
the Participant's benefit Election and Salary Reduction Agreement.
Page 54
6.05 Continuation of Coverage
Each benefit plan made available under Article VI that is considered
to be a "group health plan" under Section 5000(b)(1) of the Code, because
employees and their families are provided with health care benefits within
the meaning of Section 213(d)(1) of the Code shall contain the necessary
provisions required by Section 4980B of the Code and Section 601 of ERISA,
to assure that such benefits may be continued on or after the occurrence of
the qualifying events defined in Section 498OB(f)(3) of the Code.
Page 55
ARTICLE VII
PLAN ADMINISTRATION
7.01 Allocation of Authority
Except as to those functions reserved within the Plan to the
Company or the Board of Directors, the Plan Administrator shall control
and manage the operation and Administration of the Plan and shall direct
the Trustee in the discharge of the duties enumerated in Article VIII,
below. The Plan Administrator shall have the exclusive right (except as
to matters reserved to the Board of Directors by the Plan or which the
Board may reserve to itself) to interpret the Plan and to decide all
matters arising thereunder, including the right to remedy possible
ambiguities, inconsistencies, or omissions. All determinations of the
Plan Administrator or the Board of Directors with respect to any matter
hereunder shall be conclusive and binding on all persons. Without limiting
the generality of the foregoing, the Plan Administrator shall have the
following powers and duties:
(a) To require any person to furnish such reasonable information as he may
request for the purpose of the proper administration of the Plan as a
condition to receiving any benefits under the Plan;
(b) To make and enforce such rules and regulations and prescribe the use of
such forms as he shall deem necessary for the efficient administration of the
Plan;
(c) To decide on questions concerning the Plan and the eligibility of any
Employee to participate in the Plan, in accordance with the provisions of the
Plan;
(d) To determine the amount of benefits which shall be payable to any person
in accordance with the provisions of the Plan; to inform the Company, Insurer
or Trustee (if any), as appropriate, of the amount of such Benefits; and to
provide a full and fair review to any Participant whose claim for benefits
has been denied in whole or in part;
(e) To designate other persons to carry out any duty or power which would
otherwise be a fiduciary responsibility of the Plan Administrator, under the
terms of the Plan.
7.02 Provision for Third-Party Plan Service Providers
The Plan Administrator, subject to approval of the Board of
Directors, may employ the services of such persons as it may deem necessary
or desirable in connection with operation of the Plan. The Plan Administrator,
the Company (and any person to whom it may delegate any duty or power in
connection with the administration of the Plan), and all persons connected
therewith may rely upon all tables, valuations, certificates, reports and
opinions furnished by any duly appointed actuary, accountant, (including
Employees who are actuaries or accountants), consultant, third party
administration service provider, legal counsel, or other specialist, and
they shall be fully protected in respect to any action taken or permitted in
good faith in reliance thereon. All actions so taken or permitted shall be
conclusive and binding as to all persons.
7.03 Several Fiduciary Liability
To the extent permitted by law, neither the Plan Administrator nor
any other person shall incur any liability for any acts or for failure to act
except for his own willful misconduct or willful breach of this Plan.
7.04 Compensation of Plan Administrator
Unless otherwise agreed to by the Board of Directors, the Plan
Administrator shall serve without compensation for services rendered in such
capacity, but all reasonable expenses incurred in the performance of his
duties shall be paid by the Company.
Page 56
7.05 Bonding
Unless otherwise determined by the Board of Directors, or unless
required by any Federal or State law, the Plan Administrator shall not be
required to give any bond or other security in any jurisdiction in connection
with the administration of this Plan.
7.06 Payment of Administrative Expenses
All reasonable expenses incurred in administering the Plan,
Including but not limited to administrative fees and expenses owing to any
third party administrative service provider, actuary, consultant, accountant,
attorney, specialist, or other person or organization that may be employed by
the Plan Administrator in connection with the Administration thereof, shall be
paid by the Company, provided, however that each Participant shall bear the
monthly cost (if any) charged by a third party administrator for maintenance
of his Benefit Account unless otherwise paid by the Company.
7.07 Funding Policy
The Company shall have the right to enter into a contract with one
or more insurance companies for the purposes of providing any benefits under
the Plan and to replace any of such insurance companies or contracts. Any
dividends, retroactive rate adjustments or other refunds of any type which
may become payable under any such insurance contract shall not be assets of
the Plan but shall be the property of, and shall be retained by the Company.
7.08 Source of Payments
The Company, the Employers, Trust Fund, and any insurance company
contracts purchased or held by the Company or the Trustees shall be the sole
sources of benefits due under the Plan. No employee or beneficiary shall have
any right to, or interest in, any assets of the Company or an Employer in
connection with the benefits provided under the Plan either during
participation in the Plan, or upon termination of participation, other than as
provided in the Plan.
7.09 Disbursement Reports
The Plan Administrator shall issue directions to the Company
concerning all benefits which are to be paid from the Company's general
assets pursuant to the provisions of the Plan.
7.10 Timeliness of Payments
Payments shall be made as soon as administratively feasible
after the required forms and documentation have been received by the Plan
Administrator.
7.11 Requirement that Participants Substantiate Reimbursable Expenses
Each Participant must submit a written Claim Voucher to the Plan
Administrator to receive reimbursements from his Medical Expense
Reimbursement Benefit Account, or Dependent Care Benefit Account, on a form
provided by the Plan Administrator, along with such evidence as the Plan
Administrator shall reasonably deem necessary as to substantiate the nature,
the amount, and timeliness of any expenses that may be reimbursed. Such
request must be submitted by the fourth (4th) Friday of the month in order
to receive a reimbursement for his Reimbursable Expenses in the following
month. Year-end expense reimbursement claims must be submitted to the Plan
Administrator within 90 days of the close of the Plan Year for which the
Benefit election is effective, and during which such expense was incurred,
in order to be eligible for reimbursement. Likewise, if a Participant
terminates participation in the Plan with a credit balance in any Benefit
Account, such Participant shall be entitled to submit to the Plan
Administrator any claims for reimbursement for Reimbursable Expenses incurred
during the Plan Year in which the Participant terminated his or her
employment (up to the amount of such balance) at any time within 90 days
after the close of the Plan Year in which the Participant terminated
participation.
Page 57
7.12 Limit on Coverage
Any coverage elected by a Participant under this Plan shall
cease if the Participant fails to make any required contributions toward
such coverage.
ARTICLE VIII
INSURERS
8.01 Provision Relating to Insurers
No insurer shall be required or permitted to issue an insurance
policy or contract that is inconsistent with the purposes of this Plan, nor be
bound to take any action nor in accordance with the terms of any policy or
contract issued in connection with this Plan. The insurer shall not be deemed
to be a party to this Agreement, nor shall it be bound to interpret the
construction or validity of the Plan or Trust. The insurer shall be protected
from its good faith reliance on the written representations and instructions
of the Trustee and the Plan Administrator, and shall not be responsible for
the initial or continued qualified status of the Plan.
8.02 Definition of Insurer
"Insurer" means any legal reserve life insurance company authorized
to transact business in the domicile state of the Trust.
8.03 Conflicting Provisions
If any provision of any insurance policy or contract conflicts with
the provisions of this Plan and Trust, the provisions of the Plan and Trust
shall prevail.
ARTICLE IX
CLAIMS PROCEDURES
9.01 Procedure if Benefits are Denied Under the Plan
Any Employee, beneficiary, or his duly authorized representative may
file a claim for a plan benefit to which the claimant believes that he is
entitled, but that has been previously denied by the Plan Administrator. Such
a claim must be in writing and delivered to the Plan Administrator in person
or by mail, postage prepaid. Within 90 days after receipt of such claim, the
Plan Administrator shall send to the claimant by mail, postage prepaid, notice
of the granting or denying, in whole or in part, of such claim, unless special
circumstances require an extension of time for processing the claim. In no
event may the extension exceed 90 days from the end of the initial period. If
such extension is necessary, the claimant will be given a written notice to
this effect prior to the expiration of the initial 90-day period. The Plan
Administrator shall have full discretion to deny or grant a claim in whole or
in part. If notice of the denial of a claim is not furnished in accordance
with this Section 10.01, the claim shall be deemed denied and the claimant
shall be permitted to exercise his right to review pursuant to Sections 10.03
and 10.04.
9.02 Requirement for Written Notice of Claim Denial
The Plan Administrator shall provide to every claimant who is denied
a claim for benefits a written notice setting forth in a manner calculated to
be understood by the claimant, containing the following information:
(a) The specific reason or reasons for denial;
(b) Specific reference to pertinent Plan provisions on which the denial is
based;
Page 58
(c) A description of any additional material or information necessary for
the claimant to perfect the claim and an explanation of why such material is
necessary; and
(d) An explanation of the Plan's claim review procedure.
9.03 Right to Request Hearing on Benefit Denial
Within 60 days after the receipt by the claimant of written
notification of the denial (in whole or in part) of his claim, the claimant
or his duly authorized representative may make a written application to
the Plan Administrator, in person or by certified mail, postage prepaid, to
be afforded a review of such denial; may review pertinent documents; and
may submit issues and comments in writing.
