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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the
------ Securities Exchange Act of 1934 [Fee required]
For the fiscal year ended MAY 31, 1996
OR
Transition report pursuant to Section 13 or 15(d) of the
------ Securities Exchange Act of 1934 [No fee required]
For the transition period from to
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Commission File Number: 0-26198
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UNISON SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-269687
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5101 PATRICK HENRY DRIVE, SANTA CLARA, CALIFORNIA 95054
(Address of principal executive offices) (zip code)
(408) 988-2800
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.0001 PAR VALUE PER SHARE
(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
---
As of July 31, 1996, there were 7,783,790 shares of the Registrant's
Common Stock outstanding, and the aggregate market value of such shares held
by non-affiliates of the Registrant (based upon the closing sale price of
such shares on the Nasdaq National Market on July 31, 1996) was approximately
$62,947,238. Shares of Common Stock held by each executive officer and
director and by each entity affiliated with such persons have been excluded
from such calculation in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Registrant's Annual Report to Stockholders for the
fiscal year ended May 31, 1996 are incorporated by reference in Parts II and IV
of this Form 10-K to the extent stated herein. Also, certain sections of the
Registrant's definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders to be held on October 29, 1996 are incorporated by reference in
Part III of this Form 10-K to the extent stated herein.
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PART I
ITEM 1 BUSINESS.
OVERVIEW
Unison Software, Inc. develops, markets and supports networked systems
management software for distributed, heterogeneous computing environments. The
Company's workload management, storage management and output management tools
support the deployment of business critical applications in client/server
environments. Unison was incorporated in California in 1980 and reincorporated
in Delaware in July 1995. The Company's principal executive office is located
at 5101 Patrick Henry Drive, Santa Clara, California 95054, and its telephone
number is (408) 988-2800. Unison's home page can be located on the World Wide
Web (the "Web") at http://www.unison.com. Unison's common stock is traded on
the Nasdaq National Market under the symbol "UNSN." Except as otherwise noted
herein, all references to "Unison" or the "Company" shall mean Unison Software,
Inc. and its subsidiaries.
INDUSTRY BACKGROUND
The market for enterprise-wide computing systems used by large commercial
organizations has undergone a dramatic transition in recent years. Advances in
hardware, software and networking technologies have led to a shift from
mainframe and other "host-based" computer architectures to networked,
client/server architectures, in which computing tasks are distributed among
numerous computers throughout the network. A related trend has been the shift
from homogeneous, proprietary systems to heterogeneous, open systems, in which
computers, operating systems, applications and peripherals from various vendors
are interconnected to provide an optimized solution. Most open systems are
based on the UNIX operating system, which is available in different versions
from different computer manufacturers, or, more recently, on Microsoft Windows
NT.
The flexibility and effectiveness of distributed processing in an open
systems environment have encouraged numerous large organizations to move their
computer applications to these systems. Although companies have historically
deployed such systems for technical and departmental applications, many
companies are increasingly using them for applications that are critical to the
organization's day-to-day operations. Applications such as payroll, human
resources, internal financial reporting, sales order entry and inventory control
are increasingly run on client/server systems rather than on central mainframes.
Managing the operations of a large-scale, client/server system, however can be
difficult and labor-intensive. While client/server environments have many of
the same systems management needs as host-based environments, the highly
networked nature of modern distributed systems introduces a number of challenges
that are not present for traditional mainframe systems and requires networked
systems management tools designed specifically for distributed environments.
Enterprise-wide networks are frequently complex, geographically dispersed
assemblages of computers, operating systems, peripherals and applications, each
of which may be supplied by multiple vendors. These networks are dynamic in
that hardware and software resources are frequently added, deleted or modified,
and new applications are continually being deployed. Such networks can be
fragile, with many possible points of failure, and as a result one or more
network components may not be operational at any given time. Systems management
tools must be able to interoperate in a heterogeneous environment and be fault
tolerant so that users can rely on these systems for business critical
applications. Moreover, as such applications are distributed throughout the
network, systems management functions must operate in a distributed manner,
frequently under the control of non-experts. In a large, geographically-
dispersed network, it may be prohibitively expensive, if not technically
impossible, to have staff perform management tasks at each location. In
addition, the sheer size of many enterprise-wide networks and the volume of data
they use and produce require the use of automated tools. The Company believes
that the lack of adequate systems management tools has been a limiting factor in
the widespread commercial deployment of open, distributed systems for business
critical applications.
Three primary networked systems management functions for which tools are
needed are workload management, storage management and output management.
Workload management tools automate the scheduling and allocation of hundreds or
thousands of interactive and batch jobs among the various computers on the
network. This scheduling and allocation may be based on such criteria as time
deadlines, the completion of other jobs, the needs of particular applications
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and the availability of specific network resources. Workload management tools
must also monitor job completion status and allow systems administrators to
establish job or application priorities in order to optimize network
performance. Storage management tools provide reliable, high-speed backup and
recovery, tasks which require transferring many gigabytes of data between
multiple distributed computers and various types of archival storage media while
minimizing network downtime. Finally, output management tools direct and track
the distribution of reports and other results generated by distributed
applications to printers and other output devices located throughout the
network.
The development of networked systems management tools for UNIX environments
has generally not kept pace with advances made in other client/server
technologies. As a result, robust, commercial quality systems management tools
generally have not been available. Instead, organizations are relying on a
number of alternatives, none of which provides a complete solution. These
alternatives include human oversight and intervention, internally-developed
tools and earlier generation systems management tools, such as the system
utilities provided with UNIX which provide limited scheduling and backup
capabilities. Individual hardware manufacturers also provide tools for their
systems, but such manufacturers have little incentive to provide effective
multi-vendor solutions. Other alternatives include adaptations of mainframe
management systems, which were not originally designed for use in distributed,
multi-computer environments, and tools developed for technical UNIX
environments, which generally lack the necessary user interfaces, robustness and
fault tolerance to support business critical applications. As a result, while
open systems hardware typically costs less than comparable proprietary hardware,
the Company believes that the systems management costs of open systems,
including staff costs, can run significantly higher than the costs of
proprietary systems.
THE UNISON SOLUTION
Unison provides a suite of workload management, storage management and
output management tools with features and functionality designed to support
business critical applications on distributed systems. These products have been
designed by the Company specifically for operation in distributed environments
and are based on over ten years of experience in developing effective networked
systems management tools for distributed HP3000 systems. The Company is a
leader in providing such tools to large, commercial organizations that use
HP3000 systems, and began offering products for UNIX environments in fiscal 1993
and for Microsoft Windows NT in fiscal 1996. The Company intends to focus
increasingly on the UNIX and Windows NT environments while continuing to support
the HP3000 environment.
The Company's products have the following important attributes:
- SCALABILITY. The Company's products provide the same functionality
across a broad range of network sizes.
- FAULT-TOLERANCE. Unison's tools continue to operate despite the
unavailability of particular network resources and enable graceful
recovery following network or node failures.
- INTEGRATION. The Company's tools operate with HP's OpenView and IBM's
NetView for AIX network management platforms and HP's OpenView
IT/Operations and Tivoli's Management Environment (TME) systems
management frameworks. In addition, the Company's products integrate
and operate directly with business applications such as SAP R/3 and
with legacy systems such as IBM MVS.
- INTEROPERABILITY. Unison's products are able to manage UNIX-based
systems from HP, Sun, IBM, Silicon Graphics, Sequent, Siemens-Nixdorf
and NCR, Intel-based Systems running Windows NT and HP3000 system, all
in the same network.
- ADHERENCE TO STANDARDS. The Company's products support POSIX, SNMP and
other standards that enable distributed, open environments.
- SECURITY. The Company's tools provide controlled access to important
systems management functions.
PRODUCTS
The Company provides a suite of networked systems management tools for
open systems and HP3000 computing environments. The Company's workload,
storage and output management products are designed to optimize throughput
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and efficiency in distributed computer systems and to reduce demands for
computer personnel and resources. The Company currently offers three networked
systems management products for both the open systems and HP3000 environments,
one additional product for the open systems environment and three additional
products for the HP3000 environment.
The following products run in both the HP3000 and open systems
environments, with the exception of the Load Balancer product, which is a
UNIX-only product:
WORKLOAD MANAGEMENT
UNISON MAESTRO. Maestro is a full-featured tool for managing background
batch processing in a distributed computing environment. Maestro was originally
released for the HP3000 in 1985, and a number of subsequent releases have added
functionality to support a broad range of commercial distributed computing
requirements of HP3000 systems. Maestro was first released for UNIX in 1993 and
for Windows NT in 1996. The UNIX and NT versions include the complete
functionality of the HP3000 product and interoperate not only across widely-
accepted UNIX versions but also with the HP3000 operating system. Maestro's
architecture allows for central administration, monitoring and control of
planned and ad hoc batch processing throughout a network. The administrator
identifies planned and ad hoc jobs, and specifies rules by which jobs are
scheduled (E.G., every payday), sequenced (I.E., some jobs may have to follow
certain other jobs) or otherwise constrained (E.G., certain jobs cannot run at
the same time or only so many jobs can run at one time). Maestro then selects
planned jobs that need to be run for all devices in the network, and manages
their execution to maximize the number of jobs processed without violating the
specified constraints. As additional ad hoc jobs are submitted by users,
Maestro manages them together with the planned jobs. Maestro provides a high
degree of fault tolerance by supporting peer-to-peer operation, such that each
system is capable of continuing full operations regardless of the availability
of other resources.
LOAD BALANCER. Load Balancer automatically distributes the processing load
across an entire network to make optimum use of the available computing
resources and avoid overloading any particular system. After a central
administrator specifies the characteristics of the various systems available in
the network and any unusual resource requirements of certain jobs or processes,
interactive users, as well as job schedulers such as Maestro, can submit
processing requests for balanced execution. Load Balancer continuously
maintains a profile of resource availability across the entire network and can
dispatch both batch and interactive jobs to the best machine available.
STORAGE MANAGEMENT
UNISON ROADRUNNER. RoadRunner provides reliable, high-speed backup and
recovery of the increasingly large amounts of data being stored on network
servers and workstations. Utilizing sophisticated techniques such as file
interleaving, variable software compression and parallel data streams,
RoadRunner takes advantage of modern, multiprocessor architectures and multiple
archive devices located anywhere on the UNIX network. The Company believes,
based upon trials by prospective customers and its internal benchmark testing,
that in many environments Unison RoadRunner performs faster backup and recovery
operations than other widely available backup tools.
OUTPUT MANAGEMENT
SPOOLMATE. SpoolMate manages and distributes report output from production
processing on mixed UNIX and HP3000 networks. It supports UNIX and NetWare
printers and clients, as well as printers connected directly to the network.
Once reports, printers, recipients and distribution lists have been specified,
SpoolMate automatically delivers reports to the printers most convenient to each
recipient, identifies the intended recipient for each copy, and maintains an
audit trail of all copies printed. By performing these and other functions,
SpoolMate reduces the labor required to distribute report output and the
incidence of lost reports and costly job reruns. SpoolMate is available for the
HP version of UNIX only.
The Company markets the following products for the HP3000 environment only:
DCM PAK. DCM Pak provides HP3000 systems with integrated client/server
workload management, storage management and output management, unified by a
common user interface and functional integration.
TAPES PLUS. Tapes Plus is a storage management product that automatically
manages tape libraries, assigns tape labels, provides change control and helps
prevent accidental data loss.
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FORMATION. Formation is an output management product that allows users to
design forms for laser printers electronically and to integrate such forms into
applications, thereby eliminating the need for impact printers and preprinted
forms.
The Company's products are sold under perpetual, fully paid-up licenses.
Prices are based upon the number, and in some cases the capacity, of the
computers on which the software will operate. In certain cases, the Company
grants site or enterprise-wide licenses. Domestic end-user list prices for the
Company's UNIX products range from $500 for certain versions of Load Balancer to
$75,000 for certain versions of Unison Maestro, although prices may vary with
product options and customer volume. Prices for the Company's HP3000 software
range from $1,600 for Unison RoadRunner deployed in small systems to $83,000 for
a DCM Pak deployed in the largest systems. The price for the Windows NT version
of Unison Maestro ranges from $1,000 to $8,000.
SALES AND MARKETING
The Company markets and sells its software and services primarily through
its direct field sales and telesales organizations and, to a lesser extent,
through third-party distributors and other indirect sales channels. The Company
believes that the open systems market is significantly larger and more diverse
than the HP3000 market, and that systems management decisions for enterprise-
wide systems are frequently made at the corporate level. The Company also
believes that multiple distribution channels for the Company's products help to
improve market coverage and penetration. Consequently, the Company has
established a direct field sales force for its open systems products, in
addition to its telesales force for its HP3000 and certain UNIX products. The
Company is also focusing on developing additional indirect distribution channels
through OEM, VAR and ISV relationships with major computer hardware and software
companies, as well as vendors of integrated application solutions for particular
vertical markets. The Company believes that it must continue to expand its
direct field sales force and indirect distribution channels to address the open
systems environment effectively. Expansion of the Company's field sales force
has required and will continue to require significant financial and managerial
commitments by the Company. Experienced field sales personnel in the Company's
industry are in high demand and may not be attracted and retained on terms
advantageous to the Company. Further, there can be no assurance that the
Company's efforts to expand its field sales force will be successful, and there
can also be no assurance that the Company's efforts to develop indirect sales
channels will be successful. The Company has had only limited experience with
such channels. The failure of such efforts would impair the Company's future
growth, if any, and business and operating results. See "Factors Affecting
Business, Operating Results and Financial Condition--Expansion of Field Sales
Force and Indirect Distribution Channels."
The Company's multi-faceted sales and marketing organization consists of
the following elements:
FIELD SALES. The Company's field sales organization consists of a staff of
field-office-based software sales professionals. Field offices are staffed by
both sales and technical pre-sales representatives and are located in Santa
Clara and Irvine, California; Austin and Dallas, Texas; Atlanta, Georgia;
Chicago, Illinois; Boston, Massachusetts; Parsippany, New Jersey; Blue Bell,
Pennsylvania; the Washington, D.C. area; and Harpenden, England. The Company
believes that its major customers require on-site sales and service activities
as they evaluate and select their enterprise-wide systems management software.
TELESALES. The Company employs a telesales organization to sell directly
to new customers and to its existing customer base. This group is made up of
knowledgeable staff members with extensive experience selling the Company's
HP3000 based product line to new and existing customers. An additional
telesales team was created during fiscal 1996 to sell those Company UNIX
products that can be sold with limited customer evaluation and at relatively
modest prices in small quantities. In addition, this team may also locate
potential larger or enterprise-wide sales opportunities, which are then passed
to the direct field sales force to complete the sale through on-site selling
methods.
NATIONAL ACCOUNTS. The Company's large national and multinational
customers require a highly consultative sales approach and specialized account
management due to their size, geographically-dispersed installations or
centralized decision-making process. These customers include companies such as
HP, Compaq Computer Corporation, The Hertz Corporation and Northern Telecom Inc.
To service these accounts, the Company has established a team of senior National
Account Managers headed by the Vice President, National Account Sales.
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INDIRECT DISTRIBUTION CHANNELS. An important facet of the Company's sales
and marketing strategy is the development of indirect distribution channels,
such as OEMs, VARs, ISVs, hardware vendors, systems integrators for particular
vertical markets, application software vendors and other systems management
software vendors whose products fit well strategically with those of the
Company. The Company currently has several indirect distribution relationships,
including a distribution relationship with HP, which markets the Company's
Maestro product along with HP's OpenView and IT/Operations Center product lines;
Tivoli, which markets Maestro with its TME product; Sequent, which sells Maestro
as an endorsed workload management solution; Summit Information Systems, an
application vendor to the credit union industry, that includes Maestro along
with each of its systems; and Veritools, Inc., a CAD/CAM vendor that sells Load
Balancer to its customer base. The Company's efforts to expand these channels
are intended to increase market coverage and achieve broader acceptance of the
Company's products as networked systems management standards.
INTERNATIONAL DISTRIBUTORS. The Company engages distributors and utilizes
its VAR relationship with HP to serve certain international markets in which the
Company does not have a direct presence, including certain areas of Europe, the
Pacific Rim and Latin America. Distributors license the Company's products at a
discount for relicensing, and may provide training, support and consulting
services to end users. International sales and operations may be limited or
disrupted by the imposition of government controls, export license requirements,
political instability, trade restrictions, changes in tariffs and exchange
rates, difficulties in staffing, coordinating communications and managing
international operations and other factors. See "Factors Affecting Business,
Operating Results and Financial Condition--International Operations and Sales."
In support of these direct and indirect sales and distribution efforts, the
Company conducts marketing programs intended to position and promote its
products and services. Marketing personnel engage in a wide variety of
activities in support of the distribution channels, including direct mail,
advertising, seminars, public relations, and trade shows, as well as overseeing
the Company's participation in industry programs and forums. Strategic
marketing is conducted through market analysis and interpretation, customer
advisory board meetings for the purpose of validating Company product
development plans, senior management strategic planning sessions, and the
establishment of long- and short-term strategic product goals. In addition, the
marketing department also participates and assists in preparing and giving sales
and product training seminars for both the Company's internal sales force and
those of its channel partners. The marketing organization also has a leading
role in product marketing activities, including product management, cooperative
positioning and long-term product direction. The Company spends considerable
resources on Company and product positioning to establish market segment
leadership.
