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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-26772
VISIO CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1448389
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 PIKE STREET, SUITE 1800, SEATTLE, WASHINGTON 98101-4001
(Address of principal executive offices) (Zip code)
(206) 521-4500
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(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
--- ---
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 of information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Common Stock on November
28, 1997 as reported on the Nasdaq National Market, was approximately $37.625.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of November 28, 1997, there were 28,295,989 shares outstanding of the
registrant's Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the registrant's definitive Proxy Statement for the 1998 Annual
Meeting of Shareholders to be held on February 25, 1998 are incorporated by
reference in Part III of this Form 10-K.
Visio, SmartShapes, IntelliCAD and Visio Solutions Library are either registered
trademarks or trademarks of Visio Corporation in the United States and/or other
countries. All other trademarks, trade names or company names referenced herein
are used for identification only and are the property of their respective
owners.
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VISIO CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
PART I
PAGE
----
Item 1. Business............................................. 4
Item 2. Properties........................................... 11
Item 3. Legal Proceedings.................................... 11
Item 4. Submission of Matters to a Vote of Security Holders.. 11
PART II
Item 5. Market for the Registrant's Common Equity and
Related Shareholder Matters.......................... 12
Item 6. Selected Financial Data.............................. 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 13
Item 8. Financial Statements and Supplementary Data.......... 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............... 22
PART III
Item 10. Directors and Executive Officers of the Registrant... 40
Item 11. Executive Compensation............................... 40
Item 12. Security Ownership of Certain
Beneficial Owners and Management..................... 40
Item 13. Certain Relationships and Related Transactions....... 40
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.............................. 41
Signatures.................................................... 44
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PART I
ITEM 1. BUSINESS
FORWARD LOOKING STATEMENTS
Except for the historical information contained in this Annual Report, the
matters discussed herein, particularly those identified with the words
"expects," "believes," "anticipates" and similar expressions, are forward-
looking statements. These statements reflect management's best judgment based on
factors known to them at the time of such statements. Such forward-looking
statements are subject to certain risks and uncertainties, including without
limitation those set forth under "Certain Risk Factors That May Impact Future
Results of Operations" contained in Item 7 Management's Discussion and Analysis
of Financial Condition and Results of Operations of this Annual Report on Form
10-K, many of which are beyond the Company's control, that could cause actual
results to differ materially from those anticipated. Such factors should be
carefully considered when evaluating the Company's business and prospects, and
the forward-looking information provided by Visio pursuant to the safe harbor
provisions established by recent securities legislation. Readers should also
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission.
GENERAL
Visio Corporation ("Visio" or the "Company") is a leading supplier of business
drawing and diagramming software. Visio(R) software, introduced in 1992, enables
business and technical users to create drawings and diagrams using a "drag and
drop" approach. Customers use the Company's software for creating drawings and
diagrams ranging from simple diagrams such as flowcharts, block diagrams and
organizational charts to complex technical drawings such as space plans,
electrical schematics and network designs. Visio's flexible product
architecture and powerful graphics engine allow organizations to standardize on
a single, easy-to-use product that meets a broad range of business drawing and
diagramming needs, and thereby realize savings on purchasing, training and
support. The Company's mission is to become the single standard for creating,
storing and exchanging drawings and diagrams in business.
BACKGROUND
Drawing and diagramming - the visual representation of concepts, processes and
relationships - can be as important to businesses as words and numbers for
communicating and exchanging ideas. Drawings and diagrams can succinctly
communicate abstract concepts and relationships such as organizational
structures and technical schematics. Business drawings and diagrams,
traditionally done by hand using rulers, templates and graph paper, or delegated
to specialists such as graphic artists or drafters, are increasingly created
using software products. Just as the advent of personal computers made
electronic word processing and spreadsheet preparation possible for the general
user, the widespread acceptance of easy-to-use graphical user interfaces has
created a similar opportunity for personal computer software to replace
traditional paper-based drawing and diagramming for general business users.
Most existing drawing and diagramming software was introduced for narrowly
defined drawing needs, for specialists or as secondary features of office suite
products. For example, single-purpose products were created for specific tasks
such as flowcharting, organizational charting or network diagramming. Users
were confronted with a variety of products, each with a different user
interface, and the drawings and diagrams they produced were often difficult to
integrate into word-processed documents, spreadsheets or presentation materials.