9.04 Disposition of Disputed Claims
Upon receipt of a request for review, the Plan Administrator shall
make a prompt decision on the review matter. The decision on such review
shall be written in a manner calculated to be understood by the claimant and
shall include specific reasons for the decision and specific references
to the pertinent plan or insurance policy provisions on which the decision was
based. The decision upon review shall be made not later than 60 days after
the Plan Administrator's receipt of a request for a review, unless special
circumstances require an extension of time for processing, in which case a
decision shall be rendered not later than 120 days after receipt of a request
for review. If an extension is necessary, the claimant shall be given written
notice of the extension prior to the expiration of the initial 60 day period.
If notice of the decision on the review is not furnished in accordance with
this Section 10.04, the claim shall be deemed denied and the Claimant shall
be permitted to exercise his right to legal remedy pursuant to Section 10.05.
9.05 Preservation of Remedies
After exhaustion of the claims procedure as provided under this
Plan, nothing shall prevent any person from pursuing any other legal or
equitable remedy.
ARTICLE X
AMENDMENT OR TERMINATION OF PLAN
10.01 Permanency
While the Company fully expects that this Plan will continue
indefinitely, due to unforeseen, future business contingencies, permanency
of the Plan will be subject to the Company's right to amend or terminate the
Plan, as provided in Sections 10.02 and 10.03, below.
10.02 Company's Right to Amend .
The Company reserves the right to amend the Plan at any time and
from time-to-time, and retroactively if deemed necessary or appropriate to
meet the requirements of Section 125 of the Code, or any similar provisions
of subsequent revenue or other laws, or the rules and regulations from time
to time in effect under any of such laws or to conform with governmental
regulations or other policies, to modify or amend in whole or in part any or
all of the provisions of the Plan; provided, however, that, subject to
Section 5.04, no such modification or amendment shall make it possible for
any Accrued Benefit Account Balance to be used for, or diverted to, purposes
other than for the exclusive benefit of the Participants and their
beneficiaries under the Plan. Any amendments to this Plan may be effected by
a written resolution adopted by a majority of the Board of Directors of the
Company.
Page 59
10.03 Employer's Right to Terminate
The Company reserves the right to discontinue or terminate the Plan
without prejudice at any time without prior notice. Termination of the Plan
shall be effected by a written resolution adopted by a majority of the
Company's Board of Directors. Furthermore, the Plan will also automatically
terminate if the Company (1) is legally dissolved, (2) makes a general
assignment for the benefit of its creditors, (3) files for liquidation under
the Bankruptcy Code, (4) merges or consolidates with any other entity and it
is not the surviving entity, or if it sells or transfers substantially all of
its assets, or goes out of business, unless the Company's successor in
interest agrees to assume the liabilities under this Plan as to the
Participants and Eligible Dependents.
10.04 Determination of Effective Date of Amendment or Termination
Any such amendment, discontinuance or termination shall be effective
as of such date as the Board of Directors shall determine. Subject to Section
5.06, no amendment discontinuance or termination shall allow the return to any
Employer of any Account Balance nor its use for any purpose other than for the
exclusive benefit of the Participants and Eligible Dependents.
ARTICLE XI
GENERAL PROVISIONS
11.01 Not an Employment Contract
Neither this Plan nor any action taken with respect to it shall
confer upon any person the right to continued employment with any Employer.
11.02 Applicable Laws
The provisions of the Plan shall be construed, administered and
enforced according to applicable Federal law and the laws of the State of
Missouri.
11.03 Post-Mortem Payments
Any Benefit payable under the Plan after the death of a Participant
shall be paid to his surviving spouse (if any), otherwise, to his estate. If
there is doubt as to the right of any beneficiary to receive any amount, the
Plan Administrator may retain such amount until the rights thereto are
determined, without liability for any interest thereon, or it may pay such
amount into any court of appropriate jurisdiction, in either of which events
neither the Plan Administrator, nor any Employer, shall be under any further
liability to any person.
11.04 Nonalienation of Benefits
No benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, and any attempt to do so shall be void. No benefit under the Plan
shall in any manner be liable for or subject to the debts, contracts,
liabilities, engagements or torts of any person. If any person entitled to
benefits under the Plan becomes bankrupt or attempts to anticipate, alienate,
sell, transfer, assign, pledge, encumber or charge any benefit under the
Plan, or if any attempt is made to subject any such benefit to the debts,
contracts, liabilities, engagements or torts of the person entitled to any
such benefit, except as specifically provided in the Plan, then such benefit
shall cease and terminate at the discretion of the Plan Administrator, and he
may hold or apply the same or any part thereof for the benefit of any
dependent
or beneficiary of such person, in such manner and proportion as he may deem
proper.
Page 60
11.05 Mental or Physical Incompetency
If the Plan Administrator determines that any person entitled to
payments under the Plan is incompetent by reason of physical or mental
disability, he may cause all payments hereafter become due to such person to
be made to any other person for his benefit, without responsibility to follow
the application of amounts so paid. Payments made pursuant to this Section
shall completely discharge the Plan Administrator and Employer from further
liability hereunder.
11.06 Inability to Locate Payee
If the Plan Administrator is unable to make payment to any
Participant or other person to whom a payment is due under the Plan because
he cannot ascertain the identity or whereabouts of such Participant or other
person after reasonable efforts have been made to identify or locate such
person (including a notice of the payment so due) mailed to the last known
address of such Participant or other person as shown on the records of the
Employer), such payment and all subsequent payments otherwise due to such
Participant or other person shall be forfeited seven years after the date of
any such payment first became due.
11.07 Requirement for Proper Forms
All communications in connection with the Plan made by a Participant
shall become effective only when duly executed on any forms as may be required
and furnished by, and filed with, the Plan Administrator.
11.08 Multiple Functions
Any person or group of persons may serve in more than one fiduciary
capacity with respect to the Plan.
11.09 Tax Effects
Neither the Company, the Plan Administrator nor the Trustee makes
any warranty or other representation as to whether any payments made to or on
behalf of any Participant hereunder will be treated as excludable from gross
income for state or federal income tax purposes.
11.10 Gender and Number
Masculine pronouns include the feminine as well as the neuter
genders, and the singular shall include the plural, unless indicated otherwise
by the context.
11.11 Headings
The Article and Section headings contained herein are for
convenience of reference only, and shall not-be construed as defining or
limiting the matter contained thereunder.
11.12 Incorporation by Reference
The actual terms and conditions of the separate benefits offered
under this Plan are contained in separate, written documents governing each
respective benefit, and shall govern in the event of a conflict between the
individual plan document and this Agreement as to substantive content. To
that end, each such separate document, as amended or subsequently replaced,
is hereby incorporated by reference as if fully recited herein.
11.13 Severability
Should any part of this Plan subsequently be invalidated by a
court of competent jurisdiction, the remainder thereof shall be given
effect to the maximum extent possible.
Page 61
IN WITNESS WHEREOF, Data Research Associates, Inc., as the Company, has
adopted the foregoing amended and restated Cafeteria Plan this day 24th
of April 1997.
DATA RESEARCH ASSOCIATES, INC.
/s/Katharine W. Biggs
- ------------------------
Name: Katharine W. Biggs
Title: Vice President and Chief Financial Officer
ATTEST:
/s/Laura Haralson
- -----------------
Page 62
Exhibit 10.9
BUSINESS PARTNER
digital
Value Added Reseller
Distributor Authorized
VALUE ADDED RESELLER
Agreement
between
Data Research Associates, Inc.
1276 N. Warson Road
St. Louis, MO 63132
and
Hall-Mark Computer Products
ATTACHMENTS TO THIS DISTRIBUTOR AUTHORIZED VALUE ADDED RESELLER AGREEMENT:
[X] DISTRIBUTOR AUTHORIZED VAR Business Plan
[X] BUSINESS PLAN SUPPLEMENT
[X] VAR Software License Terms
[ ] Other: _________________
Commencement Date: ____________
Page 63
DISTRIBUTOR AUTHORIZED VALUE ADDED RESELLER
APPLICATION/BUSINESS PLAN
INSTRUCTIONS AND OVERVIEW
The objective of the Business Plan is to clearly define and establish the
manner in which you shall remarket DIGITAL Products and your Added Value.
DIGITAL recognizes four (4) VAR authorization categories. Each of these is
described in greater detail below. Please review each category, AND indicate
by "checking" the box(es) provided for the categories for which you qualify.
You must also submit a completed Business Plan which demonstrates your
qualifications to remarket in accordance with the following General
Requirements which are applicable to all orders. Please ensure you understand
Digital certifies Distributor VARs by location. If you intend to sell
products outside of your approved sales territory, you must submit a separate
detailed, location specific plan showing how you will support the customers.
This application/business plan consists of several parts:
o Part I: VAR General Guidelines and Authorization Category(ies)
o Part II: Company Profile
o Part III: Added Value Plan
o Part IV: Sales and Marketing Information
o Part V: Business Plan
o Part VI: Signatures
VAR NAME: Data Research Associates, Inc.