Because many of the Company's customers depend on the Company's products to
manage their business critical computer operations, the Company believes that
its ability to provide a high level of customer service and technical support is
crucial to its marketing efforts and to the building of long-term customer
relationships. The Company offers to its licensees through its own support
organization an annual maintenance program that includes product updates and
post-sales telephone, electronic mail, Internet and fax hotline support. The
price for annual maintenance is typically 13% to 20% of the current license fee.
The Company also offers installation and training services on a fee basis to
assist customers in deploying enterprise-wide applications utilizing the
Company's products. Training is offered at the Company's in-house facilities or
at the customers' sites. The Company's distributors and OEMs also offer first-
level customer support to their end users, while relying on the Company for any
additional support as needed.
The Company generally ships its products as orders are received. As a
result, the Company has relatively little backlog at any given time, and does
not consider backlog to be a significant indicator of future performance.
PRODUCT DEVELOPMENT
The Company has made substantial investment in research and development to
develop commercial-quality systems management tools. The Company's future
success will depend substantially on the ability of the Company to keep pace
technologically with innovation in the networked systems management market and
to maintain a competitive advantage by developing new products to meet the needs
of the market. See "Factors Affecting Business, Operating Results and Financial
Condition--Changing Technology and Industry Standards." The Company intends to
expand its existing product offerings and to introduce additional products for
distributed open systems environments.
The Company's principal development efforts include adding new features and
functions to the Company's products and adapting them to new environments.
Recognizing that current open distributed environments and related systems are
heterogeneous and constantly evolving, the Company designs its products to be
portable and adaptable to new and related
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client/server hardware and software. The Company is adapting its products to
operate with additional versions of UNIX which offer attractive market
opportunities. The Company also intends to expand its products to operate
across more diverse open networks, which may encompass an increasing variety of
processor server and workstation types and multiple operating systems including
mainframe-based legacy systems, PC network servers and new operating
environments. In particular, the Company is developing various versions of its
products for the Windows NT environment. The Company intends to continue to
respond to this continuing evolution by offering products which take advantage
of additional emerging standards, protocols and interfaces. Such efforts will
require significant commitments of financial and product development resources,
and there can be no assurance that such efforts will be successful, especially
given that the Company has had limited experience with some of the components of
these more diverse environments. The failure of such efforts or the failure of
any resulting products to achieve market acceptance could have a material
adverse effect on the Company's business and operating results. See "Factors
Affecting Business, Operating Results and Financial Condition--Support of
Multiple Environments."
The Company uses sophisticated software development tools to speed the
development process and to ensure product quality. These tools include
configuration management, code testing and graphical user interface design
tools. While the Company expects that certain of its new products will be
developed internally, the Company may also, based on timing and cost
considerations, acquire technology and/or products from third parties.
Additionally, notwithstanding the Company's efforts to ensure product quality,
software products as complex as those offered by the Company often contain
undetected errors or failures when first introduced or as new versions are
released. Testing of the Company's products is particularly challenging because
it is difficult to simulate the wide variety of computing environments in which
the Company's customers may deploy these products. Accordingly, there can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found after commencement of commercial shipments,
resulting in loss of or delay in market acceptance, any of which could have a
material adverse effect upon the Company's business and operating results. See
"Factors Affecting Business, Operating Results and Financial Condition--Product
Errors; Product Liability."
The Company's total expenditures for research and development for the
fiscal years ended May 31, 1994, 1995 and 1996 were $3.0 million, $3.0 million
and $4.0 million, respectively. To date, the Company has not capitalized any
software development costs.
COMPETITION
The markets for networked systems management products for both the open
systems and HP3000 environments are intensely competitive and rapidly changing.
Principal competitive factors in these markets include product features and
functionality, product quality, reliability, ease-of-use, price, company
reputation and experience, breadth of product line, marketing efforts,
distribution methods and channels, and availability and quality of installation,
training and support services. The Company believes it generally competes
favorably on most of these factors, although certain competitive products
integrate with networked systems management products, and interoperate with
operating systems and hardware platforms, with which the Company's products do
not.
Many of the Company's competitors have longer operating histories, greater
name recognition, greater market acceptance of their products and technologies,
and significantly greater financial, technical, sales, marketing and other
resources to devote to the development, promotion and sale of their products.
There can be no assurance that the Company's current competitors or any new
market entrants will not develop networked systems management products or other
technologies that offer significant performance, price or other advantages over
the Company's technology, which developments could have a material adverse
effect on the Company's business and operating results. Moreover, increased
competition could result in significant price reductions with attendant negative
effects upon the Company's margins.
The Company's competitors offer a variety of solutions to address the
networked systems management market. In the open systems environment, the
Company faces competition from companies that offer directly competitive
products, including PLATINUM Technology, Inc. for workload management tools
and Legato Systems, Inc. and Cheyenne Software, Inc. for backup tools, as
well as from standard software utilities which are commonly bundled with
UNIX. Moreover, Computer Associates International, Inc. ("CA") and a number
of other vendors market suites of systems management tools that compete with
the Company's UNIX products. In the HP3000 environment, the Company faces
competition from backup products offered by HP and others, in addition to
competition across the HP3000 product line from smaller companies.
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The Company also faces competition for its UNIX products from
manufacturers of certain UNIX-based system hardware, including HP, Sun
Microsystems, Inc. ("Sun") and IBM, which currently offer products directly
competitive with those of the Company. For example, both HP and IBM offer
load balancing software, and most manufacturers offer backup software for use
on their own hardware. Additional hardware manufacturers may elect to offer
similar competitive products in the future. In addition, various vendors of
client/server hardware and software may seek to increase their presence in
the networked systems management market by acquiring or forming strategic
alliances with competitors of the Company. For example, the recent
acquisition of Tivoli by IBM may result in a change in the reseller
relationship between Tivoli and the Company or otherwise have a material
adverse effect on the Company's business and operating results. There can be
no assurance that any such acquisition, development, marketing and other
cooperative arrangements will not adversely affect the Company's business and
operating results. Finally, the Company faces competition from companies
that have historically offered systems management products for the mainframe
environment, particularly CA. The Company anticipates that it may face
additional competition in the future from other mainframe environment
companies, including BMC Software, Candle and Boole and Babbage, as they
attempt to migrate their products to client/server environments. See
"Factors Affecting Business, Operating Results and Financial
Condition--Competition."
Additionally, although the Company considers its marketing, sales and
software development relationships with HP to be important to the Company's
business, and while HP is a reseller of the Company's products, primarily
Unison Maestro, and participates with the Company in cooperative marketing
and product integration activities, HP also competes with the Company with
respect to the Load Balancer and RoadRunner products. The Company would be
adversely affected if HP decided to significantly reduce the level of its
reselling and integration activities with the Company or otherwise reduce or
terminate its relationship with the Company and its products. See "Factors
Affecting Business, Operating Results and Financial Condition--Relationships
with Hewlett-Packard."
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies on a combination of copyright and trademark laws, trade
secrets, software security measures, license agreements and nondisclosure
agreements to protect its proprietary technology and software products. The
Company currently has no domestic or foreign patents or patent applications
pending. Despite the Company's precautions, it may be possible for unauthorized
third parties to copy aspects of' or otherwise obtain and use, the Company's
software products and technology without authorization. In addition, the
Company cannot be certain that others will not develop substantially equivalent
or superseding proprietary technology or that equivalent products will not be
marketed in competition with the Company's products, thereby substantially
reducing the value of the Company's proprietary rights. Furthermore, there can
be no assurance that any confidentiality agreements between the Company and its
employees or any license agreements with its customers will provide meaningful
protection for the Company's proprietary information in the event of any
unauthorized use or disclosure of such proprietary information.
The Company is not aware that any of its products infringes the proprietary
rights of third parties and is not currently engaged in any intellectual
property litigation or proceedings. Nonetheless, from time to time the Company
has received notices claiming that it is infringing the proprietary rights of
third parties, and there can be no assurance that the Company will not become
the subject of infringement claims or legal proceedings by third parties with
respect to current or future products. In addition, the Company may initiate
claims or litigation against third parties for infringement of the Company's
proprietary rights or to establish the validity of the Company's proprietary
rights. Any such claims could be time-consuming, result in costly litigation,
cause product shipment delays or lead the Company to enter into royalty or
licensing agreements rather than disputing the merits of such claims. Moreover,
an adverse outcome in litigation or similar adversarial proceedings could
subject the Company to significant liabilities to third parties, require
expenditure of significant resources to develop non-infringing technology,
require disputed rights to be licensed from others or require the Company to
cease the marketing or use of certain products, any of which could have a
material adverse effect on the Company's business and operating results. To the
extent the Company wishes or is required to obtain licenses to patents or
proprietary rights of others, there can be no assurance that any such licenses
will be made available on terms acceptable to the Company, if at all. As the
number of software products in the industry increases and the functionality of
these products further overlaps, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims against
the Company, with or without merit, as well as claims initiated by the Company
against third parties, can be time-consuming and expensive to defend or
prosecute and to resolve. See "Factors Affecting Business, Operating Results
and Financial Condition--Limited Intellectual Property Protection."
-8-
<PAGE>
EMPLOYEES
As of May 31, 1996, the Company had 174 full-time employees consisting of
35 in product development, 84 in sales and marketing, 31 in support and
professional services and 24 in finance and corporate administration. The
Company's success depends to a significant extent upon the contributions of its
executive officers and its other key sales, marketing, technical service and
engineering personnel and on its ability to continue to attract and retain
highly talented personnel. Competition for such personnel is intense, as
certain of these personnel have significant prior industry experience and are in
great demand. There can be no assurance that the Company will be able to
attract and retain such additional qualified personnel. Additionally, no
employees are covered by collective bargaining agreements, and the Company has
not experienced any work stoppages. The Company believes that its relationship
with employees is good.
-9-
<PAGE>
FACTORS AFFECTING BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
CERTAIN STATEMENTS CONTAINED IN THIS REPORT CONTAIN FORWARD-LOOKING
INFORMATION, INCLUDING STATEMENTS REGARDING THE DEVELOPMENT OF THE MARKET FOR
THE COMPANY'S PRODUCTS AND OPEN, CLIENT/SERVER ARCHITECTURE SYSTEMS IN GENERAL;
THE COMPANY'S FUTURE ACTIVITIES TO ADDRESS THIS MARKET AND THEIR EFFECTIVENESS;
THE ACCEPTANCE OF THE COMPANY'S PRODUCTS BY CUSTOMERS; THE COMPANY'S FUTURE
PRODUCT DEVELOPMENT ACTIVITIES; THE EFFORTS OF THE COMPANY TO EXPAND ITS
PRODUCTS TO OPERATE OVER MORE DIVERSE NETWORKS; THE EXPANSION OF THE COMPANY'S
SALES AND MARKETING ACTIVITIES; AND THE COMPANY'S RELATIONSHIP WITH HEWLETT-
PACKARD AND OTHER INDIRECT SALES CHANNEL PARTICIPANTS. ACTUAL RESULTS COULD
VARY MATERIALLY DUE TO A NUMBER OF FACTORS, INCLUDING THOSE DESCRIBED BELOW, IN
"ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--OVERVIEW," OR ELSEWHERE IN THIS REPORT.
POTENTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS; SEASONALITY. The
Company's operating results have fluctuated, and may continue to fluctuate, on
an annual and quarterly basis as a result of a number of factors, many of which
are outside of the Company's control. These factors include the timing of
significant orders, the length of sales cycles, customer budget changes, the
timing of new product introductions, changes in pricing policies by the Company
or its competitors, product mix, the market acceptance of new and enhanced
versions of the Company's products, and conditions and events in the computer
industry and the general economy. The Company does not maintain a significant
backlog, and therefore revenues for each quarter depend to a large extent on
orders booked and shipped in that quarter. Additionally, the Company typically
realizes a significant portion of license fee revenues in the last month of a
quarter, frequently in the last weeks or even days of a quarter. As a result,
license fee revenues for any quarter can be subject to significant variation.
The Company establishes its expenditure levels for sales, marketing, product
development and other operating expenses based, in large part, on its expected
future revenues. If revenues fall below expectations in a particular quarter,
operating results and net income are likely to be materially adversely affected.
A significant portion of the Company's operating expenses are fixed, and planned
expenditures are based primarily on sales forecasts. Any inability of the
Company to adjust spending quickly enough to compensate for any failure to meet
sales forecasts or to receive anticipated revenues, or any unexpected increase
in product returns or other costs, could magnify the adverse impact of such
events on the Company's operating results. Further, the purchase of the
Company's products may involve a significant commitment of capital by the
customer, with the attendant delays frequently associated with large capital
expenditures and acceptance procedures within an organization. For these and
other reasons, the sales cycle associated with the purchase of client/server
networked systems management software is typically lengthy and subject to a
number of significant risks over which the Company has little or no control,
including customers' budgetary constraints and internal acceptance reviews.
Based upon all of the foregoing, the Company believes that its annual and
quarterly revenues, expenses and operating results could vary significantly in
the future, that period-to-period comparisons of its results of operations are
not necessarily meaningful, and that, in any event, such comparisons should not
be relied upon as indications of future performance. Additionally, due to all of
the foregoing factors, it is likely that in some future period the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected.
The Company's business has experienced and is expected to continue to
experience significant seasonality, due, among other things, to customer capital
spending patterns, the general summer slowdown in the computer industry and the
fact that the Company's first fiscal quarter coincides with such summer
slowdown. Typically, net revenues are highest during the fourth fiscal quarter
ending May 31 and lowest during the first fiscal quarter ending August 31 of a
given fiscal year. See "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON EMERGING MARKET FOR OPEN DISTRIBUTED COMPUTING. The Company
is focusing its resources on developing and marketing networked systems
management software for business critical applications in open distributed
environments. These products are currently expected to account for
substantially all of the Company's future revenue growth, if any. While the
adoption of open distributed systems architectures in general and the acceptance
of open distributed computing for business critical applications in particular
have increased in recent years, there can be no assurance that this trend will
continue. If the open distributed market or the adoption rate of open
distributed computing for business critical applications fails to grow or grows
more slowly than the Company currently anticipates, the Company's business and
operating results will be materially adversely affected.
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<PAGE>
EXPANSION OF FIELD SALES FORCE AND INDIRECT DISTRIBUTION CHANNELS. The
Company has traditionally sold its HP3000 products primarily through a
telesales force and, to a lesser extent, through direct sales and through a
limited number of distributors. Because systems management decisions for
enterprise-wide systems are frequently made at the corporate level, the
Company believes such a market requires a direct field sales approach.
Continued expansion of the Company's field sales force will require
significant financial and managerial commitments by the Company. Experienced
field sales personnel in the Company's industry are in high demand and may
not be attracted and retained on terms advantageous to the Company. Further,
there can be no assurance that the Company's continuing efforts to expand its
field sales force will be successful. The Company is also attempting to
deploy new indirect sales channels with OEMS, VARs and ISVs. The Company has
had only limited experience with such channels, and there can be no assurance
that any such relationships will be successfully developed, or that they will
result in additional market presence for the Company. Successful indirect
sales efforts depend upon the abilities, resources, reputation and motivation
of the persons and organizations engaged by the Company, and the Company has
little control over such factors. Furthermore, there can be no assurance that
direct field sales efforts and additional indirect channels are appropriate
or effective for addressing the market for open systems management products.
The failure of such efforts would impair the Company's future growth, if any,
and materially adversely affect business and operating results.
RELATIONSHIPS WITH HEWLETT-PACKARD. The Company considers its customer,
marketing, sales and software development relationships with Hewlett-Packard
to be an important element of its success to date. HP has deployed certain
of the Company's products to help manage its own internal networked systems.
HP also is a reseller of the Company's products, primarily Unison Maestro,
and participates with the Company in cooperative marketing and product
integration activities. Certain of HP's products, however, compete with the
Load Balancer and RoadRunner products. In addition, in March 1995, HP and
Computer Associates International, Inc. ("CA") announced an agreement to
jointly license, market and support CA's competitive suite of systems
management tools for use with HP's OpenView network management platform. The
Company would be adversely affected if HP decided to significantly reduce the
level of its reselling and integration activities with the Company or
otherwise reduce or terminate its relationships with the Company and its
products.
A significant portion of the Company's revenues is currently and is
expected to continue in the future to be derived from products and related
services for the proprietary mid-range HP3000 market. The HP3000 was originally
introduced by Hewlett-Packard in 1972, and there can be no assurance as to how
long it will continue to be a viable product, especially in view of the trends
toward open systems. Similarly, there can be no assurance as to how long
existing HP3000 users will continue to use their systems in ways which benefit
from use of the Company's systems management tools. The Company's future
business will be adversely affected if the HP3000's share of the commercial
market declines or if its installed customer base erodes, particularly until
such time, if ever, as the Company's open systems products are well established
in the market.
COMPETITION. The markets for networked systems management products for
both the open systems and HP3000 environments are intensely competitive and
rapidly changing. Many of the Company's competitors have longer operating
histories, greater name recognition, greater market acceptance of their products
and technologies, and significantly greater financial, technical, sales,
marketing and other resources to devote to the development, promotion and sale
of their products. There can be no assurance that the Company's current
competitors or any new market entrants will not develop networked systems
management products or other technologies that offer significant performance,
price or other advantages over the Company's technology, which could have a
material adverse effect on the Company's business and operating results.