Illustration, page layout and CAD software has also been created for graphics
artists, designers and drafters. These specialty products generally do not
address the needs of nonspecialists who wish to create, share or modify drawings
and diagrams. These products are also generally expensive, may require special
system configurations, usually require a substantial investment of time to
master and must be used regularly for the investment to be justified and the
mastery maintained. Although the drawing capabilities of office suite products
were developed for general business users, the Company believes that to date
they have lacked the depth and breadth of functionality necessary to enable
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users to easily create a variety of business drawings and diagrams. The result
has been a market highly focused on specific users and fragmented among many
applications.
THE VISIO SOLUTION
To address the limitations of existing drawing and diagramming software, the
Company introduced Visio in November 1992. The Company's primary products,
Visio Standard, Visio Technical and Visio Professional, offer users solutions
based on a single, easy-to-use technology for a wide variety of drawing and
diagramming needs, while add-on products provide users with additional
functionality and shapes for particular applications.
All Visio products are based on a common graphics "engine" that drives
parametrically defined SmartShapes(R) symbols, intelligent objects and
connectors that maintain relationships within and between shapes as they are
moved. Visio's SmartShapes objects, its stencil metaphor and its drag-and-drop
features allow users with no prior graphics or CAD training to select shapes
easily, combine them with text and manipulate them to create sophisticated
drawings and diagrams.
The Visio graphics engine employs Microsoft Windows and ActiveX technology to
embed Visio drawings and diagrams into other documents, link documents and
incorporate information from other sources into Visio drawings and diagrams.
Visio utilizes an open architecture that is easily extensible and customizable
in order to facilitate and encourage the development of specific solutions by
both end users and third-party solution providers and to enable the Company to
expand its products to address new markets.
The Company believes that its software is expanding the market for drawing and
diagramming software. Visio replaces hand-drawing and single-use products and
moves drawing and diagramming out of the specialist art and drafting departments
and onto the desktops of general users throughout business enterprises. The
Company's software allows users of Visio Standard, Visio Technical and Visio
Professional to share files created with any other Visio product and permits
users trained in one product to easily move to another. Most importantly, Visio
software enables organizations to realize purchasing, training and support
savings by standardizing on a common technology that addresses a wide variety of
drawing and diagramming needs.
VISIO'S STRATEGY
Visio's mission is to become the single standard for creating, storing and
exchanging drawings and diagrams in business. By becoming the standard, the
Company believes it can introduce new users to electronic drawing and
diagramming and thereby expand the market for its products. The Company's
strategy to achieve this objective includes the following elements:
. Focus on Business Users. The Company has focused on personal computer-based
-----------------------
drawing and diagramming for business enterprises such as large corporations,
consulting firms and governmental entities. The Company targets enterprises that
create durable drawings, share those drawings in electronic form across
organizational functions and departments and create custom solutions for
specific drawing needs. The Company believes these enterprises are more likely
to standardize on a single product and provide the best opportunity for the
Company to embed its products broadly within an organization. The Company offers
these entities a variety of volume licensing arrangements that encourage wide
use of, and standardization on, its products.
. Maintain Leading Technology and Extend Product Line. The Company's strategy
---------------------------------------------------
is to maintain and improve the flexibility and extensibility of its graphics
engine and increase the ease-of-use and functionality of its products. The
Company will continue to expand its product lines to address market segments
where the value of drawings is high and is exploring complementary products. In
August 1997, the Company released Visio Maps, a desktop mapping software product
that allows users to create, share and distribute high-quality, data-rich maps
quickly and easily, and in August 1997, the Company released Visio Network
Equipment, an add-on solution for the design and documentation of local, wide
area and telecommunications networks. Also, in August 1997, the Company
announced an upgrade to its core products, Visio Standard, Visio Technical and
Visio Professional. IntelliCAD(R),
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the Company's new Autodesk AutoCAD-compatible software product, is scheduled to
be released in the first calendar quarter of 1998.
. Expand Use of Visio as a Platform. Building on Visio's open architecture and
---------------------------------
ease of customization, the Company seeks to develop relationships with third-
party solution providers, system integrators, corporate in-house developers,
consultants and other software developers who can create specific content for
Visio products. Additional content may include new shapes and automated routines
that provide solutions to specific industries or businesses. The Company has
established the Visio Solutions Library/TM/ which includes solutions, add-ons
and content developed by Visio and by Visio's business partners with market
expertise in core industries. The Visio Solutions Library will complement
Visio's existing products by providing users the tools to accomplish specific
business tasks and optimize enterprise standardization on Visio. The Company has
established a developer training program which offers a foundation of knowledge
for companies and individuals to employ Visio graphics technology to meet a
broad range of business needs critical to their business.