SPONSORING DISTRIBUTOR
DISTRIBUTOR NAME: Hall-Mark Computer Products
DISTRIBUTOR BRANCH: St. Louis, Missouri
BUSINESS ADDRESS: 3783 Rider Trail South
CITY: Earth City STATE: Missouri ZIP: 63045
PHONE (314)770-6415 FAX (314)770-6464
DISTRIBUTOR CONTACT NAME: Sheryl Williams TITLE: Account Representative
Page 64
PART I. GENERAL REQUIREMENTS
GENERAL REQUIREMENTS:
VARs shall only remarket Products with the added value specified in the
Business Plan (Added Value) to end-user customers who do not intend to further
remarket such products, and whose primary reason to purchase such products is
to acquire VAR's Added Value. Added Value consists of both BASIC and SOLUTION
ADDED VALUE.
BASIC ADDED VALUE requires that VAR must on each end-user order and generally:
(a) sell primarily on a face-to-face basis with full ownership for the sales
cycle and not employ telesales or mail-order as a primary business model for
selling DIGITAL Products; (b) provide technical pre-sales support; (c)
coordinate installation of the solution; (d) provide all the necessary ongoing
support relative to Solution Added Value; (e) use sales and support employees
and resources which meet DIGITAL's VAR Accreditation Guidelines.
SOLUTION ADDED VALUE requires that VAR must on each order, except as provided
below, provide software and/or consulting/integration services in accordance
with the VAR Authorization categories for which it qualifies. Solution Added
Value must be at least 30% of the total value of all products and services
provided to the end-user. If Solution Added Value is primarily in the form of
software, it must represent a significant functional enhancement to DIGITAL
Products included in the system. Software must address a major application
need of the end user. Sale of the system must depend on the VAR's specialized
knowledge of the customer and their needs and the successful use of the system
must depend on the ongoing support from the VAR for their distinctive Solution
Added Value.
SOLUTION ADDED VALUE is not required on end-user orders:
a) which are add-ons or upgrades to a system for which the VAR
previously sold its Solution Added Value and,
b) if the VAR has provided and continues to provide ongoing support on
the initial system and,
c) if the add-on/upgrade is added within two years of the initial system
sale.
Each VAR category is only eligible to sell specific products as defined in
DIGITAL's VAR Accreditation Guidelines.
Authorization Category SOLUTION ADDED VALUE
(Check one category below)
[X] Application VAR Provides Solution Added Value, which is
primarily in the form of software, to solve a
major application requirement. VAR owns all
rights to all forms and revisions of the
software, or VAR must have the right to
distribute and sublicense. Software must be
approved by DIGITAL as per the Business Plan.
Systems Business Unit Value Added Reseller Agreement
Revision Date 22-JUNE 1995
[ ] Solution Integrator VAR Provides Solution Added Value, which is
primarily in the form of services, to
implement large, complex, multivendor systems,
networks and/or customized applications.
Services may also include migrating end user
customers from proprietary or competitive
platforms to DIGITAL's Alpha systems.
[ ] Network VAR Provides Solution Added Value, primarily in
the form of services, to implement LANs
involving multiple platform Network Operating
Systems, such as DIGITAL, Novell, Banyan,
Windows NT and UNIX, and/or Network
Applications, including complete Internet
connectivity and utilization.
Page 65
[ ] Software VAR Provides Solution Added Value to implement
solutions using authorized DIGITAL Software
Products.
[ ] Project Reseller Incorporated into or sold as part of a
specific Project/Program time -limited
opportunity. Added value may include systems
integration, professional services and
consulting, Prime Contractor responsibilities
(i.e., assuming total project responsibility),
facilities/systems management, multi-vendor
expertise, etc.
PART II. COMPANY PROFILE
1. Company Name: Data Research Associates, Inc.
2. Headquarters Address: 1276 N. Warson Road Phone: (314)432-1100
St. Louis, MO 63132 FAX: (314)993-8927
Internet: [email protected]
3. Key Contacts:
Primary Contact: Michael J. Mellinger Phone: (314)432-1100
FAX: (314)993-8927
President or CEO: Michael J. Mellinger Phone: (314)432-1100
FAX: (314)993-8927
Vice President/CFO: Katharine Biggs Phone: (314)432-1100
FAX: (314)993-8927
Systems Business Unit Value Added Reseller Agreement
Revision Date 22-JUNE 1995
Vice-President Joe Bonwich Phone: (314)432-1100
(Service/Mktg.) FAX: (314)993-8927
Vice-President Tom Rafferty Phone: (314)432-1100
(Technical) FAX: (314)993-8927
Purchasing: Jim Brown Phone: (314)432-1100
FAX: (314)993-8927
If available provide the Company's Internet Home Page address: www.dra.com
4. Year Established: 1975 Years in computer business: 21
Privately Held Company? Yes [ ] No [X]
Are you a division/subsidiary/parent company ? [X ] Yes [ ] No
If yes, please attach corporate organizational charts or describe the
relationship.
Data Research Associates, Inc. is the parent company of the following
subsidiaries:
DRA Information, Inc.
Data Research International Australasia Pty. Ltd.
Data Research International (SEA) Pte. Ltd.
MultiLIS Europe S.A.
Have you operated under this company name for three (3) years or less?
Yes [ ] No [X] If YES, write the former company name and address.
Page 66
5.A. Current number of employees by function. (If more than one location is
seeking authorization, provide employee breakdown by location on a
separate sheet, as well as the address and phone number for each
location.
o Outside Sales > 13 o Inside sales > 6
o Technical support/software > 20 o Software application support > 50
o Technical support/hardware > 10 o Sales support/marketing > 20
o Network engineers > 8 o Executive staff/Admin/Other > 25
B. 1) Annual Sales Revenue of your Company:
Last Fiscal Year $ 34.9 Projected This Year $38.5
2) Percentage of your total annual sales to:
o large companies (>$100 m annual revenue): 90%
o small & medium enterprises (<$100 m annual revenue): 10%
Systems Business Unit Value Added Reseller Agreement
Revision Date 22-JUNE 1995
3) How are your revenues generated? (Show %'s or $, please indicate
which)
Last Fiscal Projected This
Year Year
Hardware sales_______________________ 35% 35%
Internally developed hardware________ 0 0
Internally developed software sales__ 35 35
Externally acquired software sales___ 0 0
Support services_____________________ 10 10
Consulting services__________________ 10 10
Training_____________________________ 10 10
Other________________________________
TOTAL 100% 100%
6. Describe your primary business (if necessary, use a separate piece of
paper):
Libraries have long served as the focal point for information access in
our society. With the accelerating availability of electronic
information, libraries have found cause to expand their fundamental roles.
Rather than simply serving as repositories for information, modern
libraries are using technology to become gateways to the vast body of
information that is retrievable using electronic networks.
Data Research Associates, Inc., founded in 1975, has aided this evolution
by providing automated tools that improve efficiency in traditional
library activities and allow library users to tap into the electronic
resources of the Information Age. The Company sells a fully integrated
collection of software modules to automate all functions performed in a
library; Digital Equipment Corporation computers, which provide
predictable, economical growth path for DRA customers; and a full range of
support services.
Page 67
DRA's products and networking services are adaptable for use in academic,
public, school and special libraries ranging from single libraries to
large multi-branch systems and consortia. DRA currently has a customer
base of more than 2000 individual libraries in the United States, Canada,
Europe and the Pacific Rim.
Four Important Growth Areas:
1) Academic 2) Research Libraries
3) Public Libraries 4) School Libraries
Data Research Associates is also a commercial Internet Service Provider.
7. Please list the product or service name(s) you support on DIGITAL products
(attach a list of your Trademarks if applicable):
DRA Classic____________________________________________________________
DRA/MultiLIS___________________________________________________________
DRA/Inlex______________________________________________________________
8. A. Do you have an existing relationship with Digital Equipment Corp
__X___ YES ______NO
If yes, is it a Direct agreement with Digital or through a Distributor?
Digital__X___ If a Distributor, which one? _______________
Agreement # _________ Agreement Effective Date: _________
Agreement Type _X_ VAR ___ ISV ___ Sys Int ___ TOEM
___ Distributor VAR
B. List existing business relationships with other computer companies.
Include the company and the type of relationship (i.e. OEM,VAR Dealer,
Integrator) and your product authorization
Company Relationship Product Authorization
Oracle VAR
Dymaxion Distributor
Ross Systems, Inc. VAR
ISSI VAR
3M Distributor
9. If your Value Add is Software Products, please answer the following:
A. Is the value add software currently developed and marketed?
_X_ Yes ___ No
(Attach a Data sheet or Brochure on the product)
Date of first installation: 1975 Total number of Installations: 650
B. Was software written and developed by you? _X_ Yes ___ No
If no, please fully complete section Part II.2.
Page 68
PART III. ADDED VALUE/PRODUCT DESCRIPTION
1. Added Value (include product name if appropriate)
Describe how your Added Value in this VAR authorization category meets
the requirements specified for Solution Added Value in Part I. (Use
separate sheets if more space is needed.)