Moreover increased competition could result in significant price reductions with
attendant effects upon the Company's margins, which would also materially
adversely affect the Company's business and operating results.
The Company's competitors offer a variety of solutions to address the
networked systems management market. In the open systems environment, the
Company faces competition from companies that offer directly competitive
products, including PLATINUM Technology, Inc. for workload management tools
and Legato Systems, Inc. and Cheyenne Software, Inc. for backup tools, as
well as from standard software utilities which are commonly bundled with
UNIX. Moreover, CA and a number of other vendors market suites of systems
management tools that compete with the Company's UNIX products. In the
HP3000 environment, the Company faces competition from backup products
offered by HP and others, in addition to competition across the product line
from smaller companies.
The Company also faces competition for its UNIX products from manufacturers
of certain UNIX-based system hardware, including HP, Sun and IBM, which
currently offer products directly competitive with those of the Company. For
example, both HP and IBM offer load balancing software, and most manufacturers
offer backup software for use on their own hardware. Additional hardware
manufacturers may elect to offer similar competitive products in the future. In
addition, various vendors of client/server hardware and software may seek to
increase their presence in the networked systems management
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<PAGE>
market by acquiring or forming strategic alliances with competitors of the
Company. For example, the recent acquisition of Tivoli by IBM may result in a
change in the reseller relationship between Tivoli and the Company or otherwise
have a material adverse effect on the Company's business and operating results.
There can be no assurance that any such acquisition, development, marketing or
other cooperative arrangements will not adversely affect the Company's business
and operating results. Finally, the Company faces competition from companies
that have historically offered systems management products for the mainframe
environment, particularly CA. The Company anticipates that it may face
additional competition in the future from other mainframe environment companies,
as they attempt to migrate their products to client/server environments.
CHANGING TECHNOLOGY AND INDUSTRY STANDARDS. The software industry is
characterized by rapid technological change, changes in customer demands,
evolving industry standards and frequent introductions of new hardware products,
operating systems, peripherals and applications, including emerging networked
systems management frameworks and network management platforms. The Company's
future success will depend substantially on the ability of the Company to keep
pace technologically with innovation in the networked systems management market
and to maintain a competitive advantage by developing new products to meet the
needs of this market. In particular market rejection of current industry
standards, or the adoption of new standards for distributed and open
environments, could require the Company to attempt to port its products quickly
to maintain the market position of such products. Additionally, there can be no
assurance that other operating systems, such as Windows NT will not affect
deployment of UNIX systems for business critical applications. Any decline in
sales of UNIX based systems before the Company can successfully migrate its
entire product line to Windows NT or any other competitive operating systems
would decrease the demand for the Company's products and would have a material
adverse effect on the Company's business and operating results. Finally, there
can be no assurance that the Company will be successful in developing and
marketing, on a timely basis, product enhancements or new products that respond
to technological change or evolving industry standards, that the Company will
not experience difficulties that could delay or prevent the successful
development, introduction and sale of these products, or that any such new
products or product enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance.
SUPPORT OF MULTIPLE ENVIRONMENTS. The Company introduced its first UNIX
products in fiscal 1993, and to date most of the Company's products operate
only with the versions of UNIX produced by HP, Sun, Siemens Nixdorf, Sequent,
Silicon Graphics and IBM. The Company intends to port its products to operate
with additional versions of UNIX. Such activities can involve substantial
commitments of financial, product development and other resources. There can
be no assurance as to whether, or over what time, these efforts will be
completed. Given the Company's focus on open distributed environments, and
especially the UNIX environment, the Company's future success may depend on
the success of such efforts and on the timely and successful development and
introduction of the resulting products. Moreover even if such efforts are
successful, the Company might have focused on particular versions of UNIX
which do not achieve or maintain widespread market acceptance or whose users
are predisposed to obtain their management tools from other sources such as
the vendor of that particular UNIX version. The result of such occurrence
could mean that significant expenditures of time, effort and funds by the
Company have little or no value, which could have a material adverse effect
on the Company's business and operating results.
The Company is developing various versions of its products for the Windows
NT environment. The Company also intends to expand its products to operate
across more diverse open networks, which may encompass an increasing variety of
processor, server and workstation types and multiple operating systems,
including mainframe-based legacy systems, PC network servers and new operating
environments. Such efforts will also require significant commitments of
financial and product development resources, and there can be no assurance that
such efforts will be successful, especially given that the Company has had
limited experience with some of the components of these more diverse
environments. The failure of such efforts or the failure of any resulting
products to achieve market acceptance could have a material adverse effect on
the Company's business and operating results.
INTERNATIONAL OPERATIONS AND SALES. Sales to customers outside of the
United States, including sales generated by the Company's United Kingdom
subsidiary, represented 25.0%, 25.6% and 24.2% of net revenues for fiscal 1994,
1995 and 1996, respectively. International sales and operations may be limited
or disrupted by the imposition of government controls, export license
requirements, political instability, trade restrictions, changes in tariffs and
exchange rates, difficulties in staffing, coordinating communications or
managing international operations and other factors. Fluctuations in currency
exchange rates could have a material adverse effect on the Company's business
and operating results. Additionally, the Company's business and operating
results may be adversely affected by increases in duty rates, difficulties in
obtaining export licenses, inability to maintain or increase prices and
competition.
-12-
<PAGE>
LIMITED INTELLECTUAL PROPERTY PROTECTION. The Company relies on a
combination of copyright and trademark laws, trade secrets, software security
measures, license agreements and nondisclosure agreements to protect its
proprietary technology and software products. The Company currently has no
domestic or foreign patents or patent applications pending. Despite the
Company's precautions, it may be possible for unauthorized third parties to copy
aspects of, or otherwise obtain and use, the Company's software products and
technology without authorization. In addition, the Company cannot be certain
that others will not develop substantially equivalent or superseding proprietary
technology, or that equivalent products will not be marketed in competition with
the Company's products, thereby substantially reducing the value of the
Company's proprietary rights. Furthermore, there can be no assurance that any
confidentiality agreements between the Company and its employees or any license
agreements with its customers will provide meaningful protection for the
Company's proprietary information in the event of any unauthorized use or
disclosure of such proprietary information.
The Company is not aware that any of its products infringes the proprietary
rights of third parties and is not currently engaged in any intellectual
property litigation or proceedings. Nonetheless, from time to time the Company
has received notices claiming that it is infringing the proprietary rights of
third parties, and there can be no assurance that the Company will not become
the subject of infringement claims or legal proceedings by third parties with
respect to current or future products. In addition, the Company may initiate
claims or litigation against third parties for infringement of the Company's
proprietary rights or to establish the validity of the Company's proprietary
rights. Any such claims could be time-consuming, result in costly litigation,
cause product shipment delays or lead the Company to enter into royalty or
licensing agreements rather than disputing the merits of such claims. Moreover,
an adverse outcome in litigation or similar adversarial proceedings could
subject the Company to significant liabilities to third parties, require
expenditure of significant resources to develop non-infringing technology,
require disputed rights to be licensed from others or require the Company to
cease the marketing or use of certain products, any of which could have a
material adverse effect on the Company's business and operating results. To the
extent the Company wishes or is required to obtain licenses to patents or
proprietary rights of others, there can be no assurance that any such licenses
will be made available on terms acceptable to the Company, if at all. As the
number of software products in the industry increases and the functionality of
these products further overlaps, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims against
the Company, with or without merit, as well as claims initiated by the Company
against third parties, can be time-consuming and expensive to defend or
prosecute and to resolve.
PRODUCT ERRORS; PRODUCT LIABILITY. Software products as complex as those
offered by the Company often contain undetected errors or failures when first
introduced or as new versions are released. Testing of the Company's products
is particularly challenging because it is difficult to simulate the wide variety
of computing environments in which the Company's customers may deploy these
products. Accordingly, there can be no assurance that, despite testing by the
Company and by current and potential customers, errors will not be found after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance, any of which could have a material adverse effect upon the Company's
business and operating results. Further, the Company's license agreements with
its customers contain provisions designed to limit the Company's exposure to
potential product liability claims. Although the Company has not experienced
any product liability claims, the sale and support of products by the Company
entails the risk of such claims. The Company does not currently maintain
product liability insurance. A successful product liability claim brought
against the Company could have a material adverse effect upon the Company's
business and operating results.
MANAGEMENT OF EXPANDING OPERATIONS; NEW MANAGEMENT TEAM. The Company has
grown rapidly in recent years, and continued growth, if any, will require
increased managerial, direct sales and other personnel, expanded information
systems and additional financial and administrative control procedures. For
example, the Company intends to add additional personnel to its finance and
accounting group. Additionally, although most of the Company's executive
officers have been employed at the Company for several years, the Company's
President and Chief Operating Officer joined the Company in August 1996 and
certain executive officers and key employees have assumed significant new
responsibilities. In particular, the Company is currently seeking to fill the
position of Vice President, Marketing. Further, a number of the Company's key
employees joined the Company within the last few years. There can be no
assurance that the Company will be able to attract and retain additional
qualified personnel, nor that such personnel will be successful in managing the
Company's expanding operations, including an increasing number of customer
relationships and geographically dispersed locations.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a
significant extent upon the contributions of its executive officers and its
other key sales, marketing, technical service and engineering personnel and upon
its ability to continue to attract and retain highly talented personnel.
Competition for such personnel is intense, as certain of these personnel have
significant prior industry experience and are in great demand. The Company does
not have and has no current plans to
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<PAGE>
obtain key-man life insurance for any of its personnel. None of the Company's
employees is subject to a noncompetition agreement. The loss of the services of
any of its executive officers or other key personnel could have a material
adverse effect on the Company's business and operating results, and there can be
no assurance that the Company will be successful in attracting and retaining
such personnel.
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER EFFECTS OF CERTIFICATE
OF INCORPORATION AND DELAWARE LAW. As of July 31, 1996, the Company's
executive officers, directors and their affiliates beneficially owned
approximately 40% of the outstanding shares of the Company's Common Stock.
As a result, these stockholders may be able to exert significant influence
over the election of the Company's directors, the approval of all matters
requiring stockholder approval, and in general the affairs of the Company.
Such concentration of ownership may have the effect of delaying, deferring or
preventing a change in control of the Company.
In addition, the Board of Directors has the authority to issue up to
5,000,000 shares of Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of such stock
without further stockholder approval. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any Preferred Stock that may be issued in the future. Issuance of Preferred
Stock could have the effect of delaying, deferring or preventing a change in
control of the Company. Furthermore, certain provisions of the Company's
Certificate of Incorporation and of Delaware law could have the effect of
delaying, deferring or preventing a change in control of the company.
POSSIBLE VOLATILITY OF STOCK PRICE; IMMEDIATE AND SUBSTANTIAL DILUTION.
There can be no assurance that a viable public market for the Common Stock will
be sustained. Factors such as announcements of technological innovations or new
products by the Company, its competitors and other third parties, as well as
quarterly variations in the Company's anticipated or actual results of
operations and market conditions in high technology industries generally, may
cause the market price of the Company's Common Stock to fluctuate significantly.
In addition, the stock market has on occasion experienced extreme price and
volume fluctuations, which have particularly affected the market prices of many
high technology companies and which have often been unrelated or
disproportionate to the operating performance of such companies. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock.
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<PAGE>
ITEM 2. PROPERTIES.
The Company is headquartered in Santa Clara, California, where it leases
approximately 22,870 square feet. The lease runs through March 31, 2000. The
Company also leases approximately 28,000 square feet of space for its operations
in Austin, Texas, of which approximately 4,600 square feet of space have been
sublet to a third party. The lease of the Austin facility runs through July 15,
1997. The Company also leases office space in the United Kingdom, and in seven
major metropolitan areas in the United States. The Company believes that its
current facilities are adequate to meet its needs for the foreseeable future, or
that it can acquire additional space, if needed, on acceptable terms.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
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<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company who are appointed by and serve at the
discretion of the Board of Directors, and their ages, as of August 20, 1996 are
as follows:
Name Age Position(s)
- - ------------------------- ----- ----------------------------------------------
Don H. Lee 57 Chief Executive Officer
Dominic Gattuso, Jr. 50 President and Chief Operating Officer
Michael A. Casteel 50 Executive Vice President, Chief Technology
Officer and Secretary
Richard J. Armitage 52 Vice President, Finance,
Chief Financial Officer, Treasurer and
Assistant Secretary
The Company's executive officers are appointed by, and serve at the
discretion of, the Board of Directors. Each executive officer is a full time
employee of the Company. There is no family relationship between any executive
officer or director of the Company.
DON H. LEE was a founder of the Company and has served as its Chief
Executive Officer and as a member of the Board of Directors since 1980. In
addition, Mr. Lee served as President of the Company from its founding to July
1994 and again from July 1996 to August 1996.
DOMINIC GATTUSO has served as President and Chief Operating Officer of
the Company since August 1996. Mr. Gattuso served as President and Chief
Operating Officer of Micromuse, Inc. between April 1996 and May 1996. Mr.
Gattuso also served as Senior Vice President and General Manager, Worldwide
Sales & Field Operations of Sybase, Inc. from January 1995 to October 1995
and also held positions as Senior Vice President, Worldwide Business
Operations, Vice President, European Operations and Senior Vice President of
International Operations at Sybase between 1991 and 1995.
MICHAEL A. CASTEEL was a founder of the Company and has served as its
Executive Vice President and as a member of the Board of Directors since 1980.
Mr. Casteel has served as the Company's Secretary from its founding to September
1993 and again from July 1996 to the present, and was appointed Chief Technology
Officer in April 1994.
RICHARD J. ARMITAGE joined the Company in August 1991 as Vice President,
Finance and was appointed Chief Financial Officer, Treasurer and Assistant
Secretary in April 1995. From September 1987 to August 1991, Mr. Armitage was
the President of Business Systems International, Inc., a developer of laser
printing software. Mr. Armitage is a Certified Public Accountant.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company made its initial public offering on July 20, 1995 at a price of
$9.00 per share. The Company's Common Stock is traded on the over-the-counter
market and is quoted on the Nasdaq National Market under the symbol "UNSN." The
following table sets forth, for the periods indicated, the range of high and low
sale prices per share of Common Stock of the Company as reported on the Nasdaq
Market System:
HIGH LOW
-------- --------
1995
----
First Quarter (from July 20, 1995) $15.00 $11.125
Second Quarter $15.00 $11.50
Third Quarter $22.00 $11.75
Fourth Quarter $22.125 $19.50
1996
----
First Quarter (through August 23, 1996) $32.25 $17.50
On July 31, 1996, there were 89 holders of record of the Company's Common
Stock. Because many of the shares of the Company's Common Stock are held by
brokers and other institutions on behalf of stockholders, the Company is unable
to estimate the total number of stockholders represented by these record
holders.
The Company has never declared or paid any cash dividends on its Common
Stock, does not anticipate paying any cash dividends in the foreseeable
future.
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ITEM 6. SELECTED FINANCIAL DATA.
FISCAL YEAR ENDED MAY 31,
----------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues:
License fees. . . . . . . . . $4,441 $9,213 $8,812 $12,260 $20,924
Services. . . . . . . . . . . 2,702 5,391 6,271 7,426 9,091
------ ------ ------ ------ ------
Total net revenues . . . 7,143 14,604 15,083 19,686 30,015
------ ------ ------ ------ ------
Cost and expenses:
Cost of license fees. . . . . 115 501 559 562 853
Cost of services. . . . . . . 266 719 969 1,186 2,052
Sales and marketing . . . . . 3,441 5,789 7,070 9,998 13,598
Research and development. . . 1,273 2,559 3,003 2,985 3,969
General and administrative. . 1,399 2,357 1,943 2,205 2,741
Nonrecurring charges. . . . . -- 4,583 628 -- --
------ ------ ------ ------ ------
Total operating expenses 6,494 16,508 14,172 16,936 23,213
------ ------ ------ ------ ------
Income (loss) from
operations . . . . . 649 (1,904) 911 2,750 6,802
Interest and other income
(expense), net . . . . . . . . (110) (270) (57) (68) 720
------ ------ ------ ------ ------
Income (loss) before
income taxes. . . . . . 539 (2,174) 854 2,682 7,522
Provision for (benefit from) taxes 174 (554) 228 982 2,855
------ ------ ------ ------ ------
Net income (loss). . . . $ 365 $(1,620) $ 626 $1,700 $4,667
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Net income (loss) per share . . $ 0.07 $ (0.29) $ 0.11 $ 0.29 $ 0.59
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Shares used in per share
calculation (1). . . . . . . . 5,613 5,641 5,857 5,950 7,850
------ ------ ------ ------ ------
------ ------ ------ ------ ------
MAY 31,
----------------------------------------------
1992 1993 1994 1995 1996
------- ------ ------- ------ ------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents &
marketable securities. . . . . $1,361 $3,413 $3,846 $5,217 $20,448
Working capital . . . . . . . . 1,811 1,201 1,348 2,923 21,670
Total assets. . . . . . . . . . 5,112 9,304 9,058 11,829 34,221
Long term liabilities, net of
current portion. . . . . . . . 1,987 3,476 2,752 2,077 872
Stockholders' equity (deficit). 477 (757) 263 2,561 23,027
(1) See Note 1 of Notes to Consolidated Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company develops, markets and supports networked systems management
software for distributed, heterogeneous computing environments. The Company's
revenues are derived from license fees for software products and fees for a
range of services complementing such products, including software maintenance
and support, training and system implementation consulting. Software licenses
typically are granted on a perpetual, per-CPU basis, although the Company may
grant site or enterprise-wide licenses for larger installations. License fee
revenues are recognized upon product shipment if no significant vendor
obligations remain and collection of the resulting receivable is deemed
probable. Allowances are established for potential product returns and credit
losses, which have not been substantial to date. Fees for services are charged
separately from fees for software licenses. Service revenues from customer
maintenance services, which include on-going product support and periodic
product updates, are recognized ratably over the term of each contract, which is
typically twelve months. Payments for customer maintenance fees are generally
made in advance and are non-refundable. Service revenues from training and
consulting services are recognized when the services are performed.