. Focus on Microsoft Windows and the Microsoft Strategy. The Company develops
-----------------------------------------------------
products primarily for the Windows environment and has historically worked
closely with Microsoft to more fully utilize the capabilities of Windows
technology. The Company believes that Microsoft's strategies for expansion of
the Windows market will ultimately provide a broad market opportunity for Visio
products. The Company intends to continue to work closely with Microsoft to gain
access to new Windows technology and exploit it fully in Visio products. The
Visio license agreement with Microsoft to incorporate Visual Basic for
Applications (VBA) into Visio products illustrates the Company's strategy to
maintain its position as a key developer of products for Windows.
. Expand International Markets. The Company distributes the Visio product line
----------------------------
in nine languages and in more than 40 countries around the world. International
revenues represented approximately 36% and 37% of the Company's revenues in
fiscal 1997 and 1996, respectively. The Company plans to continue to expand the
number of its products distributed in international markets, the number of
languages in which the products are offered and its sales and marketing offices
and distribution networks within those markets.
. Separate Product Teams. In September 1996, the Company reorganized its
----------------------
internal marketing and development organizations into product teams centering on
its key product groups. The Company believes this approach creates greater
synergy between marketing and development, clearer focus on market needs and
greater accountability to the success of a product.
PRODUCTS
The Company currently sells three core software products, Visio Standard, Visio
Technical, and Visio Professional together with add-on software products. These
products offer solutions to a wide variety of drawing and diagramming needs
based on a single, easy-to-use technology. The Company designs its product
features to be intuitive, enabling even occasional users to draw and diagram
efficiently. The Company's products integrate well with other desktop
applications and can be easily customized to meet individual needs.
Many business drawings and diagrams are composed almost entirely of standard
symbols. Accordingly, the Company's products utilize a visual "stencil"
metaphor. This metaphor is implemented through a stencil window that displays a
collection of standard shapes, including connectors, on a visually distinctive
background. The user incorporates these standard shapes into a drawing by
dragging the shapes from the stencil window and dropping them into the drawing
window. In addition, users can customize the behavior of shapes and create
their own shapes. All Visio shapes can have associated text, which moves when
the shape is moved. The Company's software allows users to associate
nongraphical data with shapes, enabling users to easily generate nongraphical
information, such as parts lists and bills of material, from Visio drawings and
diagrams.
VISIO STANDARD
The Company's leading product, Visio Standard was first shipped in November
1992. Visio Standard enables general business personal computer users to create
a wide variety of diagrams. Many of Visio's features are
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designed to optimize its ease of use. Visio Standard also includes wizards for
organization charts, time lines and page layouts that automatically generate
diagrams based on the data the user provides and the user's formatting
preferences. In addition to enabling users to easily create diagrams, Visio
Standard also includes features to enhance the information content of diagrams.
Visio Standard users can link diagrams to databases and associate nongraphical
data with shapes within a diagram. Some of the diagrams that can be created with
Visio Standard include:
Flowcharts Organization Charts
Timelines Block Diagrams
Geographic Maps Marketing Charts
The Company released Visio Standard 5.0 in August 1997. Visio Standard 5.0 is
the foundation of the 5.0 product family. It addresses the needs of typical
business users who can use Visio diagrams to present complex concepts quickly
and make day-to-day communications more powerful and effective. Users can now
communicate ideas more efficiently using Visio Standard's 75 new marketing
shapes, 175 advanced flowcharting shapes, and a dynamic timeline solution that
imports from and exports to Microsoft Project. In addition, the product now
includes ODBC database connectivity as well as improved wizards for creating
organizational charts and reporting on the contents of a drawing. New to Visio
Standard 5.0 is the inclusion of a complete Microsoft Visual Basic, Applications
Edition (VBA) programming environment. Visio Standard 5.0 combines a variety of
task-specific connectors into a smart dynamic-routing connector that responds
immediately to design changes and shape movement. Version 5.0 also offers line
jumps, custom line types, fill patterns and line ends. Visio users can now
import and export Microsoft's Enhanced Metafile graphics format, as well as
Corel Corp.'s CorelDRAW 7 files. Visio Standard 5.0 has an estimated street
price (average purchase price paid by end users) of $149.