Systems Business Unit Value Added Reseller Agreement
Revision Date 22-JUNE 1995
o If your Added Value consists of a software application solution, please
also include the following:
o Define the purpose, use, source, and functionality of the
application
o Include the minimum number of modules to be included with each sale
(if applicable).
o The List Price of the application (of each module, if applicable)
and the trade name of the software.
o Other services always sold in conjunction with your application such
as training and software support
o If your Added Value is Solutions Integration or Network VAR, attach a
description of the minimum amount of integration done, with some
guidelines on the more extensive integration. This description must
meet the requirements outlined in DIGITAL's VAR Accreditation
Guidelines.
o If this is a Project Opportunity provide the following information:
o On what basis will this project been awarded. Please be specific.
o List the name and address of the end-user Customer for which this
project will apply.
o Is this opportunity in support of the end-user Customer's minority
procurement program goals?
o Describe the project or prime contract you expect to be awarded
o Project Period. List the term of the project for which this Resale
Project Plan applies.
NOTE: This Agreement will expire on the End Date.
DRA's application is completely designed, coded and supported in-house.
The application is integrated to automate nearly all aspects of a library.
The application consists of several modules which can be installed
individually or integrated. Software systems can range from $10,000 to
$500,000 depending on the number of users. DRA employees over 200
professionals worldwide to design, create, install and maintain the
solution. DRA takes complete responsibility for delivering a turnkey
solution to our customers, including system and network integration. Over
two thirds of DRA's revenues come from licenses and services.
2. Third Party Products Sold with or as part of your added value.
Indicate the name, source and purpose of any third party (non-DIGITAL)
software and hardware acquired by you, or which you have acquired rights
to remarket. Note: For source, describe by whom it was developed, from
whom you acquired rights. Please provide a certification of your right to
remarket
Product Name Source Purpose
____________________ __________________ _______________________
____________________ __________________ _______________________
____________________ __________________ _______________________
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3. Customer References: Please provide three customer testimonial reference
letters per VAR category. List the references below. ( For each, give
the following information and comments on the value add software or
services provided.)
Company Name: ______________________ Company Name: ______________________
Address: ______________________ Address: ______________________
Contact Name: ______________________ Contact Name: ______________________
Phone: ______________________ Phone: ______________________
Comments: ______________________ Comments: ______________________
Company Name: ______________________ Company Name: ______________________
Address: ______________________ Address: ______________________
Contact Name: ______________________ Contact Name: ______________________
Phone: ______________________ Phone: ______________________
Comments: ______________________ Comments: ______________________
PART IV. SALES AND MARKETING INFORMATION
1. Information on Markets and Added Value Installations - Identify the
industry and the computer applications where your added value products and
services will be promoted and sold:
NUMBER OF INSTALLATIONS
LAST Fiscal Year PROJECTED THIS FY
MARKET/INDUSTRY APPLICATIONS #Digital #Other #Digital #Other
Aerospace_____________________________________________________________________
Automotive____________________________________________________________________
Business & Professional Svcs__________________________________________________
Construction__________________________________________________________________
Education________________________________225_______100__________250_______100_
Federal Government, Civilian__________________________________________________
Federal Government, Defense___________________________________________________
Financial Services____________________________________________________________
Health Care & Medical Insur.__________________________________________________
Hotel & Entertainment_________________________________________________________
Systems Business Unit Value Added Reseller Agreement
Revision Date 22-JUNE 1995
Manufacturing_________________________________________________________________
Printing & Publishing_________________________________________________________
Process Manufacturing_________________________________________________________
Retail & Distribution_________________________________________________________
State and Local Government_______________225_______100__________250_______100_
Telecommunication & Utilities_________________________________________________
Transportation Services_______________________________________________________
Other:________________________________________________________________________
Page 70
2. Application Availability on DIGITAL Platform(s): [Check all that apply]
Hardware [X] Alpha [X] VAX [X] PC
Software [X] OSF [X] OpenVMS [X] DOS [X] NT
Interfaces [] Motif [] X.11 [] VWS
Other (Please specify) Windows 95_________________________________
3. Other Platforms -
A. What hardware platforms (other than DIGITAL) does your Product function
on ? [Check all that apply.]
[ ] IBM [X] HP [ ] SUN [ ] ATT/NCR [ ] OTHER (Specify):________
Operating Systems:
[X] UNIX [ ] VS [ ] OS/2 [ ] MAC/OS [ ] OTHER (Specify):________
B. What hardware platforms (other than DIGITAL) do you remarket? [Check
all that apply and list the specific systems you are authorized for.]
[X] IBM [X] HP [X] SUN [ ] ATT/NCR [ ] OTHER (Specify):________
Operating Systems:
[X] UNIX [ ] VS [ ] OS/2 [ ] MAC/OS [ ] OTHER (Specify):________
4. Sales Coverage/Forecasted Volumes
A. Geographic Scope
List the locations within the U.S. in which you intend to remarket,
also include your planned method of sales and number of sales and
support resources for each location. (If information already provided
in Part II.5.A, refer to that information)
Systems Business Unit Value Added Reseller Agreement
Revision Date 22-JUNE 1995
Number of Sales Number of Technical Support
Sales Type of Total Employed Certified Total Employed Certified
Territory Sales Force Sales by VAR on Digital Support by VAR on Digital
(1) 2) (3) (4) (5) (6) (7) (8)
U.S.______ Direct_____ 10____ 10________ 0________ 20_____ 20______ 0________
__________ ___________ ______ __________ _________ _______ ________ _________
(1) List the City/State/Country in which you expect to sell your Solution
Added Value.
(2) Describe the type of Sales force you intend to use, Direct, Sales
Agents, Manufacturers Reps, etc.
(3) Indicate the total number of Sales Reps in the Territory.
(4) Indicate the number of Sales Reps in (3) above who are DIRECTLY
employed by you.
(5) Indicate the number of Sales Reps in the Territory who are dedicated
and/or certified on DIGITAL Products.
(6) Indicate the total number of Technical personnel in the Territory.
(7) Indicate the number of Technical personnel in (6) above who are
DIRECTLY employed by you.
(8) Indicate the number of Technical personnel in the Territory who are
dedicated and/or certified on DIGITAL Products.
B. Supply Annual forecast information in both dollars and product mix.
a. Dollar Forecasts: Indicate your total annual minimum dollar forecast of
DIGITAL Products to be purchased for resale (at DIGITAL list price)
over the next year:
DIGITAL Products (including Software) $________3M___ (US)
b. Product Category Forecast: Using the total annual dollars forecast,
provide the approximated number of units or percentage of each product
category to be remarketed under this Agreement during the next year.
Note: You shall only be authorized to remarket those product categories
indicated in the Supplement to this Plan.
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Enterprise Products (By Exception Only): __6__ # Units or %
VAX 10000 DEC 10000 VAX 9000 DEC 7000 VAX 85xx - 89xx
VAX 7000 VAX 6000 AlphaServer 8400
Departmental Products: _____10_____ # Units or __________%
Alpha Server 8200 AlphaServer 2100 VAX4000 DEC 4000 DEC 3000
VAXServer Products
Workgroup Products: _____20_____ # Units or __________%
AlphaServer 2000 AlphaServer 1000 AlphaServer 400
Systems Business Unit Value Added Reseller Agreement
Revision Date 22-JUNE 1995
Workstation Products: _____0_____ # Units or __________%
AlphaStation 400 AlphaStation 250 AlphaStation 200
Software Products: _____300K_____ $ Volume or __________%
5. Services and Support
a. Do you plan to resell DIGITAL Services? [X] Yes [ ] No If Yes, please
answer the following questions.
DRA IS A GOLD KEY MANAGER.
b. Please identify your company's Service contact:
Name: Denise LePorin Title: Service Administrator
Address: 1276 N. Warson Road Phone: (314)432-1100
c. Do you plan to sell services on equipment that requires any
nonstandard service delivery requirements?
[ ] Yes [X] No If Yes, please explain.
d. Shall you be selling DIGITAL Services on other vendor's equipment?
[ ] Yes [X] No
If Yes, please complete the following:
Vendor Option Present Service Provided
e. Do you maintain annual service agreements directly with your end-user
customers? [X] Yes [ ] No
Comments: Digital Gold Key Manager
f. Do you provide a central focus/resource to coordinate and administer
service agreements?
[X] Yes [ ] No Comments
g. Do you screen and log calls for your end-user customers prior to
calling DIGITAL for service?
[X] Yes [ ] No Comments
h. Do you maintain an end-user service database (i.e., information on
hardware configuration, software licenses, service agreement numbers,
etc.)? [X] Yes [ ] No Comments
6. Describe the type of support and services that you shall provide to your
end-user customers, AND indicate the source. (For each item, check all
that apply):
DIGITAL Self Other
hardware maintenance [X] [] [] ___________
software maintenance [X] [X] [] ___________
call screening [] [X] [] ___________
disaster recovery [X] [] [] ___________
multivendor support [X] [X] [] ___________
system integration [X] [X] [] ___________
documentation [X] [X] [] ___________
consulting [X] [X] [] ___________
training [X] [X] [] ___________
installation [X] [X] [] ___________
software updating [X] [X] [] ___________
warranty [X] [X] [] ___________
Page 72
7. OTHER
A. Do you plan to remarket DIGITAL Products or Services in conjunction with
your Added Value to any of the following areas?
*Yes No Potential high-risk industry:
[ ] [X] Nuclear Power
[ ] [X] Airspace Management and Products
[ ] [X] Rail Transportation
*NOTE: Because of the high-risk involved, if you answered YES to any of
the above, DIGITAL may require additional information and special
contracts. Please ask your account manager for assistance.