License fee revenues have been derived principally from direct sales of
software products to end users through the Company's direct field sales and
telesales force and a national account sales group. Although the Company
believes that such direct sales will continue to account for a significant
portion of license fee revenues, the Company expects that revenues from sales
through OEMs, VARs, ISVs and other indirect channels will increase as a
percentage of license fee revenues. The Company's expansion of its field sales
force has caused, and is expected to continue to cause, sales and marketing
expenses to increase. The Company is also increasingly attempting to direct
customers to larger, enterprise-wide implementations of the Company's products,
which may increase the complexity and length of the sales cycle. In connection
with such larger sales, the Company may choose to grant greater pricing and
other concessions than for single department or local network sales.
The Company's operating results have fluctuated, and may continue to
fluctuate, on an annual and quarterly basis as a result of a number of factors,
many of which are outside of the Company's control. These factors include the
timing of significant orders, the length of sales cycles, customer budget
changes, the timing of new product introductions, changes in pricing policies by
the Company or its competitors, product mix, the market acceptance of new and
enhanced versions of the Company's products, and conditions and events in the
computer industry and the general economy. The Company does not maintain a
significant backlog, and therefore revenues for each quarter depend to a large
extent on orders booked and shipped in that quarter. Additionally, the Company
typically realizes a significant portion of license fee revenues in the last
month of a quarter, frequently in the last weeks or even days of a quarter. As
a result, license fee revenues for any quarter can be subject to significant
variation. The Company establishes its expenditure levels for sales, marketing,
product development and other operating expenses based, in large part, on its
expected future revenues. If revenues fall below expectations in a particular
quarter, operating results and net income are likely to be materially adversely
affected. A significant portion of the Company's operating expenses is fixed,
and planned expenditures are based primarily on sales forecasts. Any inability
of the Company to adjust spending quickly enough to compensate for any failure
to meet sales forecasts or to receive anticipated revenues, or any unexpected
increase in product returns or other costs, could magnify the adverse impact of
such events on the Company's operating results. Further, the purchase of the
Company's products may involve a significant commitment of capital by the
customer, with the attendant delays frequently associated with large capital
expenditures and acceptance procedures within an organization. For these and
other reasons, the sales cycle associated with the purchase of client/server
networked systems management software is typically lengthy and subject to a
number of significant risks over which the Company has little or no control,
including customers' budgetary constraints and internal acceptance reviews.
Furthermore, the Company's business has experienced and is expected to continue
to experience significant seasonality, due, among other things, to customer
capital spending patterns, the general summer slowdown in the computer industry
and the fact that the Company's first fiscal quarter coincides with such summer
slowdown. Based upon the foregoing and other factors, the Company believes that
its quarterly revenues, expenses and operating results could vary significantly
in the future, that period-to-period comparisons of its results of operations
are not necessarily meaningful, and that, in any event, such comparisons should
not be relied upon as indicators of future performance.
-19-
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain selected financial information
expressed as a percentage of net revenues for the period indicated:
FISCAL YEAR ENDED MAY 31,
--------------------------
1994 1995 1996
------ ------ ------
Net revenues:
License fees. . . . . . . . . . 58.4% 62.3% 69.7%
Services. . . . . . . . . . . . 41.6 37.7 30.3
------ ------ ------
Total net revenues . . . . . . 100.0 100.0 100.0
------ ------ ------
Cost and expenses:
Cost of license fees. . . . . . 3.7 2.9 2.8
Cost of services. . . . . . . . 6.4 6.0 6.8
Sales and marketing . . . . . . 46.9 50.8 45.3
Research and development. . . . 19.9 15.2 13.2
General and administrative. . . 12.9 11.2 9.1
Nonrecurring charges . . . . . 4.2 -- --
------ ------ ------
Total operating expenses . . . 94.0 86.1 77.2
------ ------ ------
Income from operations. . . . 6.0 13.9 22.8
Interest and other income
(expense) net. . . . . . . . . (0.4) (0.3) 2.4
------ ------ ------
Income before income taxes. . 5.6 13.6 25.2
Provision for taxes . . . . . . 1.5 5.0 9.5
------ ------ ------
Net income. . . . . . . . . . 4.1% 8.6% 15.7%
------ ------ ------
------ ------ ------
NET REVENUES
Net revenues increased from $15.1 million in fiscal 1994 to $19.7 million
in fiscal 1995 and $30.0 million in fiscal 1996, representing increases of 31%
from 1994 to 1995 and 52% from 1995 to 1996. These increases were primarily the
result of growth in UNIX license fees attributable to increased market
acceptance of the Company's UNIX products, introduction during fiscal 1996 of
the Windows NT version of Unison Maestro, and increased revenues from indirect
channels, offset by a slight decline in revenues from HP3000 products.
The following chart sets forth the Company's net revenues from license fees
and services, with license fees broken out by UNIX/Windows NT versus HP3000:
FISCAL YEAR ENDED MAY 31,
--------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
License fees:
UNIX/Windows NT. . . . . . . $ 1,561 $ 4,510 $13,406
HP3000 . . . . . . . . . . . 7,251 7,750 7,518
------ ------ ------
Total license fees. . . . . 8,812 12,260 20,924
Services. . . . . . . . . . . 6,271 7,426 9,091
------ ------ ------
Total net revenues. . . . . $15,083 $19,686 $30,015
------ ------ ------
------ ------ ------
License fee revenues increased from $8.8 million in fiscal 1994 to $12.3
million in fiscal 1995 and $20.9 million in fiscal 1996, representing increases
of 39% from 1994 to 1995 and 71% from 1995 to 1996. UNIX/Windows NT licenses
increased from $1.6 million in fiscal 1994 to $4.5 million in fiscal 1995 and
$13.4 million in fiscal 1996, representing increases
-20-
<PAGE>
of 189% from 1994 to 1995 and 197% from 1995 and 1996. The increase in
UNIX/Windows NT license fee revenues resulted from the expansion of the
Company's UNIX product offerings, introduction of the Windows NT version of
Unison Maestro and the Company's increased efforts to address the open
distributed systems market. The Company's future growth, if any, will depend on
continued growth in UNIX and Windows NT license fees. License fees from HP3000
products have been, and are expected to continue to be, a significant portion of
the Company's revenues. However, there can be no assurance as to how long the
HP3000 will continue to be a viable product or be used in ways which benefit
from use of the Company's networked systems management tools. These revenues
have been relatively flat over the last three years, increasing 7% from $7.3
million in fiscal 1994 to $7.8 million in fiscal 1995, and decreasing 3% to $7.5
million in fiscal 1996. The Company anticipates that HP3000 license fees may
continue to decline in the future, as the Company continues to focus on the open
distributed systems market.
Service revenues increased from $6.3 million in fiscal 1994 to $7.4 million
in fiscal 1995 and $9.1 in fiscal 1996, representing increases of 18% from 1994
to 1995 and 22% from 1995 to 1996. These increases reflect the increase in the
installed base of the Company's products.
Sales to customers outside of the United States, including sales generated
by the Company's United Kingdom subsidiary, represented 25.0%, 25.6% and 24.2%
in fiscal 1994, 1995 and 1996, respectively. The Company's sales to customers
outside of the United States increased in absolute dollars in both fiscal 1995
and 1996 due to increased acceptance of the Company's UNIX products in such
markets.
COST OF LICENSE FEES
Cost of license fees consists primarily of product packaging, shipping,
delivery media, documentation expenses, as well as third-party royalties payable
in connection with sales of certain of the Company's products, including certain
HP3000 products. The cost of license fees increased in absolute dollars in each
of the last three fiscal years, but decreased as a percentage of license fee
revenues. Cost of license fees were $559,000, or 6.3% of license fees, in
fiscal 1994, $562,000, or 4.6% of license fees, in fiscal 1995, and $853,000, or
4.1% of license fees, in fiscal 1996. The decline in cost of license fees as a
percentage of license fee revenues was a result of increased revenues from those
of the Company's UNIX products that were not subject to royalty obligations and
the Company's decision to discontinue certain HP3000 products that were subject
to royalty obligations. The Company anticipates that third-party royalties
could increase in the future as the Company introduces additional UNIX/Windows
NT products for which royalties are payable.
COST OF SERVICES
Cost of services consists primarily of the direct and indirect costs of
providing software maintenance and support, training and consulting services to
the Company's customers. Cost of services increased from $969,000, or 15.5% of
services revenue, in fiscal 1994 to $1.2 million, or 16% of services from
revenue, in fiscal 1995 and to $2.1 million, or 22.6% of services revenue, in
fiscal 1996. Such increases were due to increases in support personnel in each
of the fiscal years in anticipation of increasing demand for customer support
services relating to the Company's UNIX and Windows NT products and additional
training and consulting personnel to assist customers in deploying these
products.
SALES AND MARKETING
Sales and marketing expenses consist principally of salaries, commissions
and advertising and promotion costs. Sales and marketing expenses increased
from $7.1 million, or 46.9% of net revenues, in fiscal 1994 to $10.0 million, or
50.8% of net revenues, in fiscal 1995. Such increase was primarily the result
of the Company's decision to expand its field sales organization, and, to a
lesser extent, increased marketing activities in anticipation of the release of
additional UNIX products. Sales and marketing expenses increased to $13.6
million, or 45.3% of net revenues, in fiscal 1996. The increase in absolute
dollars in fiscal 1996 was primarily the result of continued expansion of the
Company's field sales organization and increased sales compensation from
increased revenues. Such expenses declined as a percentage of net revenues in
fiscal 1996 as the Company began to realize benefits from the expanded field
sales organization. The Company expects to continue to expand its field sales
organization, and accordingly that sales and marketing expenses will continue to
increase in the future.
-21-
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of personnel related
costs. Such expenditures remained relatively constant at $3.0 million in
fiscal years 1994 and 1995, but decreased as a percentage of net revenues from
19.9% in fiscal 1994 to 15.2% in fiscal 1995. Research and development expenses
increased 33.0% to $4.0 million in fiscal 1995, but again decreased as a
percentage of net revenues from 15.2% in fiscal 1995 to 13.2% in fiscal 1996.
The increase in research and development spending in fiscal 1996 over 1995 was
attributable to increased staffing and additional hardware and software tools to
expand and enhance the Company's products. The Company expects research and
development expenses to continue to increase in absolute dollars as the Company
continues to invest in the development of new products and enhancement of
existing products.
GENERAL AND ADMINISTRATIVE
General and Administrative expenses increased in absolute dollars from $1.9
million in fiscal 1994, to $2.2 million in fiscal 1995, and to $2.7 million in
fiscal 1996, but decreased as a percentage of net revenues from 12.9% in fiscal
1994, to 11.2% in fiscal 1995, and to 9.1% in fiscal 1996. The increases in
absolute dollars were primarily the result of increased staffing and related
costs required to manage and support expanded operations and to comply with the
responsibilities of a public company.
NONRECURRING CHARGES
In fiscal 1994, the Company acquired software technology from a third party
for the Load Balancer product in exchange for cash and warrants. The cost of
acquired technology was expensed as in-process research and development as of
the acquisition date.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net is comprised primarily of interest
and dividend income, gains on foreign currency translations and gains on sales
of assets, net of interest expense and any losses on the foregoing. Interest
income is comprised primarily of interest on proceeds from the Company's initial
public offering completed in July 1995. Interest income has historically been
comprised primarily of interest on debt incurred in connection with a past
acquisition and the Company's guarantee of certain indebtedness of its Employee
Stock Ownership Plan. During the quarter ended August 31, 1995, the ESOP
retired its indebtedness with a portion of the proceeds from the ESOP's sale of
shares in the initial public offering. During the quarter ended February 29,
1996, the Company retired a significant portion of the acquisition indebtedness.
PROVISIONS FOR INCOME TAXES
The Company's effective tax rate was 26.7% in fiscal 1994, 36.6% in
fiscal 1995, and 38.0% in fiscal 1996. The increase in the effective tax
rate since 1994 was due primarily to the Company's inability to avail itself
of research and development credits. For fiscal 1995 and 1996, the rates
approximately represented the combined federal and state statutory rate, as
well as certain taxes due in the United Kingdom.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its operations and capital expenditures
primarily with cash flow from operations. Net cash provided by operating
activities in fiscal 1994 was $1.6 million, resulting primarily from net income
and a decrease in accounts receivable, offset in part by a decrease in income
taxes payable. Net cash provided by operating activities in fiscal 1995 was
$2.0 million, resulting primarily from net income and increases in accrued
expenses and income taxes payable, offset in part by an increase in accounts
receivable. Net cash provided by operating activities in fiscal 1996 was $2.2
million, resulting primarily from net income and increases in accrued expenses
and accounts payable, offset in part by an increase in accounts receivable.
-22-
<PAGE>
Net cash used in investing activities was $812,000 in fiscal 1994,
consisting primarily of purchases of marketable securities, net of sales of such
securities, and, purchases of equipment. For fiscal 1995, net cash provided by
investing activities was $174,000, consisting primarily of sales of marketable
securities, offset in part by purchases of equipment. Net cash used in
investing activities was $15.7 million in fiscal 1996, consisting primarily of
purchases of marketable securities, net of sales of marketable securities.
Net cash used in financing activities was $612,000 and $420,000 in fiscal
1994 and 1995, respectively, consisting primarily of repayments on notes
payable, offset in part by the proceeds from sales (net of repurchases) of
Common Stock and, in 1994, warrants by the Company. Net cash provided by
financing activities was $14 million in fiscal 1996 consisting primarily of
funds received in the Company's public offering.
As of May 31, 1994, 1995 and 1996, the Company had cash, cash equivalents
and marketable securities of $3.8 million, $5.2 million and $20.4 million,
respectively. At May 31, 1996, the Company had no material capital commitments.
The Company believes that its current cash balances and cash flow from
operations, if any, will be sufficient to meet its working capital and capital
expenditure requirements for at least the next twelve months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
Report of Coopers & Lybrand LLP, Independent Accountants 24
Consolidated Balance Sheets at May 31, 1995 and 1996 25
Consolidated Statements of Operations for Years Ended
May 31, 1994, 1995 and 1996 26
Consolidated Statements of Stockholders' Equity for
Years Ended May 31, 1994, 1995 and 1996 27
Consolidated Statements of Cash Flows for Years Ended
May 31, 1994, 1995 and 1996 28
Notes to Consolidated Financial Statements 29
FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule of the Company for the
three years ended May 31, 1996 are filed as part of this Form 10-K and
should be read in conjunction with the Consolidated Financial Statements,
and related notes thereto, of the Company.
Schedule II - Valuation and Qualifying Accounts
Schedules other than that listed above have been omitted since they
are either not required, not applicable, or the information is otherwise
included.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-23-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Unison Software, Inc.
We have audited the accompanying consolidated balance sheets of Unison Software,
Inc. and subsidiaries as of May 31, 1995 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended May 31, 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Unison
Software, Inc. and subsidiaries as of May 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 31, 1996, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Jose, California
July 3, 1996
-24-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
______
<TABLE>
<CAPTION>
May 31,
------------------------
ASSETS 1995 1996
--------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,955 $ 4,558
Marketable securities 1,262 15,890
Accounts receivable, net of allowance for doubtful accounts of $152
and $176 at May 31, 1995 and 1996, respectively 4,736 11,214
Prepaid expenses and other current assets 123 116
Deferred income taxes 38 214
--------- --------
Total current assets 10,114 31,992
Property and equipment, net 937 1,715
Deferred income taxes 588 237
Other assets, net 190 277
--------- --------
Total assets $11,829 $34,221
--------- --------
--------- --------
LIABILITIES
Current liabilities:
Current portion of guarantee of ESOP debt and long-term debt $ 805 $ 308
Accounts payable 280 454
Income taxes payable 262 403
Accrued compensation 1,140 1,967
Accrued expenses 678 1,187
Deferred revenue 4,026 6,003
--------- --------
Total current liabilities 7,191 10,322
Long-term debt, net of current portion 1,478 688
Guarantee of ESOP debt, net of current portion 418
Other long-term liabilities 181 184
--------- --------
Total liabilities 9,268 11,194
--------- --------
Commitments (Note 8).