VISIO TECHNICAL
Visio Technical is designed for technical professionals such as drafters,
engineers and architects. It offers all the features and capabilities of Visio
Standard, plus shapes and capabilities necessary to create professional-quality
technical drawings. Visio Technical enables users to efficiently create two-
dimensional drawings and technical schematics without the long learning curve
normally associated with CAD software. Visio Technical users can easily share
technical drawings with other Windows applications, and can create intelligent
drawings by linking them to databases. Visio Technical includes more than 2,000
industry-specific SmartShapes objects. Some of the drawings that can be created
with Visio Technical include:
Space Planning Facilities Management
Electrical Schematics Construction Drawings
Mechanical Engineering Heating, Ventilation
and Air Conditioning
The Company released Visio Technical 5.0 in August 1997. Visio Technical 5.0 is
a superset of Visio Standard 5.0, including all improvements and new content
found in Visio Standard 5.0 as well as additional technical content and features
designed to help users create and share 2-D technical drawings and schematics.
In addition to its 2,000 industry-specific technical shapes, Visio Technical 5.0
includes more than 350 new SmartShapes symbols for facilities management, HVAC,
controls and building automation, process plant design, and mechanical
engineering. New add-ons that automate the creation of technical drawing
elements include a Valve Builder for fluid power applications, a Netlist
Generator for electrical engineering simulation, and an Area Analysis tool for
facilities management. Visio Technical 5.0's drafting capabilities have also
been improved by the addition of new Move and Offset commands, dynamic page
resizing, and the ability to rotate the drawing page. In addition to producing
technical schematics and space plans, Visio Technical is ideal for use in
annotating CAD drawings and producing technical documentation. Enhanced
Autodesk AutoCAD file compatibility in Visio Technical 5.0 includes the display
of DWG/DXF files using a new embedded display component inside a Visio drawing.
This DWG object gives users control over scale and the display of named views
and individual layers. Visio Technical 5.0 has an estimated street price of
$349.
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VISIO PROFESSIONAL
Visio Professional is a complete diagramming tool for information technology
professionals such as LAN managers, database analysts, software developers and
web masters as well as business process professionals. The Company released
Visio Professional 5.0 in August 1997. Visio Professional 5.0, a superset of
Visio Standard 5.0, incorporates all Visio Standard 5.0's new capabilities and
content as well as new features specific to IS/IT and business process
management professionals. Visio Professional customers typically rely on the
product to document networks, diagram software architecture, map and design
database structures, and use it as a tool for business process management
initiatives. Expanding on the comprehensive collection of wizards, add-ons and
more than 1,000 IT-specific SmartShapes symbols in Visio Professional 4.5,
version 5.0 includes over 350 new vendor-specific networking device shapes from
3Com Corp., Bay Networks Inc., Cabletron Systems Inc., Cisco Systems Inc. and
Hewlett-Packard Co. Visio Professional 5.0 also features new shapes and
functionality for software documentation using the unified modeling language
(UML) and database design using the Bachman and object role modeling (ORM) data
modeling languages. Further, Visio Professional 5.0 includes support for
Microsoft Repository, providing a way to store and exchange models described
using UML and make them accessible to users of higher-end visual modeling and
CASE tools. Visio Professional 5.0 has an estimated street price of $349.
INTELLICAD
IntelliCAD, the Company's new Autodesk AutoCAD-compatible software product, is
scheduled to be released in the first calendar quarter of 1998. By utilizing a
distinct engine and employing DWG as its native file format, IntelliCAD software
seamlessly supports the vast number of legacy drawings created by CAD operators
over the years with Autodesk AutoCAD, the dominant PC-based CAD application.
IntelliCAD allows users to "round-trip" AutoCAD-generated DWG files without data
loss, including the new entities introduced in the latest version of AutoCAD,
Release 14. IntelliCAD also supports the same key customization features that
have distinguished AutoCAD in the marketplace. These features include full
support for the AutoLISP macro language, AutoCAD custom menus and dialog boxes,
and the Autodesk Development System (ADS) API, used by third-party software
developers to create applications that run on AutoCAD. While maintaining
compatibility with legacy data and applications, IntelliCAD software also
includes innovative features that enhance and extend the AutoCAD work
environment. These enhancements include a full, event-driven implementation of
Microsoft Visual Basic, Applications Edition (VBA), a Drawing Explorer for
intuitively managing drawing layers, line types and blocks, a visual menu editor
for easy customization of AutoCAD-compatible menu structures, and a drag-and-
drop button bar editor that easily creates horizontal fly-out structures on
toolbars. IntelliCAD supports a feature frequently requested but still not
available in AutoCAD -- a multiple document interface (MDI) that permits the
simultaneous editing of multiple drawings. This feature also allows IntelliCAD
users to cut, copy and paste drawing entities between windows.