B. Do you intend to purchase DIGITAL Tempest and/or Encryption Products?
[ ] Yes [X] No
V. BUSINESS PLAN
Prior to receiving authorization to resell DIGITAL products, each reseller
must develop and submit a detailed individualized business plan. The business
plan must be approved by DIGITAL and will be incorporated into your Reseller
application. The business plan should describe how you intend to market and
support DIGITAL products, grow your DIGITAL business and invest marketing
funds.
1. Executive Summary: (Provide a succinct summary of your business plan,
type of business, market focus, and resource requirements, e.g. people and
funding.) Describe how the addition of Digital Products to your company will
impact your business.
DRA has been automating libraries for over 20 years. Our installed base
includes over 650 systems worldwide. We will continue to grow by automating
new customers, growing existing customers and acquiring competitors. DRA
employs over 200 dedicated professionals. DRA is building on our leadership
Systems Business Unit Value Added Reseller Agreement
Revision Date 22-JUNE 1995
position by bringing a next generation client/server solution to market this
year. The company is well funded and trades publicly (NASDAQ: DRAI).
2. Mission Statement: (Describe company's overall strategic direction,
goals, and vision for the business.)
DRA's mission is to be the premier supplier of automation products and
services for libraries and other information providers. We will provide
maximum value to our customers by being an easy company with which to do
business; by supplying the highest quality products and services; by offering
superior customer support; and by delivering products that incorporate the
best available technology.
We conduct our business with the highest regard for ethics, the rights of the
individual, fairness to all groups and concern for the environment. We
provide a workplace where employees can enjoy personal growth, equal
opportunity and a share in the rewards of the company's success. By upholding
these standards, we will provide consistent growth in value for our
shareholders, our customers and ourselves.
3. Company's Product or Service: (Describe current and future product
descriptions, specific value-added components, and what is your Company's
competitive advantage in the market place.)
The DRA System is a comprehensive, fully integrated package of modular
software applications designed for libraries of all sizes, ranging from single
libraries to large, multi-branch library systems and consortia. The software
runs primarily on Digital computers that use the OpenVMS operating system and
has been specifically designed to gain full advantage of the processing power
and the expansion and networking capabilities of OpenVMS. The DRA System is
also designed to allow libraries to share the hardware and data while allowing
an individual library to implement its own policies. Through the use of its
DRA Net network, DRA provides libraries direct access to remote library
catalogs and third-party databases, such as commercially prepared magazine
indexes.
Page 73
Definition of individual modules:
Cataloging and Authority Control
The entry and management of the database for information about the library
materials (books, films, cassettes, etc.) is handled by the bibliographic
database management software. The information about each book or other
material is stored in full MARC format, which is a national and international
standard. The bibliographic database management software allows librarians to
create, edit, read and write bibliographic information in machine-readable
forms. The DRA software allows libraries to connect to national databases
that share participating library. The bibliographic database management
software also facilitates authority control. This feature directs the
individuals searching the database to the correct term to be used when
locating materials.
Circulation
The circulation module handles all of the library's circulation activities,
including registering borrowers, checking books in and out, renewing books and
placing requests for specific titles. An innovative feature of the company's
circulation software is the extensive, flexible, locally defined policy file
that allows the library automatically to implement its own policies for
library materials. In a multi-library system or consortium, each library can
establish its own set of policies and still have the same computer. The
Circulation module is integrated and thus can accommodate the differences of
each library within the framework of a standardized program using industry-
standard formats.
Public Access
DRA offers a wide range of products to facilitate the searching of the local
library catalog, and remote databases. Industry practice generally labels any
product that takes the place of manual card catalogs as an online Public
Access Catalog. For searching a library's local catalog, DRA offers various
user interface options designed to accommodate differing levels of user
sophistication. Among DRA's public access products is the Information Gateway
module, which offers access to materials and information available outside the
physical confines of the library. These features include full-text delivery
for journals; access to numerous databases via either DRA NET or direct
loading on the local computer; creation of and access to a database that
contains detailed listings of local events, social services and other
programs; in commercially prepared citation indexes; and creation of and
access to databases of photographs, illustrations and diagrams using
"imaging" technology for display on the computer screen. Because of the cost
of imaging and the telecommunications required to support it, this product is
typically configured on a stand-alone workstation so that the library can
create a database of images for later incorporation into and access through
their automation systems.
Acquisitions
The Acquisitions module is designed to handle the purchase of library
materials. It aides librarians in creating lists of books they wish to order,
creating the actual orders that are sent to book publishers or book suppliers
and maintaining full audit trail of the funds used by the library to purchase
the materials. Statistics of interest to the library regarding publisher or
supplier performance are maintained and can be reported using the software's
report system.
Serials
The Serials module is a comprehensive module for management of magazine and
journal collections. The module contains a check-in-function, records the
receipt of all magazine issues and maintains a list of items that have an
Systems Business Unit Value Added Reseller Agreement
Revision Date 22-JUNE 1995
exception status. It also records receipt of special issues. Statistics of
interest to the library regarding performance are maintained and can be
reported using the software's report systems.
Page 74
Reports
Libraries, because of their funding structures, are required to produce
numerous reports about their collections, usage and borrowers. The DRA System
offers extensive standard reporting capabilities and, as an option, a Report
Writer module for specialized reporting needs.
Journal Citation
The Journal Citation module allows users of the Public Access module to search
for magazine articles and then determine if the library subscribes to the
magazine or journal in which the articles are published. If so, the module
then alerts the patron as to where the magazine or journal is located within
the library. It is also possible for the user to place a photocopy request
online.
Media Booking
Libraries frequently use a separate management system for handling 16mm films,
audio-visual equipment and video-cassettes. Libraries also require the
ability to place holds on material for a specific number of days, allow for
inspection time before they are again ready for circulation and allow for
shipment of materials between library facilities, when necessary. The Media
Booking module performs these functions and also monitors the collection of
fees for materials that pass through the booking process. Media Booking is a
sub-module of Circulation but must be purchased separately.
4. The Market: (Profile your typical customer, the size of the market for
your added value and services in your sales territories.)
DRA automates public, private, academic and research libraries worldwide.
DRA has an installed base of over 650 systems. Approximately 35 new customers
are being added each year. The library automation industry is a $500 million
industry which is growing 10% annually.
5. Sales & Strategy: (Discuss how the products will be sold and supported,
how your company markets its products and your sales goals.)
DRA employs a direct field sales force to win new customers and the installed
base is managed by inside customer account managers. DRA has a dedicated in-
house marketing department. The goal is to grow sales 25% annually.
Page 75
VI. SIGNATURES
A. VAR is authorized to purchase new Digital Products listed in this
agreement from the Distributor below after approval by Digital.
B. With respect to Digital products, VAR is authorized to purchase only
approved Digital Products from Distributor.
C. Distributor will no longer supply the VAR if the Distributor's
contract with Digital expires or terminates, or if Distributor is no
longer authorized to sell to VARs at that Distributor location, or if
the Distributor's VAR's Authorization expires or is terminated.
D. Digital will withdraw Distributor authorization to sell to the VAR
if:
1. VAR sells without adding value as specified in this plan and
approved by Digital.
2. VAR sells out side of the geographical area specified in PART II
5.A. of this application.
3. VAR sells without providing adequate support as specified above.
4. VAR sells to anyone other than end-user customers located in the
VAR authorized geographical area.
E. Any change in the nature of the VAR's locations, added value, or
other business plans covered in this application must be communicated
to and approved by Digital in writing.
F. VAR is subject to verification and audit by the Distributor and
Digital for compliance with terms of this agreement.
The Distributor's contract with the VAR include the written terms attached as
the "Authorized VAR Certification" and "VAR's Software License Terms".
VAR
I certify that the information contained herein is true and accurate. If any
changes occur, I will notify the Distributor in Writing.
/s/ Michael J. Mellinger 12/13/96
________________________________________________ ____________
Authorized Signature Date
Michael J. Mellinger President and CEO
Name Title
DISTRIBUTOR
The information provided in this application is accurate and constitute a fair
representation on the proposed business.
/s/ Kerry Scott 12/18/96
________________________________________________ ____________
Authorized Signature Date
Kerry Scott Sales and Ops
Manager
________________________________________________ ____________
Name Title
VAR Certification Number:HM71135A Effective Date: 1/13/97
Page 76
DISTRIBUTOR AUTHORIZED VAR
BUSINESS PLAN SUPPLEMENT
(Note: Supplement is subject to change. Unless otherwise noted, all values
are net $ (US). Contact your Distributor for the most current revision.)
Minimum Annual Volume of Eligible Products: $100,000
Eligible Programs:
(All Programs subject to more specific terms included in the Program Guide.)
Demonstration / Development Systems See Program Guidelines from your
Distributor
Authorized Logo Encouraged to use subject to Logo
Guidelines
Warranty Commencement: DIGITAL's warranties commence on the date of delivery
to the end-user, or upon installation by DIGITAL if
such installation was requested with the original
order. If DIGITAL is delayed from installing due to
circumstances outside the control of DIGITAL, warranty
will commence thirty (30) days from the date of
delivery to End-User regardless of the status of
installation.