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value:
Authorized: 5,000 shares;
Issued and outstanding: none
Common stock, $0.001 par value:
Authorized: 40,000 shares;
Issued and outstanding: 5,684 and 7,683 shares at May 31, 1995
and 1996, respectively 6 8
Additional paid-in capital 1,084 16,091
Unrealized holding losses on marketable securities, net (30) (19)
Retained earnings 2,335 7,002
Notes receivable for common stock (125)
Cumulative foreign currency translation adjustments (11) (55)
--------- --------
3,259 23,027
Reduction for guarantee of ESOP debt (698)
--------- --------
Total stockholders' equity 2,561 23,027
--------- --------
Total liabilities and stockholders' equity $ 11,829 $34,221
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
-25-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------
Year Ended May 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
Net revenues:
License fees $ 8,812 $ 12,260 $ 20,924
Services 6,271 7,426 9,091
--------- --------- ---------
Total net revenues 15,083 19,686 30,015
--------- --------- ---------
Costs and expenses:
Cost of license fees 559 562 853
Cost of services 969 1,186 2,052
Sales and marketing 7,070 9,998 13,598
Research and development 3,003 2,985 3,969
General and administrative 1,943 2,205 2,741
Nonrecurring charges 628
--------- --------- ---------
Total operating expenses 14,172 16,936 23,213
--------- --------- ---------
Income from operations 911 2,750 6,802
Interest and other income, net 185 181 848
Interest expense (242) (249) (128)
--------- --------- ---------
Income before provision for income taxes 854 2,682 7,522
Provision for income taxes 228 982 2,855
--------- --------- ---------
Net income $ 626 $ 1,700 $ 4,667
--------- --------- ---------
--------- --------- ---------
Net income per share $ 0.11 $ 0.29 $ 0.59
--------- --------- ---------
--------- --------- ---------
Shares used in per share calculation 5,857 5,950 7,850
--------- --------- ---------
--------- --------- ---------
The accompanying notes are an integral part of these financial statements.
-26-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------
<TABLE>
<CAPTION>
Unrealized
Common Stock Additional Holding Losses
---------------- Paid-In on Marketable Retained
Shares Amount Capital Securities, Net Earnings
------ ------ ---------- --------------- --------
<S> <C> <C> <C> <C> <C>
Balances, May 31, 1993 5,475 $ 5 $ 626 $ 69
Issuance of common stock under employee stock
option plan at $1.00 per share 86 1 85
Issuance of warrants 27
Unrealized holding losses, net of taxes $ (84)
Net income 626
Foreign currency translation adjustments
Reduction for guarantee of ESOP debt
----- ---- -------- ------ -------
Balances, May 31, 1994 5,561 6 738 (84) 695
Issuance of common stock under employee stock
option plan at $1.00 to $3.00 per share 113 201
Issuance of common stock, for cash and notes 90 225
Retirement of stock (80) (80) (60)
Change in unrealized holding losses, net of taxes 54
Net income 1,700
Foreign currency translation adjustments
Reduction for guarantee of ESOP debt
----- ---- -------- ------ -------
Balances, May 31, 1995 5,684 6 1,084 (30) 2,335
Issuance of common stock under employee stock
option plan at $1.00 to $11.25 per share 241 860
Issuance of common stock, under the Employee
Stock Purchase Plan 27 195
Issuance of common stock in IPO, net of
issuance costs 1,700 2 13,379
Warrants exercised, net issuance 31
Tax benefits related to exercise of stock options 573
Change in unrealized holding losses, net of taxes 11
Net income 4,667
Repayment of note receivable
Foreign currency translation adjustment
Reduction for guarantee of ESOP debt
----- ---- -------- ------ -------
Balances, May 31, 1996 7,683 $8 $ 16,091 $ (19) $ 7,002
----- ---- -------- ------ -------
----- ---- -------- ------ -------
<CAPTION>
Notes Cumulative
Receivable Foreign
for Currency Reduction for
Common Translation Guarantee of
Stock Adjustments ESOP Debt Total
---------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
Balances, May 31, 1993 $(32) $(1,425) $ (757)
Issuance of common stock under employee stock
option plan at $1.00 per share 86
Issuance of warrants 27
Unrealized holding losses, net of taxes (84)
Net income 626
Foreign currency translation adjustments 30 30
Reduction for guarantee of ESOP debt 335 335
---- ------- --------
Balances, May 31, 1994 (2) (1,090) 263
Issuance of common stock under employee stock
option plan at $1.00 to $3.00 per share 201
Issuance of common stock, for cash and notes $(125) 100
Retirement of stock (140)
Change in unrealized holding losses, net of taxes 54
Net income 1,700
Foreign currency translation adjustments (9) (9)
Reduction for guarantee of ESOP debt 392 392
----- ---- ------- --------
Balances, May 31, 1995 (125) (11) (698) 2,561
Issuance of common stock under employee stock
option plan at $1.00 to $11.25 per share 860
Issuance of common stock, under the Employee
Stock Purchase Plan 195
Issuance of common stock in IPO, net of
issuance costs 13,381
Warrants exercised, net issuance -
Tax benefits related to exercise of stock options 573
Change in unrealized holding losses, net of taxes 11
Net income 4,667
Repayment of note receivable 125 125
Foreign currency translation adjustment (44) (44)
Reduction for guarantee of ESOP debt 698 698
----- ---- ------- --------
Balances, May 31, 1996 $ - $(55) $ - $ 23,027
----- ---- ------- --------
----- ---- ------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-27-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 626 $ 1,700 $ 4,667
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 350 358 258
Nonrecurring charges 170
Deferred income taxes (54) (9) 168
Other 4 70 (20)
Changes in operating assets and liabilities:
Accounts receivable 808 (1,325) (6,503)
Prepaid expenses and other current assets (27) (16) 8
Accounts payable (69) 72 174
Accrued expenses 45 806 1,336
Income taxes payable (377) 250 141
Deferred revenue 123 143 1,977
-------- -------- --------
Net cash provided by operating activities 1,599 2,049 2,206
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (419) (308) (1,036)
(Increase) decrease in other long-term assets 5 (43) (84)
Purchases of marketable securities (896) (26,202)
Sales of marketable securities 498 525 11,592
-------- -------- --------
Net cash provided by (used in) investing activities (812) 174 (15,730)
-------- -------- --------
Cash flows from financing activities:
Issuance of common stock and warrants 105 301 15,009
Note receivable forgiven for retirement of common stock (140)
Repayment of notes receivable for common stock 125
Repayment of notes payable (672) (539) (949)
Payments on capital lease obligations (45) (42) (58)
-------- -------- --------
Net cash provided by (used in) financing activities (612) (420) 14,127
-------- -------- --------
Net increase in cash and cash equivalents 175 1,803 603
Cash and cash equivalents at beginning of year 1,977 2,152 3,955
-------- -------- --------
Cash and cash equivalents at end of year $ 2,152 $ 3,955 $ 4,558
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-28-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS:
Unison Software, Inc. (the Company) develops, markets and supports
networked systems management software for distributed, open computing
environments. Recently, the Company has increased its focus on the
UNIX/Microsoft NT market and is developing relationships with open systems-
based computer manufacturers in order to expand its market.
BASIS OF CONSOLIDATION:
The consolidated financial statements include the accounts of Unison
Software, Inc. and its wholly owned subsidiaries after elimination of
intercompany balances and transactions.
CASH EQUIVALENTS:
The Company considers all investments with a maturity of three months or
less at the time of purchase to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Carrying value amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable
and other accrued liabilities approximate fair value due to their short
maturities.
MARKETABLE SECURITIES:
All marketable securities as of May 31, 1995 and 1996 are considered to be
available-for-sale and therefore are carried at fair value. Unrealized
holding gains and losses on such securities are reported net of related
taxes as a separate component of stockholders' equity. Realized gains and
losses on sales of all such securities are reported in earnings and
computed using the specific identification cost method.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful life of the related asset (3
to 7 years). Leasehold improvements are amortized on a straight-line basis
over the lesser of the useful lives or the terms of the respective leases.
Continued
-29-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
EMPLOYEE STOCK OWNERSHIP PLAN:
Prior to June 1, 1995, the Company recognized compensation expense based
upon contributions to the Employee Stock Ownership Trust to pay the
principal portion of debt service requirements. The contributions were
determined by the Board of Directors. All shares under the Employee Stock
Ownership Plan whether allocated or unallocated are considered outstanding
for net income per share calculations.
REVENUE RECOGNITION:
License fee revenues are recognized upon product shipment if no significant
vendor obligations remain and collection of the resulting receivable is
deemed probable. The Company's sales of individual licenses, as well as
site and enterprise-wide licenses, do not include post-contract customer
support, which is separately invoiced. Service revenues from customer
maintenance are recognized ratably over the term of each contract, which is
typically twelve months. Revenues from other services are recognized as
services are performed. The Company maintains allowances for estimated
product returns and credit losses, which have not been material.
INCOME TAXES:
The Company accounts for income taxes under the liability method. Deferred
tax assets and liabilities are determined based on the difference between
the financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
CERTAIN RISKS AND CONCENTRATIONS:
The Company's products are concentrated in the networked systems management
software industry which is highly competitive and rapidly changing. The
Company has marketing and product integration relationships with a number
of UNIX-based computer manufacturers. The reduction or loss of the
reselling and the integration relationships, significant technological
changes in the industry, or emergence of competitor products with new
capabilities or technologies could adversely affect operating results.
As of May 31, 1996, one customer represents 11% of the net accounts
receivable balance.
Continued
-30-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
FOREIGN CURRENCY TRANSLATION:
The Company's foreign subsidiaries use the local currency as their
functional currency. Assets and liabilities are translated at year-end
exchange rates. Items of income and expense are translated at average
exchange rates for the relevant year. Translation gains and losses are not
included in determining net income but are accumulated as a separate
component of stockholders' equity. Net gains and losses arising from
foreign currency transactions were not material in fiscal 1994, 1995 and
1996.
COMPUTATION OF NET INCOME PER SHARE:
Net income per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of stock options and warrants
(using the treasury stock method for all periods presented).
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
RECENT PRONOUNCEMENTS:
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based
Compensation," which establishes a fair value based method of accounting
for stock-based compensation plans and requires additional disclosures for
those companies that elect not to adopt the new method of accounting. The
Company plans to adopt SFAS No. 123 during fiscal 1997 utilizing the
disclosure alternative.
RECLASSIFICATIONS:
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform with the current year's presentation. These
reclassifications had no impact on previously reported working capital,
income from operations or net income.
Continued
-31-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
2. ACQUISITION:
Effective January 13, 1994, the Company acquired specific assets of
Freedman Sharp and Associates (Freedman). In the transaction, the Company
paid Freedman a total of $450,000 in cash and granted Freedman's president
a warrant to purchase 55,000 shares of the Company's common stock at an
exercise price of $4.00 per share.
In addition, the Company entered into a royalty agreement with Freedman in
exchange for a covenant not to compete. The agreement calls for royalty
payments to be made based on the net revenues from subsequent sales of
products derived from the purchased technology.
The acquisition has been accounted for as a purchase.
The fair market value of the assets acquired and summary of the
consideration paid is as follows (IN THOUSANDS):
Cash paid to Freedman Sharp & Associates $450
Value attributed to warrants 8
Purchased in-process research and development (458)
-----
$ -
-----
-----
The amount allocated to purchased in-process technology in this acquisition
totaled $458,000 as expensed on the acquisition date as the technology had
not reached technological feasibility and had no alternative future use.
3. NONRECURRING CHARGES:
In fiscal 1994, the Company recorded nonrecurring charges for the purchase
of in-process research and development and for lease termination costs.
The Company recognized a $458,000 charge relating to the purchase of in-
process research and development from Freedman (Note 2). The Company also
accrued approximately $170,000 relating to estimated lease termination
costs of office space in the United Kingdom.
Continued
-32-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
4. MARKETABLE SECURITIES:
At May 31, 1995 and 1996, marketable securities are stated at estimated
fair value and consist of bonds, preferred stock and mutual funds.
Marketable securities at May 31, 1995 are summarized below (IN THOUSANDS):
Fair
Market Cost Unrealized
Value Basis Loss
------- ------- ----------
Bonds and preferred stock $ 1,022 $ 1,064 $ 42
Mutual funds 240 245 5
------- ------- -----
$ 1,262 $ 1,309 47
------- -------
------- -------
Related deferred taxes 17
-----
Unrealized holding loss, net $ 30
-----
-----
Marketable securities at May 31, 1996 are summarized below (IN THOUSANDS):
Fair
Market Cost Unrealized
Value Basis Loss
-------- -------- ----------
Bonds and preferred stock $ 12,493 $ 12,511 $ 18
Mutual funds 3,397 3,408 11
-------- -------- -----
$ 15,890 $ 15,919 29
-------- --------
-------- --------
Related deferred taxes 10
-----
Unrealized holding loss, net $ 19
-----
-----
Continued
-33-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
5. PROPERTY AND EQUIPMENT:
Property and equipment comprise (IN THOUSANDS):
May 31,
--------------------
1995 1996
------- -------
Office furniture and fixtures $ 277 $ 298
Computer and office equipment 1,668 2,671
Leasehold improvements 119 131
------- -------
2,064 3,100
Less accumulated depreciation and amortization (1,127) (1,385)
------- -------
$ 937 $ 1,715
------- -------
------- -------
Included in property and equipment are assets leased under capital lease
obligations as follows (IN THOUSANDS):
May 31,
--------------------
1995 1996
------ ------
Computer and office equipment $ 383 $ 331
Office furniture and fixtures 51 52
------ ------
434 383
Less accumulated amortization (260) (307)
------ ------
$ 174 $ 76
------ ------
------ ------
Continued
-34-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
6. LONG-TERM DEBT:
Long-term debt consists of the following (IN THOUSANDS):
<TABLE>
<CAPTION>
May 31,
----------------------
1995 1996
------- -------
<S> <C> <C>
Notes payable issued in connection with the purchase of assets in
1992, interest at prime, adjusted quarterly, (6.5% at May 31,
1996), monthly payments through August 1999 $ 771 $ 529
Notes payable issued in connection with securing covenants not to
compete and rights to in-process research and development,
interest at prime, adjusted quarterly (6.5% at May 31, 1996),
monthly payments through August 1999 933 347
Notes payable issued in connection with acquiring rights to software
technology, noninterest-bearing, monthly payments through
August 1995 44
Note payable, interest at prime plus 2.25%, adjusted quarterly,
monthly payments through May 1996 77
Capital lease obligations at interest rates ranging from 10.5% to
13.2% 178 120
------- -------
Total long-term debt 2,003 996
Less current portion (525) (308)
------- -------
Long-term debt, net of current portion $ 1,478 $ 688
------- -------
------- -------
</TABLE>
Future principal payments of debt for the fiscal year ending May 31 are as
follows (IN THOUSANDS):
Fiscal Year Amount
----------- ------
1997 $ 308
1998 307
1999 307
2000 74
------
Total $ 996
------
------
Continued
-35-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
7. GUARANTEE OF ESOP DEBT:
The Company had an Employee Stock Ownership Plan (ESOP) which enabled
most regular employees to acquire shares of the Company's common stock.
The cost of the ESOP was borne by the Company through annual
contributions to an Employee Stock Ownership Trust (ESOT) in amounts
determined by the Company's Board of Directors. Shares of common stock
acquired by the ESOP were allocated to each employee and held until the
employee's retirement or death. The employee may also choose early
withdrawal under certain circumstances.
In August 1990, the ESOT borrowed $2,346,500 from a bank to purchase
1,618,208 shares of common stock from existing stockholders. The
Company's guarantee of the ESOP loan has been recorded as a long-term
obligation and as a reduction of stockholders' equity. The loan required
monthly principal payments of $27,935 plus interest at the bank's prime
rate plus 1.5%.
Annual contributions made by the Company to the ESOT were sufficient to
service principal and interest payments in connection with this
indebtedness. Company contributions to the ESOT were approximately
$432,000, $477,000 and $12,000 in fiscal 1994, 1995 and 1996,
respectively.
In July 1995, the ESOT sold shares in the Company's initial public
offering. Funds received from the sale of the stock were used to retire
the remaining debt outstanding.
During fiscal 1996, the ESOP was assumed by the Company's defined
contribution plan (Note 10).
8. COMMITMENTS:
The Company leases facilities and equipment under noncancelable operating
leases. The leases expire at various dates through 2014, and the Company
is responsible for taxes, insurance and maintenance expenses. Rent
expense under operating leases was $570,000, $754,000 and $1,118,000 in
fiscal 1994, 1995 and 1996, respectively.
Continued
-36-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
8. COMMITMENTS, continued:
Future minimum lease payments under operating leases at May 31, 1996 are
summarized as follows (IN THOUSANDS):
Fiscal Year Amount
----------- ------
1997 $ 969
1998 515
1999 433
2000 396
2001 140
Thereafter 1,649
------
$4,102
------
------
9. CAPITAL STOCK:
STOCK OPTIONS:
1991 INCENTIVE STOCK OPTION PLAN:
In February 1991, the Company authorized the 1991 Incentive Stock
Option Plan (the 1991 Plan) under which the Board of Directors may
issue incentive stock options to employees of the Company. As of
May 31, 1996, the Company had reserved 1,200,000 shares of common
stock for issuance under the 1991 Plan. The Board of Directors has
the authority to determine to whom options will be granted, the
number of shares, the term and exercise price, which cannot be less
than fair market value at date of grant. The options are
exercisable at times and in increments as specified by the Board of
Directors, and generally expire five to ten years from date of
grant. The Board of Directors has ceased to grant options under
the 1991 Plan, and shares otherwise available for future grant
under the plan have been canceled.