OTHER PRODUCTS
In addition to Visio Standard, Visio Technical and Visio Professional, the
Company also offers Visio Maps, a desktop mapping software product that allows
users to create, share and distribute high-quality, data-rich maps quickly and
easily, Visio Network Equipment, an add-on solution for the design and
documentation of local, wide area and telecommunications networks, Visio
Business Modeler, an add-on designed to expedite implementations of the SAP(R)
R/3 system and Visio Shapes, a line of add-on stencil products. These products
supplement Visio Standard, Visio Technical and Visio Professional by extending
the number and types of drawings available for job-specific drawing needs.
The Company has from time to time offered special versions of its products for
specific applications. For example, the Company offers Visio Express, a version
of Visio Standard that contains a reduced feature set, for inclusion in certain
OEM arrangements.
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SALES, MARKETING AND DISTRIBUTION
Visio's marketing efforts were initially directed at creating a new product
category - drawing and diagramming software for general business users. Those
marketing efforts were directed at individual end users who purchased the
Company's products through standard retail software distribution channels. As
the need for drawing and diagramming software for general business users has
been recognized, the Company has refocused its marketing efforts on
strengthening Visio brand name recognition to facilitate the introduction of
additional Visio-branded products and on expanding its distribution channels.
In addition, the Company is increasingly focusing its sales and marketing
efforts on volume licensing arrangements with large accounts. As a result of
this effort, volume licensing revenues have been 17%, 10% and 5% of total
revenues in fiscal 1997, 1996 and 1995, respectively. The Company expects
continued investment in the volume licensing sales staff in fiscal 1998 and as a
result, expects this percentage to increase.
In North America, the Company's products are sold primarily through
distributors, including Ingram Micro, Inc. ("Ingram"), Merisel, Inc. ("Merisel")
and Tech Data Corporation ("Tech Data"). These distributors resell the
Company's products to retail software outlets and computer superstores,
corporate resellers, value added resellers ("VARs") and mail order and catalog
resellers. The Company also sells its products directly to Egghead, Inc.
("Egghead"). The Company has entered into nonexclusive distribution agreements
with each of Ingram, Merisel and Tech Data and a nonexclusive reseller
agreement with Egghead. The agreements with Egghead, Ingram and Tech Data may
be terminated without cause by either party upon 30 days notice. The agreement
with Merisel is automatically renewed on an annual basis and may be terminated
without cause by either party upon 60 days' notice. In fiscal 1997, 1996, and
1995, sales to the Company's three largest distributors and resellers in North
America accounted for the following percentages of the Company's North American
revenues: Ingram 49%, 48% and 39%, respectively; Merisel 15%, 21% and 19%,
respectively; and Egghead 2%, 11% and 16%, respectively. No other customer
accounted for more than 10% of the Company's North American revenues in those
fiscal years.
Distribution outside of North America is also primarily through distributors and
is managed by the Company's international headquarters in Dublin, its Asia
Pacific operations center in Singapore, and its regional sales and marketing
offices in London, Munich, Paris, Tokyo, Sydney, Kuala Lumpur and Miami.
Internationally, the Company has numerous non-exclusive distributors. In fiscal
1997, 1996, and 1995, sales to the Company's two largest distributors and
resellers outside of North America accounted for the following percentages of
the Company's non-North American revenues: Ascii Something Good, Inc. 20%, 21%
and 0%, respectively; Ingram 11%, 9% and 7%, respectively; and Merisel 6%, 9%
and 10%, respectively. No other customer accounted for more than 10% of the
Company's non-North American revenues in those fiscal years. The international
headquarters and the Asia Pacific operations center personnel are responsible
for all international administration, finance, manufacturing, customer support,
localization and local content engineering.
The Company from time to time has established OEM arrangements with hardware
manufacturers such as Dell Computer Corporation and ACER Incorporated and
software vendors such as Microsoft Corporation. The Company also sells products
directly to end users.
The Company outsources technical support and customer service. To the extent it
remains economically advantageous to do so, the Company expects to continue to
outsource these functions in the future.