Eligible Product Categories: (System Business Unit Products including
associated Software and Options)
(OpenVMS) (UNIX) (Windows NT)
Application VAR
AlphaServer 8200 AlphaServer 8200
AlphaServer 2100 AlphaServer 2100 AlphaServer 2100
AlphaServer 2000 AlphaServer 2000 AlphaServer 2000
AlphaServer 1000 AlphaServer 1000 AlphaServer 1000
AlphaServer 400 AlphaServer 400 AlphaServer 400
AlphaStation 400 AlphaStation 400 AlphaStation 400
AlphaStation 250 AlphaStation 250 AlphaStation 250
AlphaStation 200 AlphaStation 200 AlphaStation 200
VAX4000 DEC 4000
VAXServer Products DEC 3000
Solutions Integrator VAR
AlphaServer 2100 AlphaServer 2100 AlphaServer 2100
AlphaServer 2000 AlphaServer 2000 AlphaServer 2000
AlphaServer 1000 AlphaServer 1000 AlphaServer 1000
AlphaServer 400 AlphaServer 400 AlphaServer 400
AlphaStation 400 AlphaStation 400 AlphaStation 400
AlphaStation 250 AlphaStation 250 AlphaStation 250
AlphaStation 200 AlphaStation 200 AlphaStation 200
VAX4000 DEC 4000
VAXServer Products DEC 3000
Network VAR
(OpenVMS Products AlphaServer 2000 AlphaServer 2000
by exception only) AlphaServer 1000 AlphaServer 1000
AlphaServer 400 AlphaServer 400
AlphaStation 400 AlphaStation 400
AlphaStation 250 AlphaStation 250
AlphaStation 200 AlphaStation 200
Software VAR
N/A * N/A * N/A *
(* Software VAR remarkets DIGITAL Software and does not remarket DIGITAL
hardware. Software VAR may install Software on non-DIGITAL platforms.)
Page 77
Product Exclusions, if applicable:
(Although included by reference above, VAR is not approved for these
individual Products)
_________________ ____________________ __________________
_________________ ____________________ __________________
Products available on an exception basis:
(Each opportunity for these products must be submitted through your
Distributor for approval)
(OpenVMS) (UNIX) (Windows NT)
VAX 10000 DEC 10000
VAX 9000 DEC 7000
VAX 85xx - 89xx DEC 7000 Model 700 AXP
VAX 7000 AlphaServer 8400
VAX 6000
AlphaServer 8400
Page 78
DIGITAL EQUIPMENT CORPORATION
DISTRIBUTOR AUTHORIZED VALUE ADDED RESELLER CERTIFICATION
DISTRIBUTOR NAME: Hall-Mark Computer Products
VAR NAME: Data Research Associates, Inc.
This certification is intended by the Distributor and VAR named above as an
addition and amendment to any other terms and conditions of sales to which
they may mutually agree with regard to Distributor sale and VAR purchase of
products supplied by DIGITAL. This agreement shall not be effective until
DIGITAL approves Distributor's sale of these products to the VAR, and,
DIGITAL will be regarded as a third party beneficiary of the agreements and
commitments made herein. Subject to such approval, and for good and valuable
consideration, including Distributor willingness to sell these products to
VAR, VAR certifies and agrees as follows:
1. Added-Value:
A. Each product purchased from Distributor for resale by VAR will be
incorporated into a complete system, marketed as such and sold only
with substantial added value to the system in one of the following
ways:
1. Application VAR
Through addition of a substantial amount of software and/or hardware
that the VAR manufactures, develops, or acquires. Added-value in
this form must represent a significant functional enhancement to
Digital products included in the system. If the added-value
consists primarily of the software, it must solve a major
application need of the end-user.
2. Solutions Integrator/Network VAR/Software VAR
Through integration of DIGITAL products into a complete system
providing a total solution to customers in a specific market
recognized and agreed to by DIGITAL, where sale of the system
depends on VAR specialized knowledge of those customers and their
needs and successful use of the system requires ongoing support from
the VAR for their distinctive applications.
B. If certified, the VAR agrees to the following points around its sales
activity:
1. VAR will only advertise, promote or sell DIGITAL products within the
authorized locations described in the application/business plan and
agreed to by DIGITAL.
2. VAR will sell DIGITAL products only to end-user customers located
in VAR authorized locations in the U.S.
3. VAR will not sell DIGITAL products without the added-value described
in the Application/ Business Plan and agreed to by DIGITAL.
4. VAR's Added Value shall comprise a substantial portion of the sale
to its customers and shall be marketed and sold in accordance with
the Application/Business Plan.
5. VAR shall provide resources and training necessary for VAR to
maintain compliance with DIGITAL's applicable VAR Accreditation
Guidelines found in the Systems Business Unit Business Guide
(Business Guide).
2. Relationships
A. Distributor and VAR are independent contractors engaged in purchasing
DIGITAL products for resale to their respective customers. Neither
Distributor nor VAR is an agent or legal representative of DIGITAL for
any purpose, and neither has any authority to act for, bind or commit
DIGITAL.
Page 79
B. Neither Distributor nor VAR has any authority to make commitments on
behalf of DIGITAL with respect to quantities, delivery, modifications,
interfacing capability, suitability of software or suitability in
specific applications.
C. When selling DIGITAL products, VAR will provide customers with a
written invoice stating the customer's name and address, the date of
purchase and serial numbers, if any, of the DIGITAL products. VAR will
retain such records, or their equivalents, for at least a two year
period to enable VAR to notify customers of product safety information,
corrections for operational problems and the like.
D. VAR will not represent itself in any way that implies VAR is an agent
or branch of DIGITAL. VAR will immediately change or discontinue any
representation or business practice found to be misleading or deceptive
by Distributor or DIGITAL.
E. For the term of this Certification, VAR will be authorized to purchase
DIGITAL products from the Distributor with which VAR applies.
F. The term of this Certification is 12 months from the date of approval
by DIGITAL. Either party may terminate this Agreement or any part of
this Agreement, e.g. participating location(s) or eligible product(s)
if the other fails to perform any material obligation under this
Agreement and such condition is not remedied within thirty (30) days
after notice. DIGITAL reserves the right to modify and/or replace this
Agreement at DIGITAL's discretion by giving thirty (30) days notice of
such change to the VAR.
G. DIGITAL may, from time to time, give VAR written notice of amendments
to this Certification. Any such amendment will automatically become
a part of this Certification 30 days from the date of the notice,
unless otherwise specified in the notice.
H. DIGITAL authorizes and encourages the VAR to use the appropriate
DIGITAL Relationship logo in accordance with the DIGITAL Relationship
Logo Usage Guide. VAR agrees they have received and reviewed the Logo
Usage Guide.
3. VAR Obligations
A. At DIGITAL's discretion, and upon reasonable notice to VAR, DIGITAL or
DIGITAL's designate will at DIGITAL's expense be given on-site access
to VAR's records documenting DIGITAL product and service resales,
inventory records, purchase orders, invoices and other similar
documents to enable DIGITAL to verify and audit VAR's compliance with
the terms of this Agreement. VAR shall retain such information for a
period of at least two (2) years from the date of resale. VAR may
request, at its expense, the use of an independent auditor for any such
audit. DIGITAL agrees that any information provided to DIGITAL during
the course of such audit is to be kept confidential, and shall only be
used for purposes of verifying compliance with this Agreement, and in
no event shall any such information be used to compete with VAR.
B. DIGITAL Products are not specifically designed, manufactured or
intended for sale as parts, components or assemblies for High Risk
applications( such as the planning, construction, operation or use in
any nuclear facility; Airspace management and products; and, Rail
transportation). VAR agrees that DIGITAL is not liable in whole or in
part for any claim or damages arising from such use. If VAR or any
direct or indirect end-users use DIGITAL Products for these
applications, VAR agrees to indemnify and hold DIGITAL harmless from
any claims for loss, cost, damage, expense or liability arising out of
or in connection with the use and performance of DIGITAL Products or
services in such nuclear applications.
C. The Following criteria applies to all VARs in order to obtain and
maintain DIGITAL authorization to sell DIGITAL products:
1. VAR must comply with all training requirements designated by DIGITAL
on each product line the VAR carries.
2. VAR must complete the VAR application for selling and supporting
DIGITAL products.
Page 80
D. VAR will report End User Sales information to DIGITAL, or DISTRIBUTOR,
in accordance with DIGITAL's Sales Reporting guidelines.
E. The Agreement and any contract incorporating the terms of the Agreement
shall be governed by and construed under the laws of Missouri, U.S.A.
Any legal action brought by either party against the other relating to
this Agreement shall only be brought in a state court of Missouri, or
the U.S. Federal District Court in Missouri. Neither the 1980 United
Nations Convention on Contracts for the International Sale of Goods nor
the United Nations Convention on the Limitation Period in the
International Sale of Goods shall apply to this Agreement or any
transactions under this Agreement.
4. Licensing and Warranty
A. The use and remarketing of DIGITAL Software are governed by the terms
of DIGITAL's VAR Software License Terms attached.
B. 1. DIGITAL makes no warranty to the VAR. DIGITAL Products are
warranted to the end-user as specified in DIGITAL's Price List or in
the Warranty statement accompanying the Product. DIGITAL does not
warrant documentation or Third Party products.