Continued
-37-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
9. CAPITAL STOCK, continued:
STOCK OPTIONS, continued:
1993 DIRECTOR STOCK OPTION PLAN:
In September 1993, the Company authorized the 1993 Director Stock
Option Plan (the Director Plan), under which members of the Board
of Directors are granted options to purchase shares of the
Company's common stock. As currently in effect, outside directors
are each granted an option to purchase 15,000 shares upon their
appointment and an option to purchase 5,000 shares on the first day
of each fiscal year thereafter. As of May 31, 1996, the Company
had reserved 150,000 shares of common stock for issuance under the
Director Plan, and 90,000 shares were available for future grants.
The options are granted at fair market value on the date of grant
and vest over a three-year period, a third on each one-year
anniversary of the grant.
1995 INCENTIVE STOCK OPTION PLAN:
In February 1995, the Company adopted the 1995 Incentive Stock
Option Plan (the 1995 Plan), under which the Board of Directors may
issue incentive stock options to employees of the Company. As of
May 31, 1996, the Company had reserved 300,000 shares of common
stock for issuance under the 1995 Plan, and 32,983 shares were
available for future grants. The Board of Directors has the
authority to determine to whom options will be granted, the number
of shares, the term and the exercise price, which cannot be less
than fair market value at date of grant. The options are
exercisable at times and in increments as specified by the Board of
Directors, and generally expire five to ten years from date of
grant.
Continued
-38-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
9. CAPITAL STOCK, continued:
STOCK OPTIONS, continued:
SUMMARY OF STOCK OPTION PLANS:
A summary of activity under the 1991 Plan, Director Plan and the
1995 Plan is as follows (IN THOUSANDS, EXCEPT PER SHARE DATA):
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------
Shares Exercise
Available Shares Price Total
--------- ------ ------------ -------
<S> <C> <C> <C> <C>
Balances, May 31, 1995 327 547 $1.00-$6.00 $ 1,453
Cancellation of shares granted
under the 1991 Plan (15)
` Options granted (230) 230 $6.00-$20.50 2,799
Options exercised (211) $1.00-$11.25 (770)
Options canceled 41 (42) $3.00-$9.00 (184)
-------- ----- --------
Balances, May 31, 1996 123 524 $2.38-$20.50 $ 3,298
-------- ----- --------
-------- ----- --------
</TABLE>
As of May 31, 1996, approximately 93,000 shares were exercisable at
an average exercise price of $3.05 per share.
NONQUALIFIED STOCK OPTIONS:
During fiscal 1991, in connection with the acquisition of BSI, the
Company issued nonqualified stock options to purchase 180,000
shares of the Company's common stock. These options became
exercisable in thirds in fiscal 1993, 1994 and 1995, contingent
upon the performance of the Company. Each third of the options had
a different exercise price per share: $3.00 for options
exercisable in 1994; and $4.00 for options exercisable in 1995. In
fiscal 1994, options to purchase 60,000 shares of the Company's
common stock became exercisable based on achievement of the
performance goals. In fiscal 1995, options to purchase 60,000
shares of the Company's common stock were canceled as the
performance goals were not met. During fiscal 1995, an option to
purchase 30,000 shares of the Company's common stock at an exercise
price of $3.00 was exercised. During fiscal 1996, options to
purchase 30,000 shares of the Company's common stock at an exercise
price of $3.00 were exercised. As of May 31, 1996, all options
issued in connection with the BSI acquisition were either exercised
or canceled.
Continued
-39-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
9. CAPITAL STOCK, continued:
WARRANTS:
During fiscal 1994, the Company granted warrants to purchase 192,500 shares
of common stock at an exercise price of $4.00 per share. The warrants
expire three to five years from the date of grant. During fiscal 1996,
55,000 warrants were exercised. As of May 31, 1996, 137,500 warrants were
outstanding and exercisable.
EMPLOYEE STOCK PURCHASE PLANS:
1985 EMPLOYEE STOCK PURCHASE PLAN:
The 1985 Employee Stock Purchase Plan was approved by the Board of
Directors on June 1, 1985, and amended by the Board of Directors on
December 1, 1990. The plan provides certain key employees the
right to purchase shares of common stock at a price determined by
the Board of Directors on the date of grant. The Company reserved
a total of 1,000,000 shares of common stock for issuance under the
plan. As of May 31, 1996, a total of 422,425 shares had been
issued under this plan.
1995 EMPLOYEE STOCK PURCHASE PLAN:
In May 1995, the Company adopted the 1995 Employee Stock Purchase
Plan which authorized the grant of stock purchase rights to all
eligible employees during six-month offering periods with exercise
dates approximately every six months. The Company has reserved
125,000 shares of common stock for issuance under the plan. The
first offering period of the plan commenced on the first trading
day after the effectiveness of the Company's initial public
offering. Shares are purchased through employees' payroll
deductions at exercise prices equal to 85% of the lesser of the
fair market value of the Company's common stock at either the first
day of an offering period or the last day of such offering period.
No participant may purchase more than $25,000 worth of common stock
in any one calendar year. To date, 27,055 shares have been issued
under the plan.
10. DEFINED CONTRIBUTION PLAN:
The Company sponsors a defined contribution plan that enables substantially
all regular employees of the Company to participate in the plan. Eligible
employees may contribute up to 20% of their base compensation to the plan,
and the Company may, but is not obligated to, match up to 50% of employee
contributions, up to a maximum of $100 per month per employee.
Continued
-40-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
10. DEFINED CONTRIBUTION PLAN, continued:
Company contributions to the defined contribution plan were approximately
$52,000, $78,000 and $57,000 in fiscal 1994, 1995 and 1996 respectively.
11. INCOME TAXES:
Details of the income tax provision consist of the following (IN
THOUSANDS):
Year Ended May 31,
1994 1995 1996
------- ------- -------
Income (loss) before taxes:
Domestic $ 1,105 $ 2,432 $ 6,663
Foreign (251) 250 859
------- ------- -------
Total $ 854 $ 2,682 $ 7,522
------- ------- -------
------- ------- -------
Income tax provision:
Current:
Federal $ 293 $ 757 $ 2,111
State 33 138 304
Foreign 12 57 290
------- ------- -------
Total current provision 338 952 2,705
------- ------- -------
Deferred:
Federal (61) 13 128
State (3) 2 22
Foreign (46) 15
------- ------- -------
Total deferred provision (110) 30 150
------- ------- -------
Total income tax provision $ 228 $ 982 $ 2,855
------- ------- -------
------- ------- -------
Continued
-41-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
11. INCOME TAXES, continued:
The significant components of the deferred tax assets were as follows (IN
THOUSANDS):
Year Ended May 31,
-------------------
1995 1996
----- -----
Noncurrent assets:
Purchased technology $ 472 $ 261
Fixed assets and other 116 (24)
----- -----
Net noncurrent assets $ 588 $ 237
----- -----
----- -----
Current assets (liabilities):
Cash to accrual adjustment $(240)
Marketable securities 17 $ 10
Accrued expense and other 261 204
----- -----
Net current assets $ 38 $ 214
----- -----
----- -----
The Company's effective tax rate differs from the statutory federal income
tax rate as shown in the following schedule:
Year Ended May 31,
----------------------
1994 1995 1996
------ ------ ------
Income tax provision (benefit) at statutory rate 34.0 % 34.0 % 34.0 %
State income taxes, net federal benefit 1.7 3.4 2.9
Foreign sales corporation (1.9) (0.7)
Research and development credit (10.5)
Other, net 3.4 (0.1) 1.1
------ ------ ------
26.7 % 36.6 % 38.0 %
------ ------ ------
------ ------ ------
12. RELATED PARTY TRANSACTIONS:
During fiscal 1995, the Company loaned an officer $125,000 in order to
purchase common stock. In May 1996, this loan was repaid plus interest
(calculated at a rate of 6.72%). Additionally, during fiscal 1995, the
Company reacquired 80,000 shares of common stock from a former officer and
forgave his $140,000 note.
Continued
-42-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
13. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental cash flow information is summarized as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------------
1994 1995 1996
----- ----- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 242 $ 247 $ 128
Income taxes $ 728 $ 735 $ 1,879
Noncash investing and financing activities:
Change in unrealized holding losses on marketable
securities $ 140 $ (93) $ (11)
Common stock issued for notes $ 125
Common stock repurchased for cancellation of notes
receivable $ 140
Property and equipment purchased under capital lease $ 199
</TABLE>
14. GEOGRAPHICAL INFORMATION:
FOREIGN OPERATIONS:
The Company develops, markets and supports networked systems
management software for distributed, heterogeneous computing
environments and operates in one industry segment. The following
presents information about operations in different geographic areas
(IN THOUSANDS):
<TABLE>
<CAPTION>
United
States Europe Eliminations Total
--------- --------- ------------ --------
<S> <C> <C> <C> <C>
1994
Revenues $ 13,388 $ 2,375 $ (680) $ 15,083
Portion of U.S. revenues from export sales 1,402 1,402
Income (loss) from operations 1,611 (252) 2 911
Identifiable assets 7,614 1,614 (170) 9,058
1995
Revenues $ 17,131 $ 3,518 $ (963) $ 19,686
Portion of U.S. revenues from export sales 1,524 1,524
Income (loss) from operations 2,514 236 2,750
Identifiable assets 9,664 2,335 (170) 11,829
1996
Revenues $ 26,529 $ 5,351 $(1,865) $ 30,015
Portion of U.S. revenues from export sales 1,899 1,899
Income (loss) from operations 5,957 845 6,802
Identifiable assets 31,488 2,903 (170) 34,221
</TABLE>
Continued
-43-
<PAGE>
UNISON SOFTWARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
14. GEOGRAPHICAL INFORMATION, continued:
FOREIGN OPERATIONS, continued:
Revenue and operating income (loss) from outside the United States
include the operating results of Unison Software (UK) Ltd. and
Unison Software Deutschland GmbH. Adjustments consist of
eliminations of a charge by Unison Software, Inc. for royalties on
software license fees recorded by its European subsidiaries.
Identifiable assets are all assets, including corporate assets,
identified with operations in each geographic area. Revenues from
the United States, including export sales, are denominated in
dollars. Revenues from European subsidiaries are denominated
predominantly in their local currencies.
-44-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information required by this item concerning the Company's directors is
incorporated by reference to the information set forth in the section entitled
"Proposal One--Election of Directors-- Information Regarding Nominees" in the
Company's Proxy Statement for the 1996 Annual Meeting of Stockholders, to be
filed with the Commission within 120 days after the end of the Company's fiscal
year ended May 31, 1996, except that the information required by this item
concerning the executive officers of the Company is incorporated by reference to
the information set forth in the section entitled "Executive Officers of the
Company" at the end of Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item regarding executive compensation is
incorporated by reference to the information set forth in the section entitled
"Executive Officer Compensation" in the Company's Proxy Statement for the 1996
Annual Meeting of Stockholders, to be filed with the Commission within 120 days
after the end of the Company's fiscal year ended May 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item regarding security ownership of
certain beneficial owners and management is incorporated by reference to the
information set forth in the section entitled "Share Ownership by Principal
Stockholders and Management" in the Company's Proxy Statement for the 1996
Annual Meeting of Stockholders, to be filed with the Commission within 120 days
after the end of the Company's fiscal year ended May 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item regarding certain relationships and
related transactions is incorporated by reference to the information set forth
in the section entitled "Transactions with Management" in the Company's Proxy
Statement for the 1996 Annual Meeting of Stockholders, to be filed with the
Commission within 120 days after the end of the Company's fiscal year ended
May 31, 1996.
-45-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Form 10-K:
1. FINANCIAL STATEMENTS.
See Index to Consolidated Financial Statements at Item 8, on page
23 of this Report.
2. FINANCIAL STATEMENT SCHEDULES.
See Financial Statement Schedules at Item 8, on page 23 of this
Report.
3. EXHIBITS.
3.1(1) Certificate of Incorporation
3.2 Amended and Restated Bylaws of Registrant, as amended
10.1(1)* 1991 Incentive Stock Option Plan.
10.2(1)* Forms of Option Agreement used under 1991 Incentive Stock
Option Plan.
10.3(1)* 1993 Director Stock Option Plan, as amended and restated.
10.4(1)* Form of option agreement used under 1993 Director Stock
Option Plan.
10.5(1)* 1995 Employee Stock Purchase Plan.
10.6(1)* Form of subscription agreement used under 1995 Employee
Stock Purchase Plan.
10.7(1)* 1995 Stock Option Plan, as amended and restated.
10.8(1)* Forms of option and stock purchase right agreements used
under 1995 Stock Option Plan.
10.9(1)* Form of Indemnification Agreement between Registrant and its
directors and officers.
10.10(1) Credit Facility and Warrant Agreement dated as of
October 29, 1993, between the Registrant and Trident
Capital, L.P. and Amendments #1, #2 and #3 thereto.
10.11(1) Warrant dated as of December 1, 1993 issued by the
Registrant to WS Investment Company 93D, as amended.
10.12(1) Lease dated July 1, 1994 for facilities located at 5101
Patrick Henry Drive, Santa Clara, California.
10.13(1) Lease dated October 19, 1989 for facilities located at 811
Barton Springs Road, Austin, Texas.
10.14(1)+ Software License Agreement dated as of July 30, 1993,
between the Registrant and Hewlett-Packard Company, as
amended.
10.15(1)+ Software Distribution and License Agreement dated as of
May 1, 1995, between the Registrant and Hewlett-Packard
Company.
10.17* Employment Agreement between the Registrant and Dominic
Gattuso Jr. dated as of August 16, 1996.
11.1 Statement of computation of earnings per share.
21.1(1) Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
24.1 Power of Attorney (see page 48).
27.1 Financial Data Schedule
(1) Incorporated herein by reference to identically numbered exhibit to
Registrant's Registration Statement on Form S-1 (Reg. St. No. 33-
92748), declared effective on July 20, 1995.
* Indicates management compensatory plan, contract or arrangement.
+ Confidential treatment has been previously granted for certain
portions of these exhibits.
(b) REPORTS ON FORM 8-K.
None.
-46-
<PAGE>
(c) EXHIBITS.
See Item 14(a) above.
(d) FINANCIAL STATEMENT SCHEDULE.
See Item 14(a) above.
-47-
<PAGE>
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 on this 28 day of
August 1996.
UNISON SOFTWARE, INC.
By: /s/ DON H. LEE
------------------------------
Don H. Lee,
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Don Lee and Richard Armitage, and each of
them, jointly and severally, his attorneys-in-fact, each with full power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each said attorneys-in-fact or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K has been signed below by the following persons on August 28, 1996 on
behalf of the Registrant and in the capacities and on the dates indicated:
Signatures Title
/s/ DON H. LEE Chief Executive Officer and Director
---------------- (principal executive officer)
Don H. Lee
/s/ DOMINIC GATTUSO JR. President, Chief Operating
------------------------ Officer and Director
Dominic Gattuso Jr.
/s/ RICHARD J. ARMITAGE Vice President, Finance, Chief Financial
------------------------ Officer and Treasurer (principal financial
Richard J. Armitage and accounting officer)
/s/ MICHAEL A. CASTEEL Executive Vice President, Chief Technology
----------------------- Officer and Director
Michael A. Casteel
/s/ DONALD R. DIXON Director
--------------------
Donald R. Dixon
/s/ JEFFREY D. SAPER Director
---------------------
Jeffrey D. Saper
-48-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Our report on the consolidated financial statements of Unison Software, Inc. and
Subsidiaries is included in this Form 10-K. In connection with our audits of
such financial statements, we have also audited the related financial statement
schedule included in this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
San Jose, California
July 3, 1996
<PAGE>
SCHEDULE II
UNISON SOFTWARE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED
BEGINNING TO COSTS BALANCE
OF THE AND AT END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS THE PERIOD
----------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Balance for the year ended May 31, 1994:
Allowance for doubtful accounts receivable $ 90 $ 35 $ (44) $ 81
Balance for the year ended May 31, 1995:
Allowance for doubtful accounts receivable 81 71 152
Balance for the year ended May 31, 1996:
Allowance for doubtful accounts receivable 152 128 (104) 176
</TABLE>
<PAGE>
UNISON SOFTWARE, INC.
ANNUAL REPORT ON FORM 10-K
FOR YEAR ENDED MAY 31, 1996
INDEX TO EXHIBITS
Exhibit Number Exhibit Description
3.1(1) Certificate of Incorporation
3.2 Amended and Restated Bylaws of Registrant, as amended.
10.1(1)* 1991 Incentive Stock Option Plan....................................
10.2(1)* Forms of Option Agreement used under 1991 Incentive Stock Option
Plan................................................................
10.3(1)* 1993 Director Stock Option Plan, as amended and restated............
10.4(1)* Form of option agreement used under 1993 Director Stock Option Plan.
10.5(1)* 1995 Employee Stock Purchase Plan...................................
10.6(1)* Form of subscription agreement used under 1995 Employee Stock
Purchase Plan.......................................................
10.7(1)* 1995 Stock Option Plan, as amended and restated.....................
10.8(1)* Forms of option and stock purchase right agreements used under 1995
Stock Option Plan...................................................
10.9(1)* Form of Indemnification Agreement between Registrant and its
directors and officers..............................................
10.10(1) Credit Facility and Warrant Agreement dated as of October 29, 1993,
between the Registrant and Trident Capital, L.P. and Amendments #1,
#2 and #3 thereto...................................................
10.11(1) Warrant dated as of December 1, 1993 issued by the Registrant to
Ws Investment Company 93D, as amended...............................
10.12(1) Lease dated July 1, 1994 for facilities located at 5101 Patrick
Henry Drive, Santa Clara, California................................