PRODUCT DEVELOPMENT
The Company believes that its future success will depend in large part on its
ability to enhance its current product line, develop new products, maintain
technological leadership and satisfy an evolving range of customer requirements
and industry standards for drawing and diagramming software. The Company's
product development group is actively engaged in identifying, defining and
developing new products and product enhancements to meet customer needs. The
Company's principal product development efforts focus on continued enhancements
to the Visio graphics engine, development of new customer solutions and
applications, including increased drawing complexity, increased number of
objects, increased "smartness" of SmartShapes objects and improved database
connectivity, and development and enhancement of the new IntelliCAD product.
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The Company's products have been developed primarily by its product development
group. Certain technologies, such as the ability to read and write to AutoCAD
files and to spellcheck, have been licensed from other sources and integrated
into the Company's products. The Company intends to continue licensing
technologies as it increases product offerings. In fiscal 1997, the Company
purchased certain technology from Boomerang Technology, Inc. and purchased
certain technology from Freedom Solutions Group, Inc. d.b.a. SysDraw Software
Company. The Company intends to continue to make substantial investments in
product development. The Company's product development expenses totaled $15.5
million, $8.8 million and $5.1 million, or 15.6%, 14.8% and 14.9% of revenues in
fiscal 1997, 1996 and 1995, respectively
COMPETITION
The computer software drawing and diagramming markets are intensely competitive
and subject to rapidly changing technology and evolving standards. The Company
competes primarily with small niche companies and larger software companies with
strong market position and technology. The Company's principal competitors are
companies with leading products in the special purpose drawing and diagramming,
illustration, CAD and office suite categories. Products competing with Visio
Standard include Micrografx Flowcharter by Micrografx, CorelFLOW by
International Microcomputer Software, Inc. ("IMSI") and CorelDRAW by Corel.
Visio Technical competes with various products, including AutoCAD LT and
AutoSketch by Autodesk, Designer by Micrografx and Imagineer Technical by
Intergraph Corporation. Visio Professional competes with various products
including netViz by netViz Corporation, Process Charter by Scitor Corporation,
ClickNet by Pinpoint Software Corporation and Micrografx Flowcharter by
Micrografx. IntelliCAD is expected to compete with various products including
AutoCAD by Autodesk, MicroStation by Bentley Systems, Inc. and TurboCAD by IMSI.
In addition, the drawing capabilities included in Microsoft Office, SmartSuite
by Lotus and WordPerfect Suite by Corel compete with Visio Standard. If any of
these producers of office suites aggressively pursues business drawing and
diagramming markets and commits further resources to development in this area,
the Company's results of operations could be materially adversely affected.
Many of these competitors have significantly greater financial, technical, sales
and marketing and other resources than the Company. As business drawing and
diagramming software markets develop, the Company believes that additional
companies may enter these markets and thereby intensify competition.
The principal competitive factors affecting the computer software drawing and
diagramming markets include product functionality, ease of use, performance and
reliability; customer service and support; product availability; vendor
credibility; brand awareness; ability to keep pace with technological change;
and price. Although the Company believes that its products currently compete
favorably with respect to these factors, there can be no assurance that the
Company can maintain its competitive position in the face of increasing
competition from new products and enhancements introduced by existing
competitors and new companies entering this market. The markets for the
Company's products are characterized by significant price competition, and the
Company expects it will face increasing pricing pressures. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors or that competitive pressures faced by the Company will
not materially adversely affect its business, financial condition and results of
operations.
PROPRIETARY RIGHTS
The Company regards its software as proprietary and relies primarily on a
combination of copyright and trademark laws, trade secret protection,
confidentiality procedures and contractual provisions, including nondisclosure
agreements with employees and others, to protect is proprietary rights. The
Company has no patents or patent applications pending and existing copyright and
trade secret laws afford only limited protection. The Company believes that,
because of the rapid pace of technological change in the computer software
industry, copyright and trade secret protection have less effect on the
Company's business and results of operations than factors such as the knowledge,
ability and experience of the Company's employees, frequent product enhancements
and the timeliness and quality of support services.
The Company provides its products to business enterprises under nonexclusive
licenses that are generally nontransferable. The Company also provides its
products to individual end users, in which case the Company relies
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on "shrink wrap" licenses that are not signed by the end user and therefore may
not be enforceable in certain jurisdictions. The Company's products do not
contain copy protection. Policing unauthorized use of software is difficult and,
while the Company is unable to determine the extent of piracy of its software,
it expects software piracy to be a persistent problem in the computer software
industry.
The Company licenses some software programs from independent developers and
incorporates them into the Company's products. Generally, such agreements grant
the Company nonexclusive, perpetual, worldwide licenses with respect to the
subject program and terminate only upon a material breach by the Company.