2. NO OTHER WARRANTY EXPRESS OR IMPLIED, SHALL APPLY. DIGITAL
SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTY OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. NO REPRESENTATION OR WARRANTY
INCLUDING BUT NOT LIMITED TO STATEMENTS OF CAPACITY, SUITABILITY FOR
USE OR PERFORMANCE WHETHER MADE BY DIGITAL EMPLOYEES OR VAR
PERSONNEL SHALL BE CONSIDERED TO BE A WARRANTY BY DIGITAL, FOR ANY
PURPOSE, OR GIVE RISE TO ANY LIABILITY OF DIGITAL WHATSOEVER.
3. VAR has no authority to modify the warranty offered with DIGITAL
products. VAR agrees to indemnify and hold DIGITAL harmless for all
claims and related expenses incurred by DIGITAL during or after the
Agreement as a result of: (a) VAR's failure to require agreement by
its customer to DIGITAL's standard warranty, limitations and
remedies, in Sections 4.B.1, 4. B.2. and 5; (b) any changes to such
Warranty; and (c) any representations or commitments by VAR
regarding Products which create liabilities or obligations beyond
such Warranty.
5. Limitations of Liability
A. DIGITAL shall defend, at DIGITAL's expense, any claim brought against
VAR or its end-user customers alleging that any Product as acquired
under this Agreement infringes a patent, copyright, or mask work right
(the "Claim"). DIGITAL shall pay all costs and damages awarded or
agreed to in settlement of the Claim, provided that VAR or its end-user
customer furnishes DIGITAL with prompt written notice of the Claim, and
that both VAR and its customer provide DIGITAL with reasonable
assistance and sole authority to defend or settle the Claim. DIGITAL
shall obtain for VAR or VAR's end user customer the right to continue
using the Product, replace it or modify it so it becomes non-
infringing. If such remedies are not reasonably available DIGITAL
shall grant VAR a credit for the Product normally depreciated and
accept its return. DIGITAL shall have no liability for any Claim
resulting from the combination of the Product with other products which
were neither supplied, nor combined, with the Product by DIGITAL.
B. 1. EXCEPT AS PROVIDED IN A. ABOVE, DIGITAL SHALL BE LIABLE TO THE VAR
FOR DIRECT DAMAGES UP TO THE GREATER OF ONE MILLION DOLLARS
($1,000,000 US) OR THE PURCHASE PRICE FOR THE PRODUCT, WHICH IS THE
SUBJECT OF THE CLAIM. THE FOREGOING LIMITATION WILL NOT REDUCE
DIGITAL'S OBLIGATIONS UNDER SECTION 5.A., PATENTS, COPYRIGHTS AND
INTELLECTUAL PROPERTY, OR DIGITAL'S LIABILITY FOR PERSONAL INJURY.
IN NO EVENT SHALL DIGITAL BE LIABLE FOR ANY SPECIAL, INDIRECT,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES, OR ANY DAMAGES RESULTING FROM
LOSS OF DATA, USE, OR PROFITS. THESE LIMITATIONS WILL APPLY TO ANY
FORM OF ACTION, WHETHER ARISING UNDER CONTRACT, STATUTE, TORT, OR
OTHERWISE
B. 2. Any action against DIGITAL must be brought within eighteen (18)
months after the cause of action arises.
Page 81
VAR:
By:/s/ Michael J. Mellinger Name: Michael J. Mellinger
Title: President and CEO Date: 12/13/96
Distributor:
By: /s/Kerry Scott Name: Kerry Scott
Title: Sales Ops Mgr. Date: 12/18/96
DIGITAL Equipment Corporation Approval
DIGITAL hereby approves VAR as an Authorized VAR of DIGITAL Products through
the Distributor listed above.
DIGITAL Equipment Corporation
By: /s/Pam Bosley Name: Pam Bosley
Title: Office of Partner Practice Date: 1/13/97
VAR Certificate Number: HM71135A Effective Date: 1/13/97
Page 82
DIGITAL EQUIPMENT CORPORATION
VAR
SOFTWARE LICENSE TERMS
A. License Terms for VAR's Use and Remarketing
SOFTWARE FOR VAR's OWN USE
Software licenses provided for VAR's use are subject to the terms in
Section B., DIGITAL Software License, below. For the purposes of this
provision, CUSTOMER in Section B. means VAR.
SUBLICENSING
i. For purchases permitting the remarketing of Software, VAR may
sublicense Software by obtaining its customer's agreement prior to
delivery to:
a. The terms in Section B, DIGITAL Software License, below; or
b. The terms of a valid DIGITAL Business Agreement with customer; or
c. VAR's own terms which are substantially similar to those in
Section B., which DIGITAL may review and approve; or
d. The terms listed on the back of the DIGITAL Product Authorization
Key or License Certificate.
ii. For shrink-wrap or third party licensed Software, the terms
accompanying the Software.
B. DIGITAL Software License
VAR may use the following DIGITAL software license terms to obtain its
customer's agreement.
Page 83
DIGITAL EQUIPMENT CORPORATION
EXHIBIT 1
DIGITAL SOFTWARE LICENSE
CUSTOMER agrees that the following terms and conditions govern CUSTOMER's use
of DIGITAL Equipment Corporation ("DIGITAL") software sublicensed to CUSTOMER
by VAR.
A. Grant of License
A license for the current version of the Software is granted on order
acceptance and not delivery. "Software" includes computer program(s)
and any data bases or authorization keys. Software contains proprietary
technology of DIGITAL or third parties. No ownership in or title to
Software is transferred to CUSTOMER.
B. License Rights and Limitations
CUSTOMER may use Software subject to the use rights and limitations of the
granted license type defined in the applicable Software License
Description. Software is protected by copyright laws and international
treaties. CUSTOMER may make backup or archival copies of Software and use
Software on a backup processor temporarily in the event of a processor
malfunction. Any full or partial copy of Software must include all
copyright and other proprietary notices which appear on or in the
Software. Authorization keys may be installed and enabled for use in only
one license control utility. CUSTOMER may not modify or make inoperable
authorization keys or license control utilities. CUSTOMER may not
disclose or make available Software to any other party or permit others to
use it except CUSTOMER's employees and agents who use it on CUSTOMER's
behalf and who have agreed to these license terms. CUSTOMER may not
transfer a license to another party except with DIGITAL's written
permission. CUSTOMER may not reverse engineer, decompile, or disassemble
the Software, except to the extent DIGITAL cannot prohibit such acts by
law.
C. Software License Description Document ("SLD")
The following is a subset of DIGITAL's SLDs. Additional terms may be
included in the Software Product Description (SPD) or user documentation
accompanying the Software.
A TRADITIONAL LICENSE for layered Software permits use of the software on
one specified hardware/operating system at a time. The License Management
Facility (LMF) "INCLUDE" option may be used to identify the single
licensed system. "DIGITAL System Chart" details the permitted hardware
systems.
A CONCURRENT USE LICENSE permits a single execution or access of the
Software at a time on one system or VAXcluster/VMScluster configuration at
a time, and on a specified operating system.
A PERSONAL USE LICENSE permits use by one assigned person on one system or
VAXcluster/VMScluster configuration at a time, and on a specified
operating system. 30-day minimum license assignments are required, unless
for system management.
An OPERATING SYSTEM BASE LICENSE permits batch, print, and file services
as well as non-interactive display of information on a specified system.
When both the Base and SMP Extensions to the Base are offered, the Base
license is required for the system's first processor, and the SMP
Extension for each additional processor.
An UPDATE LICENSE extends the rights of the underlying license to a
subsequent version.
D. Additional Terms
CUSTOMER shall maintain adequate records matching the use of Software to
license grants and shall make the records available to DIGITAL or the
third party developer or owner of the Software on reasonable notice. The
owner or developer of Third Party Software may enforce these license
terms. All shrink wrap Software, and all third party Software licensed
directly by a third party, is subject only to the license terms provided
with the Software. DIGITAL may terminate any license granted hereunder if
CUSTOMER breaches any license term. Upon termination CUSTOMER shall
destroy all copies of Software. Copies of documents referred to in these
license terms are available from DIGITAL or CUSTOMER's Supplier upon
request.
Page 84
US. GOVERNMENT CUSTOMERS
Software and associated documentation is provided to the U.S. Government
with "Restricted Rights." Use, duplication, or disclosure by the U.S.
Government is subject to the restrictions set forth in subparagraph (c)
(1) (ii) of DFARS 252.227-7013, or FAR 52.227-19, or FAR 52.227-14 Alt.
III, as applicable. All other technical data, including manuals or
instructional materials, are provided with "Limited Rights" as defined in
DFAR 252.227-7013 (a) (15), or FAR 52.227-14 (a) and in Alternative II
(JUN 1987) of that clause, as applicable.
Page 85
Exhibit 10.10
November 18, 1997
Mr. Michael J. Mellinger
Data Research Associates, Inc.
1276 N. Warson Rd.
St. Louis, MO 63132-1806
Dear Mr. Mellinger:
As you may be aware, Digital has announced that we would be integrating
some of our business units to make it easier to do business with us.