10.13(1) Lease dated October 19, 1989 for facilities located at 811 Barton
Springs Road, Austin, Texas.........................................
10.14(1)+ Software License Agreement dated as of July 30, 1993, between the
Registrant and Hewlett-Packard Company, as amended..................
10.15(1)+ Software Distribution and License Agreement dated as of May 1, 1995,
between the Registrant and Hewlett-Packard Company..................
10.17* Employment Agreement dated as of August 16, 1996 between the
Registrant and Dominic Gattuso Jr. .................................
11.1 Statement of computation of earnings per share......................
21.1(1) Subsidiaries of the Registrant......................................
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants........
24.1 Power of Attorney (see page 48).
27.1 Financial Data Schedule
- - -------------------
(1) Incorporated herein by reference to identical number exhibit to the
Registrant's Registration Statement on Form S-1 (Registration St. No. 33-
92748) declared effective on July 20, 1995.
* Indicates management compensatory plan, contract or arrangement.
+ Confidential treatment has been previously granted for certain portions of
these exhibits.
<PAGE>
Exh. 3.2
BYLAWS
OF
UNISON SOFTWARE, INC.
(A DELAWARE CORPORATION)
<PAGE>
BYLAWS OF
UNISON SOFTWARE, INC.
(a Delaware corporation)
TABLE OF CONTENTS
Page
----
ARTICLE I - CORPORATE OFFICES.................................................1
1.1 REGISTERED OFFICE....................................................1
1.2 OTHER OFFICES........................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS.........................................1
2.1 PLACE OF MEETINGS....................................................1
2.2 ANNUAL MEETING.......................................................1
2.3 SPECIAL MEETING......................................................2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.....................................2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND
STOCKHOLDER BUSINESS..............................................2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.........................3
2.7 QUORUM...............................................................4
2.8 ADJOURNED MEETING; NOTICE............................................4
2.9 VOTING...............................................................4
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT
A MEETING.........................................................5
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING...........................5
2.12 PROXIES..............................................................6
2.13 ORGANIZATION.........................................................6
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE................................6
2.15 WAIVER OF NOTICE.....................................................7
ARTICLE III - DIRECTORS.......................................................7
3.1 POWERS...............................................................7
3.2 NUMBER OF DIRECTORS..................................................7
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS.............................7
3.4 RESIGNATION AND VACANCIES............................................7
3.5 REMOVAL OF DIRECTORS.................................................8
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.............................9
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
----
3.7 FIRST MEETINGS.......................................................9
3.8 REGULAR MEETINGS.....................................................9
3.9 SPECIAL MEETINGS; NOTICE.............................................9
3.10 QUORUM..............................................................10
3.11 WAIVER OF NOTICE....................................................10
3.12 ADJOURNMENT.........................................................10
3.13 NOTICE OF ADJOURNMENT...............................................10
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING...................11
3.15 FEES AND COMPENSATION OF DIRECTORS..................................11
3.16 APPROVAL OF LOANS TO OFFICERS.......................................11
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF
INCORPORATION....................................................11
ARTICLE IV - COMMITTEES......................................................12
4.1 COMMITTEES OF DIRECTORS.............................................12
4.2 MEETINGS AND ACTION OF COMMITTEES...................................12
4.3 COMMITTEE MINUTES...................................................13
ARTICLE V - OFFICERS.........................................................13
5.1 OFFICERS............................................................13
5.2 ELECTION OF OFFICERS................................................13
5.3 SUBORDINATE OFFICERS................................................13
5.4 REMOVAL AND RESIGNATION OF OFFICERS.................................14
5.5 VACANCIES IN OFFICES................................................14
5.6 CHAIRMAN OF THE BOARD; CHIEF EXECUTIVE OFFICER......................14
5.7 PRESIDENT...........................................................14
5.8 VICE PRESIDENTS.....................................................15
5.9 SECRETARY...........................................................15
5.10 CHIEF FINANCIAL OFFICER.............................................15
5.11 ASSISTANT SECRETARY.................................................16
5.12 ADMINISTRATIVE OFFICERS.............................................16
5.13 AUTHORITY AND DUTIES OF OFFICERS....................................16
-ii-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
----
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS....................................................16
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS...........................16
6.2 INDEMNIFICATION OF OTHERS...........................................17
6.3 INSURANCE...........................................................18
ARTICLE VII - RECORDS AND REPORTS............................................18
7.1 MAINTENANCE AND INSPECTION OF RECORDS...............................18
7.2 INSPECTION BY DIRECTORS.............................................18
7.3 ANNUAL STATEMENT TO STOCKHOLDERS....................................19
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS......................19
7.5 CERTIFICATION AND INSPECTION OF BYLAWS..............................19
ARTICLE VIII - GENERAL MATTERS...............................................19
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND
VOTING...........................................................19
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS...........................20
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW
EXECUTED.........................................................20
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES....................20
8.5 SPECIAL DESIGNATION ON CERTIFICATES.................................21
8.6 LOST CERTIFICATES...................................................21
8.7 TRANSFER AGENTS AND REGISTRARS......................................21
8.8 CONSTRUCTION; DEFINITIONS...........................................22
ARTICLE IX - AMENDMENTS......................................................22
-iii-
<PAGE>
BYLAWS
OF
UNISON SOFTWARE, INC.
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the certificate
of incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Tuesday in September in each year at 10:00 a.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day. At the meeting, directors shall be elected,
and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more stockholders holding shares in the
<PAGE>
aggregate entitled to cast not less than ten percent (10%) of the votes of all
shares of stock owned by stockholders entitled to vote at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.6 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of stockholders called by action of the board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise given in
accordance with Section 2.6 of these bylaws not less than ten (10) nor more than
sixty (60) days before the date of the meeting. The notice shall specify the
place, date and hour of the meeting and (i) in the case of a special meeting,
the purpose or purposes for which the meeting is called (no business other than
that specified in the notice may be transacted) or (ii) in the case of the
annual meeting, those matters which the board of directors, at the time of
giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation,
(a) nominations for the election of directors, and
(b) business proposed to be brought before any stockholder meeting
may be made by the board of directors or proxy committee appointed by the board
of directors or by any stockholder entitled to vote in the election of directors
generally if such nomination or business proposed is otherwise proper business
before such meeting. However, any such stockholder may nominate one or more
persons for election as directors at a meeting or propose business to be brought
before a meeting, or both, only if such stockholder has given timely notice in
proper written form of their intent to make
-2-
<PAGE>
such nomination or nominations or to propose such business. To be timely, such
stockholder's notice must be delivered to or mailed and received by the
secretary of the corporation not less than ninety (90) days prior to the
meeting; provided, however, that in the event that less than one-hundred (100)
days notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. To be in proper form, a stockholder's notice to the secretary shall set
forth:
(i) the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may be, of the person
or persons to be nominated or of the business to be proposed;
(ii) a representation that the stockholder is a holder of record of stock
of the corporation entitled to vote at such meeting and, if applicable,
intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice;
(iii) if applicable, a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or intended to be
proposed by the board of directors; and
(v) if applicable, the consent of each nominee to serve as director of the
corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
-3-
<PAGE>
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation or
these bylaws, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
-4-
<PAGE>
At a stockholders' meeting at which directors are to be elected, and to the
extent permitted by the corporation's Certificate of Incorporation, each
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes that such stockholder normally
is entitled to cast) if the candidates' names have been properly placed in
nomination (in accordance with these bylaws) prior to commencement of the
voting, and the stockholder requesting cumulative voting has given notice prior
to commencement of the voting of the stockholder's intention to cumulate votes.
If cumulative voting is properly requested, each holder of stock, or of any
class or classes or of a series or series thereof, who elects to cumulate votes
shall be entitled to as many votes as equals the number of votes that (absent
this provision as to cumulative voting) he or she would be entitled to cast for
the election of directors with respect to his or her shares of stock multiplied
by the number of directors to be elected by him, and he or she may cast all of
such votes for a single director or may distribute them among the number to
be voted for, or for any two or more of them, as he or she may see fit.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the Certificate of Incorporation, any action
required or permitted to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Such consents shall be delivered to the corporation by delivery to it
registered office in the state of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new
-5-
<PAGE>
record date for the adjourned meeting, but the board of directors shall fix a
new record date if the meeting is adjourned for more than thirty (30) days from
the date set for the original meeting.
The record date for any other purpose shall be as provided in Section 8.1
of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
2.13 ORGANIZATION
The president, or in the absence of the president, the chairman of the
board, shall call the meeting of the stockholders to order, and shall act as
chairman of the meeting. In the absence of the president, the chairman of the
board, and all of the vice presidents, the stockholders shall appoint a chairman
for such meeting. The chairman of any meeting of stockholders shall determine
the order of business and the procedures at the meeting, including such matters
as the regulation of the manner of voting and the conduct of business. The
secretary of the corporation shall act as secretary of all meetings of the
stockholders, but in the absence of the secretary at any meeting of the
stockholders, the chairman of the meeting may appoint any person to act as
secretary of the meeting.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.15 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the
-6-
<PAGE>
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or these
bylaws.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and to
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The board of directors shall consist of five (5) members. The number of
directors may be changed by an amendment to this bylaw, duly adopted by the
board of directors or by the stockholders, or by a duly adopted amendment to the
certificate of incorporation.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director elected or appointed to fill
a vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
-7-
<PAGE>
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute a
majority of the required quorum). Each director so elected shall hold office
until the next annual meeting of the stockholders and until a successor has been
elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors; provided, however, that, if and so
long as stockholders of the corporation are entitled to cumulative voting, if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against his removal would be sufficient to elect him if
then cumulatively voted at an election of the entire board of directors.
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3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting. In the event of the failure of the stockholders to fix the time
or place of such first meeting of the newly elected board of directors, or in
the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time as shall from time to time be determined by the board of directors.
If any regular meeting day shall fall on a legal holiday, then the meeting shall
be held at the same time and place on the next succeeding full business day.
3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least forty-
eight (48) hours before the time of the holding of the meeting. Any oral notice
given personally or by telephone may be communicated either to the director or
to a person at the office of the director who the person giving the notice has
reason to believe
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will promptly communicate it to the director. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.
3.10 QUORUM
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.12
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the quorum for that meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
3.12 ADJOURNMENT
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting of the board to another time and place.
3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting of the board
need not be given unless the meeting is adjourned for more than twenty-four (24)
hours. If the meeting is adjourned for more than twenty-four (24) hours, then
notice of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 3.9 of these
bylaws, to the directors who were not present at the time of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the
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board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board of directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole director,
who shall have all the rights and duties and shall be entitled to exercise all
of the powers and shall assume all the responsibilities otherwise herein
described as given to the board of directors.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board,
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shall have and may exercise all the powers and authority of the board, but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the corporation),
(ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of
the General Corporation Law of Delaware, (iii) recommend to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution or (v) amend the bylaws of the
corporation; and, unless the board resolution establishing the committee, the
bylaws or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the following provisions of Article III of these bylaws:
Section 3.6 (place of meetings; meetings by telephone), Section 3.8 (regular
meetings), Section 3.9 (special meetings; notice), Section 3.10 (quorum),
Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section 3.13
(notice of adjournment) and Section 3.14 (board action by written consent
without meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee, that special meetings of committees may also be
called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
4.3 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
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ARTICLE V
OFFICERS
5.1 OFFICERS
The Corporate Officers of the corporation shall be a chief executive
officer and/or a president, a secretary and a chief financial officer. The
corporation may also have, at the discretion of the board of directors, a
chairman of the board, one or more vice presidents (however denominated), one or
more assistant secretaries, a treasurer and one or more assistant treasurers,
and such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
In addition to the Corporate Officers of the Company described above, there
may also be such Administrative Officers of the corporation as may be designated
and appointed from time to time by the president of the corporation in
accordance with the provisions of Section 5.12 of these bylaws.
5.2 ELECTION OF OFFICERS
The Corporate Officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
The president may from time to time designate and appoint Administrative
Officers of the corporation in accordance with the provisions of Section 5.12 of
these bylaws.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of a Corporate Officer under any contract of
employment, any Corporate Officer may be removed, either with or without cause,
by the board of directors at any regular or special meeting of the board or,
except in case of a Corporate Officer chosen by the board of directors, by any
Corporate Officer upon whom such power of removal may be conferred by the board
of directors.
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Any Corporate Officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of the receipt
of that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Corporate
Officer is a party.
Any Administrative Officer designated and appointed by the president may be
removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD; CHIEF EXECUTIVE OFFICER
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such other
powers and perform such other duties as may from time to time be assigned to him
by the board of directors or as may be prescribed by these bylaws. If the Board
so decides, the chairman of the board shall also be the chief executive officer
of the corporation.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board or chief executive officer, if there be
such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and the officers of
the corporation. He or she shall preside at all meetings of the stockholders
and, in the absence or nonexistence of a chairman of the board or chief
executive officer, at all meetings of the board of directors. He or she shall
have the general powers and duties of management usually vested in the office of
president of a corporation, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, and if there is no chairman
of the board, the vice presidents, if any, in order of their rank as fixed by
the board of directors or, if not ranked, a vice president designated by the
board of directors, shall perform all the duties of the president and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the board of directors, these bylaws, the president or the
chairman of the board.
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5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of the board of directors,
committees of directors and stockholders. The minutes shall show the time and
place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by any director for a purpose reasonably related to
his position as a director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He or she shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
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5.12 ADMINISTRATIVE OFFICERS
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by the president or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance of
such duties and the exercise of such powers, however, such Administrative
Officers shall have limited authority to act on behalf of the corporation as the
board of directors shall establish, including but not limited to limitations on
the dollar amount and on the scope of agreements or commitments that may be made
by such Administrative Officers on behalf of the corporation, which limitations
may not be exceeded by such individuals or altered by the president without
further approval by the board of directors.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing powers, authority and duties, all officers of
the corporation shall respectively have such authority and powers and perform
such duties in the management of the business of the corporation as may be
designated from time to time by the board of directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware as the same now exists or may hereafter
be amended, indemnify any person against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action, suit,
or proceeding in which such person was or is a party or is threatened to be made
a party by reason of the fact that such person is or was a director or officer
of the corporation. For purposes of this Section 6.1, a "director" or "officer"
of the corporation shall mean any person (i) who is or was a director or officer
of the corporation, (ii) who is or was serving at the request of the corporation
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such
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action, suit, or proceeding (or part thereof) by the director or officer was
authorized by the Board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees) incurred
by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director of officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
The rights conferred on any person by this Article shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the corporation's Certificate of Incorporation, these
bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or officer) shall mean any person (i) who
is or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the
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power to indemnify him or her against such liability under the provisions of the
General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine (and to make copies of) the
corporation's stock ledger, a list of its stockholders and its other books and
records for a purpose reasonably related to his or her position as a director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the president, any vice president, the
chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or
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corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise altered to
date, certified by the secretary, shall be kept at the corporation's principal
executive office and shall be open to inspection by the stockholders of the
corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date so fixed
are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board of directors adopts the applicable
resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws, may
authorize and empower any officer or officers, or agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation; such power and authority may be general or confined to
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specific instances. Unless so authorized or ratified by the board of directors
or within the agency power of an officer, no officer, agent or employee shall
have any power or authority to bind the corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or for
any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and, upon
request, every holder of uncertificated shares, shall be entitled to have a
certificate signed by, or in the name of the corporation by, the chairman or
vice-chairman of the board of directors, or the president or vice-president, and
by the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
-20-
<PAGE>
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, each of which shall be an incorporated bank
or trust company -- either domestic or foreign, who shall be appointed at such
times and places as the requirements of the corporation may necessitate and the
board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of
this provision, as used in these bylaws, the singular number includes the
plural, the plural number includes the singular, and the term "person" includes
both an entity and a natural person.
-21-
<PAGE>
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote or by the board of directors of
the corporation. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their power
to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
-22-
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
UNISON SOFTWARE, INC.
ADOPTION BY INCORPORATOR
The undersigned person appointed in the Certificate of Incorporation to act
as the Incorporator of Unison Software, Inc. hereby adopts the foregoing bylaws,
comprising twenty-two (22) pages, as the Bylaws of the corporation.
Executed this 31st day of May, 1995.
/s/ Jon E. Gavenman
-----------------------------------
Jon E. Gavenman, Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
UNISON SOFTWARE, INC.
The following resolution was adopted by the Board of Directors of Unison
Software, Inc. at a meeting held on June 27, 1996:
RESOLVED: That, in order to reduce the size of the Board from five members
to four members, Article III, Section 3.2 of the Bylaws of the Corporation
is hereby amended to read in its entirety as follows:
"3.2 NUMBER OF DIRECTORS The Board of directors shall consist of
four (4) members. The number of directors may be changed by an
amendment of this bylaw, duly adopted by the board of directors or by
the stockholders, or by a duly adopted amendment to the certificate of
incorporation."
<PAGE>
CERTIFICATE OF AMENDMENT
OF BYLAWS OF
UNISON SOFTWARE, INC.
The following resolution was adopted by the Board of Directors of Unison
Software, Inc. by unanimous written consent effective August 16, 1996:
RESOLVED: That, in order to increase the size of the Board from four
members to five members, Article III, Section 3.2 of the Bylaws of the
Company is hereby amended to read in its entirety as follows:
"3.2 NUMBER OF DIRECTORS The Board of directors shall consist of
five (5) members. The number of directors may be changed by an
amendment of this bylaw, duly adopted by the board of directors or by
the stockholders, or by a duly adopted amendment to the certificate of
incorporation."