Certain of these licenses require payment of royalties based on the number of
products sold.
No material claims have been made against the Company for infringement of
proprietary rights of others; however, there can be no assurance that others
will not assert infringement claims in the future. As the number of software
products in the industry increases and the functionality of these products
further overlaps, the Company believes that software programs will increasingly
become subject to infringement claims. The cost of responding to any such
assertion may be material, whether or not the assertion is valid.
PRODUCTION
Production of the Company's software products primarily involves duplication of
various media and the printing of user manuals and packaging materials. Media
for the Company's products include CD-ROMs and 3.5-inch diskettes and are
available from multiple sources. The Company outsources procurement of
materials for, and production of, its products. To date, the Company has not
experienced any material difficulties or delays in production of its software
products or documentation. To the extent it remains economically advantageous
to do so, the Company intends to continue outsourcing production in the future.
EMPLOYEES
As of September 30, 1997, the Company employed 355 persons, including 114 in
sales and marketing, 140 in product development, and 101 in finance,
administration and operations, including customer service and technical support.
The Company believes that its future success will depend, in part, on its
ability to continue to attract and retain skilled product development, technical
support, marketing and management personnel. Competition for such personnel in
the computer software industry is intense. The Company believes its relations
with its employees are good.
ITEM 2. PROPERTIES
The Company's headquarters are located in Seattle, Washington, where it leases
approximately 75,000 square feet for administrative, sales and marketing,
customer service and product development activities. The Company also leases
approximately 13,600 square feet of office space in Dublin, Ireland and an
aggregate of 14,900 square feet of office space in London, Munich, Paris,
Singapore, Tokyo, Sidney and Kuala Lumpur. The Company believes that its
existing facilities and options on additional facilities are adequate to meet
its needs for the foreseeable future. The Company believes that it can acquire
additional space, if needed, on acceptable terms.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of its fiscal year ended September 30, 1997.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
<TABLE>
<CAPTION>
FISCAL YEAR 1997 FISCAL QUARTER ENDED
----------------------------------------------------------------- FISCAL YEAR ENDED
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1997 1997 1997 1997
---- ---- ---- ---- -----------------------
<S> <C> <C> <C> <C> <C>
Common stock prices
High $26 1/4 $26 5/8 $34 9/16 $41 3/4 $41 3/4
Low $20 5/8 $18 1/8 $19 1/2 $32 1/2 $18 1/8
FISCAL YEAR 1996 FISCAL QUARTER ENDED
----------------------------------------------------------------- FISCAL YEAR ENDED
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1996 1996
---- ---- ---- ---- -----------------------
Common Stock Prices
High $14 1/8 $14 7/8 $22 1/4 $22 1/8 $22 1/4
Low $10 13/16 $11 $12 3/8 $14 7/8 $10 13/16
</TABLE>
Visio's common stock has been traded on the Nasdaq National Market under the
symbol VSIO since the Company's initial public offering in November 1995. The
high and low closing sales prices noted above are as reported on the Nasdaq
National Market. On November 28, 1997, there were 119 holders of record of the
Company's common stock. The Company has not paid cash dividends on its common
stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data and other operating
information of Visio Corporation. The selected financial data in the table are
derived from the financial statements of Visio Corporation. The data should be
read in conjunction with the financial statements, related notes and other
financial information included herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
1993 1994 1995 1996 1997
------------- ------------- ------------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA )
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 7,142 $20,616 $34,224 $59,699 $ 99,515
Operating income (loss)............ $ (1,453) $ 157 $ 3,206 $14,573 $ 17,075
Net income (loss).................. $ (1,422) $ (152) $ 2,346 $11,091 $ 15,113
Earnings (loss) per share.......... $ (.18) $ (.02) $ .10 $ .38 .50
Cash and short-term investments.... $ 1,597 $ 3,669 $ 7,063 $61,107 $ 79,594
Total assets....................... $ 2,650 $ 7,879 $19,247 $71,608 $109,215
Shareholders' equity (deficit)..... $ (3,513) $(3,476) $(1,040) $55,225 $ 76,828
Long-term notes payable............ $ 16.8 $ 587 $ 453 $ 148 ---
Redeemable preferred stock......... $ 4,355 $ 5,055 $ 6,545 --- ---
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Visio, which commenced operations in September 1990, develops drawing and
diagramming software for the general business personal computer user. All of
the Company's products have been developed for the Microsoft Windows 3.1,
Windows 95 and Windows NT operating systems and are marketed under the Visio
brand. The Company's primary products are Visio Standard, Visio Technical and
Visio Professional. The Company's first product, Visio Standard, which first
shipped in November 1992, began creating a new market for business diagramming.