As part of this integration, we will be modifying our Contract Renewal
Process. As part of this integration, we will be modifying our Contract
Renewal Process. As these new procedures are being designed and
implemented, we would like to ensure these adjustments are transparent to
you as a Digital Business partner. Therefore, to avoid confusion, we
are extending your current agreement number HM71135A ninety (90) days.
Your new expiration date is April 13, 1998.
Digital or Hall-Mark Computer Products will be contacting you at the end
of this ninety (90) day extension to discuss the revised renewal process.
Thank you for your continuing participation in our Distributor Value
Added Reseller Program.
Sincerely yours,
/s/ Rick Daigneault
Rick Daigneault
Contracts Manager
Officer of Partner Practices
Page 86
Exhibit 11
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
Statement Re: Computation of per Share Earnings
Year ended September 30
-------------------------------
1997 1996 1995
------ ------ ------
(In Thousands, Except per Share Data)
Primary
- -------
Average shares outstanding 5,531 5,482 5,471
Net effect of dilutive stock options--based
on the treasury stock method using average
market price - - 23
----- ----- -----
TOTAL 5,531 5,482 5,494
===== ===== =====
Net income $4,494 $4,454 $3,634
===== ===== =====
Earnings per common and common
equivalent share $ .81 $ .81 $ .66
===== ===== =====
Fully Diluted
- -------------
Average shares outstanding 5,531 5,482 5,471
Net effect of dilutive stock options--based
on the treasury stock method using year-end
market price, if higher than average market
price - - 41
----- ----- -----
TOTAL 5,531 5,482 5,512
===== ===== =====
Net income $4,494 $4,454 $2,941
===== ===== =====
Earnings per common and common
equivalent share $ .81 $ .81 $ .54
===== ===== =====
Page 87
Exhibit 21
Subsidiaries of the Registrant
Wholly owned subsidiaries of Data Research Associates, Inc. are:
Data Research International (SEA) Pte. Ltd.
Data Research International (Australasia) Pty. Ltd.
DRA Information Inc. (Canada)
MultiLIS Europe S.A. (France) (except directors' qualifying shares)
Page 88
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3, No. 333-38585) pertaining to the Data Research Associates, Inc.
Dividend Reinvestment and Stock Purchase Plan, (Form S-8, No. 333-22887)
pertaining to the Data Research Associates, Inc. Director Stock Option Plan,
(Form S-8, No.333-2372) pertaining to the Data Research Associates, Inc.
1992 Option Plan, (Form S-8, No.33-51576) pertaining to Data Research
Associates, Inc. Stock Purchase Plan, (Form S-8, No.33-61762) pertaining
to the Data Research Associates, Inc. Director Stock Option Plan,
(Form S-8, No. 33-61764) pertaining to the Data Research Associates,
Inc. 1992 Option Plan, and (Form S-8, No.33-77160) pertaining to the
Data Research Associates, Inc. 401(k)Profit Sharing Plan of our report
dated November 5, 1997, with respect to the consolidated financial
statements and schedule of Data Research Associates, Inc. and subsidiaries,
included in the Annual Report (Form 10-K) for the year ended September 30, 1997.
/s/ Ernst & Young LLP
St. Louis, Missouri
December 4, 1997
Page 89
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 33-51576, 33-61762, 33-77160, 333-2372 and
333-22887) and Form S-3 (No. 333-38585) of Data Research Associates,
Inc. of our reports dated October 24, 1997 and October 25, 1996 included
in the Annual Report to Shareholders which is incorporated in the Annual 10-k.
/s/ Price Waterhouse
Montreal, Quebec
December 4, 1997
Page 90
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form 10-K) of DATA RESEARCH ASSOCIATES, INC. of our report dated
October 2, 1995, with respect to the 1994/1995 financial statements of
MULTILIS EUROPE, S.A. (a wholly owned subsidiary of DATA RESEARCH
ASSOCIATES, INC.) included in the Annual Report (Form 10-K) of Data
Research Associates, Inc. and subsidiaries for the year ended
September 30, 1997, filed with the Securities and Exchange Commission.
Neuilly, France
December 4, 1997
/s/ Nicholas L.E. Rolt
Nicholas L.E. Rolt
Partner-Deloitte Touche Tohmatsu-Audit
Page 91
Exhibit 99.1
CAUTIONARY STATEMENTS--ADDITIONAL IMPORTANT FACTORS TO BE CONSIDERED
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, the following:
RAPID TECHNOLOGICAL CHANGE. The software industry is characterized by rapid
changeand uncertainty due to new and emerging technologies. The pace of
change has recently accelerated due to the Internet, on-line services,
networking, and new programming languages. There can be no assurance that
DRA will be successful in developing or acquiring product enhancements
and new products necessary to keep pace with the changing technologies.
CUSTOMER ACCEPTANCE. While the Company performs extensive usability and beta-
testing of its new products, user acceptance and corporate penetration rates
ultimately dictate the success of development and marketing efforts. The
Company is currently in the later stages of development of a new system called
Taos.
CONTRACTS WITH GOVERNMENTAL ENTITIES. A substantial portion of the Company's
business is conducted with governmental entities. Both the award and execution
of its governmental contracts are subject to numerous conditions, including the
availability and appropriation of sufficient funding.
PRODUCT SHIP SCHEDULES. Because 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, even short delays in new-product
releases or delays in the customers' procurement processes can cause results
to fluctuate substantially. Delays in the release of Taos could have a
significantly negative impact on the Company's sales and results of operations.
Because of the complexities inherent in developing software products as
sophisticated as those sold by the Company and the lengthy testing periods
associated with such products, no assurance can be given that future product
introductions by the Company will not be delayed. In the future, the Company's
revenues will be increasingly dependent on sales of Taos, 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.
COMPETITION. The library automation industry is highly competitive. A number of
companies offer products that target the library automation market. DRA competes
with software vendors whose products operate on Digital hardware platform and
software vendors whose products operate on different platforms. Certain of the
Company's competitors have substantially greater financial, technical,
marketing, and sales resources than DRA.
DEPENDENCE ON AND RELATIONSHIP WITH DIGITAL. Although DRA is moving away from a
strong dependence on Digital computers, a substantial portion of the Company's
revenues are still derived from Digital hardware and licensing of the Company's
software, which was originally designed to operate on Digital computers.
DEPENDENCE ON KEY PERSONNEL. DRA's continued success depends in large part on
certain key personnel, including Michael J. Mellinger, its founder, President,
and Chief Executive Officer. The loss of the services of Mr. Mellinger and the
inability of the Company to attract and retain a suitable replacement could have
a material adverse effect on the Company.
PRINCIPAL SHAREHOLDERS. Michael J. Mellinger and F. Gilbert Bickel III combined
own in excess of 45 percent of the common stock outstanding. As a result, Mr.
Mellinger and Mr. Bickel may be able to effectively control the outcome of
certain matters requiring a shareholder vote.
Page 92
POSSIBLE ACQUISITIONS. The Company may make acquisitions in the future.
Acquisitions involve numerous risks, including difficulties in the assimilation
of the operations and products of the acquired companies, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or little direct experience, and potential loss of
key employees of the acquired companies.
Page 93
Exhibit 99.2
Price Waterhouse
Montreal Quebec
October 24, 1997
AUDITORS' REPORT
To the Shareholder of
DRA Information Inc.
We have audited the balance sheet of DRA Information Inc. as of September 30,
1997 and the statements of income and retained earnings and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 1997 and
the results of its operations and the changes in its cash flow for the year
then ended in accordance with generally accepted accounting principles.
/s/ PriceWaterhouse
Chartered Accountants
Page 94
Exhibit 99.3
Price Waterhouse
Montreal Quebec
October 25, 1996
AUDITORS' REPORT
To the Shareholder of
DRA Information Inc.
We have audited the balance sheet of DRA Information Inc. as of September 30,
1997 and the statements of income and retained earnings and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 1997 and
the results of its operations and the changes in its cash flow for the year
then ended in accordance with generally accepted accounting principles.
/s/ Price Waterhouse
Chartered Accountants
Page 95
Exhibit 99.4
Price Waterhouse
Montreal Quebec
October 20, 1995
AUDITORS' REPORT
To the Shareholder of
DRA Information Inc.
We have audited the balance sheet of DRA Information Inc. as of September 30,
1995 and the statements of income and retained earnings and cash flows
expressed in Canadian dollars for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 1995 and
the results of its operations and the changes in its cash flow for the year
then ended in accordance with generally accepted accounting principles in
United States.
/s/ Price Waterhouse
Chartered Accountants
Page 96
Exhibit 99.5
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
MULTILIS EUROPE S.A.
We have audited the accompanying balance sheet of MULTILIS EUROPE S.A.(the
Company) (a wholly owned subsidiary of DATA RESEARCH ASSOCIATES, INC.) as
of June 30, 1995, and the related statements of income, shareholders' equity
and cash flows for the twelve month period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of June
30, 1995 and the results of its operations and its cash flows for the
twelve month period then ended, in conformity with generally accepted
accounting principles in the United States of America.
October 2, 1995
/s/Deloitte Touche Tohmatsu
Paris, France
Page 97
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The schedule contains summary financial information extracted from
the Form 10-K for the fiscal year ended September 30, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
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<DEPRECIATION> 5,708
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<COMMON> 55
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<INCOME-PRETAX> 6,658
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