<PAGE>
UNISON SOFTWARE, INC.
EMPLOYMENT AGREEMENT
This Agreement is entered into as of August 16, 1996 (the "Effective
Date"), by and between Unison Software, Inc., a Delaware corporation (the
"Company"), and Dominic Gattuso, Jr. (the "Executive").
WHEREAS, the Company desires to employ the Executive and the Executive
desires to accept employment with the Company on the terms and conditions set
forth below;
NOW, THEREFORE, in consideration of the foregoing recital and the
respective covenants and agreements of the parties contained in this document,
the Company and the Executive agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) The Executive shall be employed as Chief Operating Officer and
President of the Company, reporting to the Chief Executive Officer of the
Company and assuming and discharging such responsibilities as are set forth for
the Chief Operating Officer and President in the Company's bylaws from time to
time in effect, and such other duties and responsibilities as the Chief
Executive Officer may from time to time reasonably assign to the Executive, in
all cases to be consistent with the Executive's office and position. The
Executive shall perform faithfully the executive duties assigned to him to the
best of his ability. After the Executive commences employment with the Company,
the Board of Directors shall appoint the Executive to serve as a director of the
Company and shall include the Executive as one of management's slate of nominees
in the election of directors at the next annual meeting of stockholders. The
Executive shall serve as a director without additional compensation.
(b) The Executive's employment with the Company will be on an at-will
basis, and the Company will have the right, exercisable by written notice to the
Executive, to terminate the Executive's employment immediately at any time, with
or without cause. If the Executive's employment terminates for any reason , the
Executive shall not be entitled to any payments, benefits, damages, awards or
compensation, except as provided in paragraph 1(c) below or under applicable
law; provided, however, that nothing herein shall affect the Executive's right
to receive any normal termination benefits available to similarly situated
employees under regular Company policies and procedures, including without
limitation, the right to exercise all stock options to the extent vested as of
termination and in accordance with their terms, the payment for accrued but
unused vacation and, the payment of all earned but unpaid bonuses.
(c) If the Executive's employment with the Company is terminated by
the Company without Cause (excluding terminations by reason of death, Disability
or voluntary resignation), then the Company shall pay to the Executive, until
the earlier of (i) six (6) months following such termination or (ii) the
Executive accepting a full-time employment position with another employer, a
monthly termination payment equal to the Executive's average monthly base
<PAGE>
salary over the twelve (12) months (or such lesser period as the Executive may
have been employed by the Company) preceding such termination (without giving
effect to any bonuses or other incentive compensation). In addition, the
Company shall continue to provide the Executive and his dependents with their
existing medical benefits as of termination for the duration of the period in
which payments are made under this paragraph 1(c).
(d) For purposes of paragraph 1(c) above, "Cause" shall mean (i) the
willful failure by the Executive to substantially perform his material duties
within 10 days after written demand for such performance is delivered to the
Executive by the Board, (ii) the Executive's systematic and continuous failure
to follow reasonable policies or directives established by the Board,
(iii) willful, bad faith or grossly negligent conduct that is detrimental to the
Company, or (iv) the conviction of the Executive of any crime involving the
property or business of the Company.
(e) For purposes of paragraph 1(c) above, "Disability" shall mean
that the Executive, at the time notice of termination is given, has been unable
to substantially perform his duties under this Agreement for a period of not
less than three (3) consecutive months as the result of his incapacity due to
physical or mental illness. In the event that the Executive resumes the
performance of substantially all of his duties hereunder before the termination
of his employment becomes effective, the notice of termination shall
automatically be deemed to have been revoked.
2. BASE SALARY. In consideration of the Executive's services, the
Executive shall be paid an initial base salary (the "Base Salary") at the rate
of $200,000 per year, to be paid in monthly installments in accordance with the
Company's standard payroll practices. This Base Salary shall be reviewed by the
Board on the same basis as the Board shall review the compensation of other
executive officers of the Company.
3. BONUS.
(a) For fiscal 1997, the Executive shall be eligible to receive bonus
compensation (the "Bonus") according to the following criteria:
(i) Executive shall be eligible for quarterly bonuses of twenty-
five thousand dollars ($25,000) per fiscal quarter (prorated for the first
fiscal quarter) if operating profit for such fiscal quarter equals or exceeds
100% of the budgeted operating profit for such fiscal quarter contained in the
Company's budget for fiscal 1997 as of the date hereof, as presented to you (the
"Budget"). The Company must achieve 100% of budgeted operating profit in a
given fiscal quarter for a bonus to be payable under this paragraph 3(a)(i) for
such quarter. Any amount less than 100% will result in no bonus for that
quarter. These bonuses shall be payable in accordance with the Company's normal
payroll practices, within 30 days after the end of the applicable period, or as
otherwise agreed upon by the Board of Directors and the Executive.
-2-
<PAGE>
(ii) In addition to the amount payable under paragraph 3(a)(i),
if operating profit for fiscal 1997 equals or exceeds 100% of the budgeted
operating profit in the Budget, Executive shall be eligible for an annual bonus
determined as follows:
(A) 5% of the amount by which actual fiscal 1997 operating
profit exceeds budgeted operating profit, up to a
maximum excess of $2,000,000 (i.e., a maximum bonus
amount under this paragraph 3(a)(ii)(A) of $100,000),
plus
(B) 6% of the amount by which actual fiscal 1997 operating
profit exceeds the sum of (1) budgeted operating profit
plus (2) $2,000,000 plus (3) the bonus amount payable
pursuant to paragraph 3(a)(ii)(A), up to a maximum
excess of $2,000,000 (i.e., a maximum bonus amount
under this paragraph 3(a)(ii)(B) of $120,000), plus
(C) 7% of the amount by which actual fiscal 1997 operating
profit exceeds the sum of (1) budgeted operating profit
plus (2) $4,000,000 plus (3) the bonus amounts payable
pursuant to paragraphs 3(a)(ii)(A) and 3(a)(ii)(B).
Such annual bonus, if any, shall be payable upon release of the Company's
audited financial statements for fiscal 1997.
(b) For subsequent fiscal years, it is the parties intention that the
Executive's bonus compensation amounts and the financial criteria upon which
they shall be based shall be generally comparable to the foregoing, subject to
mutual determination and review by the Board in consultation with the Executive.
4. STOCK OPTION.
(a) NONSTATUTORY STOCK OPTION. Subject to action by the Board of
Directors, upon the commencement of the Executive's employment, the Company
shall grant the Executive a nonstatutory stock option (the "Option") to purchase
one hundred sixty-one thousand, seven hundred sixty (161,760) shares of the
Company's common stock (the "Shares") at the closing market price on the date of
grant. The Option shall vest as described in paragraph 4(b) below and shall be
subject to such other terms and conditions as are described in paragraphs 4(c),
4(d) and 4(e) below.
(b) VESTING. Subject to the provisions for accelerated vesting upon
a Change of Control in paragraph 4(d) below, forty thousand, four hundred forty
(40,440) of the Shares shall vest and become exercisable on the anniversary of
the Effective Date each year thereafter, so that all of the Shares shall be
vested and exercisable four years after the Effective Date.
-3-
<PAGE>
(c) OPTION PROVISIONS. The option shall be subject to the terms and
condition of an option agreement between the Executive and the Company and the
terms of this Employment Agreement. The Option shall be granted outside of any
of the Company's stockholder-approved equity compensation plans. Accordingly,
the grant of the Option may be treated as a "purchase" for purposes of Section
16 of the Securities Exchange Act of 1934 and matchable against any "sales"
within six months of the date of grant.
(d) CHANGE OF CONTROL.
(i) Subject to paragraph 4(e) below, in the event of a Change of
Control (defined below), the vesting of the unvested portion, if any, of the
Option shall automatically accelerate, and the Executive shall have the right to
exercise all or any portion of the Option, in addition to any portion of the
Option exercisable prior to such event, according to the following schedule:
a. If the Change of Control occurs prior to the end of the
first twelve months of the Executive's employment with the Company, fifty
percent (50%) of the unvested portion of the Option shall thereupon become
vested and exercisable by the Executive.
b. If the Change of Control occurs on or after the first
anniversary of the commencement of the Executive's employment with the Company,
all of the unvested portion of the Option shall thereupon become vested and
exercisable by the Executive.
(ii) For purposes of this Agreement, the term "Change of Control"
shall mean the occurrence of any of the following events:
a. Any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (other than the Company, a
Company subsidiary or a Company employee benefit plan, including any trustee of
such a plan acting as trustee), becoming the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than fifty percent (50%) of the combined voting power
of the Company's then-outstanding securities entitled to vote generally in the
election of directors; or
b. The consummation of a merger or consolidation of the
Company with or into any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least fifty percent (50%) of the total voting power represented by
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or
c. The consummation of a sale or disposition by the
Company of all or substantially all the Company's assets.
-4-
<PAGE>
(e) CERTAIN BUSINESS COMBINATIONS. In the event that (i) it is
determined by the Board of Directors, upon receipt of a written opinion of the
Company's independent public accountants, that the enforcement of paragraph 4(d)
hereof would preclude accounting for any proposed business combination of the
Company involving a Change of Control as a pooling of interests, and (ii) it is
also determined by the Board that such accounting treatment for such a proposed
business combination would be in the best interests of the Company's
stockholders, such paragraph shall be null and void.
5. BENEFITS; EXPENSES.
(a) The Executive shall be permitted, to the extent eligible, to
participate in any group medical, dental, life insurance and disability
insurance plans, equity compensation plans or similar benefit plans of the
Company that are available to other comparable employees. Participation in any
such plan shall be consistent with the Executive's rate of compensation to the
extent that compensation is a determinative factor with respect to coverage
under any such plan.
(b) The Company shall reimburse the Executive for all reasonable
business and travel expenses actually incurred or paid by the Executive in the
performance of his services on behalf of the Company, in accordance with the
Company's expense reimbursement policy as from time to time in effect.
6. OTHER ACTIVITIES. The Executive shall devote substantially all of his
working time and efforts during the Company's normal business hours to the
business and affairs of the Company and its subsidiaries and to the diligent and
faithful performance of the duties and responsibilities assigned to him pursuant
to this Agreement, except for vacations, holidays and sickness. Notwithstanding
the foregoing, the Executive may devote a reasonable amount of his time to
civic, community, or charitable activities and, with the prior written approval
of the Board of Directors, may serve as a director of other corporations and
engage in other types of business or public activities not expressly mentioned
in this paragraph.
7. COVENANT NOT TO SOLICIT. Beginning with the Executive's termination
of employment with the Company and for a period of one (1) year thereafter, the
Executive agrees that he will not
(i) solicit, encourage, or take any other action which is intended to
induce any other employee of the Company to terminate his employment with the
Company, or
(ii) interfere in any manner with the contractual or employment
relationship between the Company and any such employee of the Company.
The foregoing shall not prohibit the Executive or any entity with which the
Executive may be affiliated from hiring a former employee of the Company,
provided that such hiring results exclusively from (i) such employee's
affirmative response to a general recruitment effort carried out through a
-5-
<PAGE>
public solicitation or a general solicitation or (ii) an unsolicited approach by
such employee to the Executive.
8. PROPRIETARY INFORMATION AGREEMENT. Upon commencement of the
Executive's employment, the Executive will sign the Company's standard employee
proprietary information agreement.
9. SUCCESSORS. The Company shall require any successor or assignee, in
connection with any sale, transfer or other disposition of all or substantially
all of the Company assets or business, whether by purchase, merger,
consolidation or otherwise, expressly to assume and agree to perform the
Company's obligations under this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession or
assignment had taken place. In such event, the term "Company," as used in this
Agreement, shall mean the Company as defined above and any successor or assignee
to the business and assets which by reason hereof becomes bound by the terms and
provisions of this Agreement.
10. RIGHT TO ADVICE OF COUNSEL. The Executive acknowledges that he has
had the opportunity to consult with counsel and is fully aware of his rights and
obligations under this Agreement.
11. ABSENCE OF CONFLICT. The Executive represents and warrants that his
employment by the Company as described herein shall not conflict with and will
not be constrained by any prior employment or consulting agreement or
relationship.
12. WAIVER. Failure or delay on the part of either party hereto to
enforce any right, power, or privilege hereunder shall not be deemed to
constitute a waiver thereof. Additionally, a waiver by either party or a breach
of any promise hereof by the other party shall not operate as or be construed to
constitute a waiver of any subsequent waiver by such other party.
13. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
14. ARBITRATION. Any claim, dispute or controversy arising out of this
Agreement, the interpretation, validity or enforceability of this Agreement or
the alleged breach thereof shall be submitted by the parties to binding
arbitration pursuant to the rules then in effect of the American Arbitration
Association in Santa Clara County, California; provided, however, that this
arbitration provision shall not preclude the Company from seeking injunctive
relief from any court having jurisdiction with respect to any disputes or claims
relating to or arising out of the misuse or misappropriation of the Company's
trade secrets or confidential and proprietary information. All
-6-
<PAGE>
costs and expenses of arbitration or litigation, including but not limited to
attorneys fees and other costs reasonably incurred by the Executive, shall be
paid by the party who shall not prevail in the arbitration, all as conclusively
determined by the arbitrators. Judgment may be entered on the award of the
arbitration in any court having jurisdiction.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to agreements
made and to be performed entirely within such state.
16. INTEGRATION. This Agreement and any written Company plans and
agreements that are referenced herein represent the entire agreement and
understanding between the parties as to the subject matter hereof and supersede
all prior or contemporaneous agreements, whether written or oral. No waiver,
alteration, or modification, if any, of the provisions of this Agreement shall
be binding unless in writing and signed by duly authorized representatives of
the parties hereto.
17. VOLUNTARY EXECUTION; CONFLICT WAIVER. The Executive has had the
opportunity to receive independent legal counsel regarding this Agreement, which
was drafted by the Company's counsel. The Executive is signing this Agreement
knowingly and voluntarily. The Company and the Executive acknowledge that
Wilson, Sonsini, Goodrich & Rosati ("WSGR") has acted as counsel to the Company
in negotiating this Agreement and will continue to serve as the Company's
general counsel in the future, acknowledge that each has received full
disclosure of any potential conflict of interest which may result from such
representation, and knowingly and voluntarily waive any such conflict of
interest.
18. COUNTERPARTS. This Agreement may be executed in counterparts, which
together will constitute one instrument.
EXECUTIVE UNISON SOFTWARE, INC.
/s/ Dominic Gattuso Jr. By: /s/ Don H. Lee
- - ---------------------------------- -------------------------------
Dominic Gattuso Jr.
Title: Chief Executive Officer
---------------------------
-7-
<PAGE>
CONSENT OF SPOUSE: I hereby consent to this Agreement for purposes of any
community property interest I may have in the foregoing arrangements. I have
had the opportunity to seek independent counsel with regard to this consent and
knowingly and voluntarily waive the right to such counsel.
/s/Joan R. Reagan August 19,1996
- - --------------------------------------------------------- ---------------
Signature of Spouse Date Signed
Joan R. Reagan
- - ----------------------------------------------------------
Printed Name of Spouse
-8-
<PAGE>
EXHIBIT 11.1
UNISON SOFTWARE, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------
Year Ended May 31,
--------------------------------
1994 1995 1996
-------- -------- --------
Weighted average common shares outstanding
for the period 5,500 5,651 7,330
Common equivalent shares pursuant to Staff
Accounting Bulletin No. 83 226 226
Common equivalent shares assuming conversion
of stock options and warrants under the
treasury stock method 131 73 520
-------- -------- --------
Shares used in per share calculation 5,857 5,950 7,850
-------- -------- --------
-------- -------- --------
Net income $ 626 $ 1,700 $ 4,667
-------- -------- --------
-------- -------- --------
Net income per share $ 0.11 $ 0.29 $ 0.59
-------- -------- --------
-------- -------- --------
(1) There is no difference between primary and fully diluted net income per
share for all periods presented.
<PAGE>
EXHIBIT 23.1
CONSENT OF COOPERS & LYBRAND, INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (No. 33-80903) of our report dated July 3, 1996, on our audits of the
consolidated financial statements and financial statement schedule of Unison
Software, Inc. and Subsidiaries as of May 31, 1996 and 1995, and for the three
years in the period ended May 31, 1996, which report is included in this Annual
Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
San Jose, California
August 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF UNISON SOFTWARE, INC. FOR THE YEAR ENDED
MAY 31, 1996 INCLUDE ELSEWHERE IN THIS REPORT AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 4558
<SECURITIES> 15890
<RECEIVABLES> 11390
<ALLOWANCES> 176
<INVENTORY> 0
<CURRENT-ASSETS> 31992
<PP&E> 3100
<DEPRECIATION> 1385
<TOTAL-ASSETS> 34221
<CURRENT-LIABILITIES> 10322
<BONDS> 688
0
0
<COMMON> 8
<OTHER-SE> 23019
<TOTAL-LIABILITY-AND-EQUITY> 34221
<SALES> 0
<TOTAL-REVENUES> 30015
<CGS> 0
<TOTAL-COSTS> 2905
<OTHER-EXPENSES> 20308
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 128
<INCOME-PRETAX> 7522
<INCOME-TAX> 2855
<INCOME-CONTINUING> 4667
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4667
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0
</TABLE>