The Company shipped its second significant product, Visio Technical for
technical drawing, in November 1994. The Company introduced its third
significant product in January 1997: Visio Professional, for information systems
and network design and documentation.
RESULTS OF OPERATIONS
The following table sets forth statement of income data as a percentage of
revenues for the fiscal years indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
-------------------------------------------------
1995 1996 1997
--------------- -------------- ------------
<S> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0%
Cost of revenues............................ 17.8 14.6 10.6
----- ----- -----
Gross profit................................ 82.2 85.4 89.4
Operating expenses:
Research and development.................. 14.9 14.8 15.6
Sales and marketing....................... 50.7 38.5 39.0
General and administrative................ 7.3 7.7 7.3
Acquired technology....................... -- -- 10.3
----- ----- -----
Total operating expenses.................... 72.9 61.0 72.2
----- ----- -----
Operating income............................ 9.3 24.4 17.2
Interest and other income, net.............. 1.3 2.5 3.3
----- ----- -----
Income before income taxes.................. 10.6 26.9 20.5
Provision for income taxes.................. 3.7 8.3 5.3
----- ----- -----
Net income.................................. 6.9% 18.6% 15.2%
===== ===== =====
</TABLE>
REVENUES
Revenues include the license of software products, maintenance and support
contracts, net of reserves for estimated future returns and allowances. License
revenues are derived from packaged software products, volume licenses,
international royalties and certain OEM arrangements.
The Company's net revenues increased 74% to $59.7 million in the fiscal year
ended September 30, 1996, and 67% to $99.5 million in the fiscal year ended
September 30, 1997. The increase in revenues was due primarily to sales volume
growth across product groups, distribution channels and geographic regions. In
addition, revenue growth in fiscal 1997 was positively affected by the release
of Visio Professional in January 1997. The average selling price per license has
increased primarily because of the mix of Visio Technical and Visio
Professional, both of which are priced higher than Visio Standard.
13
<PAGE>
A picture of 5 Visio product boxes, including Visio Standard, Visio Technical,
Visio Professional, Visio Maps and Visio Network Equipment, appears here.
Product Groups: The IS design and documentation product group was created in
- --------------
fiscal 1997 with the introduction of Visio Professional in January 1997. Visio
Professional had a significant impact on the revenue mix within the product
groups. In just its first nine months, IS design and documentation contributed
24% of total fiscal 1997 revenues. The technical drawing product group grew
274% and 69% for fiscal 1996 and 1997, respectively. The growth in fiscal 1996
was due to an upgrade to Visio Technical 4.1 as well as the introduction of
three localized language versions. The growth in fiscal 1997 of Visio Technical
was due to its continued momentum as well as an upgrade to version 4.5. The
growth in the business diagramming product group was 46% and 11% for fiscal 1996
and 1997, respectively. An upgrade of Visio Standard to version 4.0 in August
1995 contributed to the growth in fiscal 1996. The decrease in percentage growth
in fiscal 1997 was primarily due to cannibalization from Visio Professional.
The Company believes that customers who may otherwise have purchased Visio
Standard or Visio Technical are choosing Visio Professional for its added
features and content. Secondarily, there was a reduction in upgrade revenue
because Visio Standard was not upgraded to version 5.0 until August 1997, two
years after the release of version 4.0. This 24-month life cycle for Visio
Standard has been the longest for any product to date as the Company focused on
releasing Visio Professional and upgrades to Visio Technical as well as
developing these new markets. Other revenues of $1.2 million, $0.8 million and
$0.2 million in fiscal 1995, 1996 and 1997, respectively, consisted primarily of
sales of Visio Home and related Visio Shapes products and solution services
revenues.
Bar charts showing the following information appear here:
<TABLE>
<CAPTION>
Revenues by product line: YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
(IN MILLIONS)
Business Diagramming.......................................... $28.2 $41.1 $45.7
Technical Drawing............................................. 4.7 17.7 29.9
IS Design and Documentation................................... -- -- 23.7
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Business Diagramming 82% 69% 46%
Technical Drawing 14 30 30
IS Design and Documentation -- -- 24
Other 4 1 LESS THAN 1
---- ---- ----
Total 100% 100% 100%
==== ==== ====
</TABLE>
14
<PAGE>
Sales Channels: Visio classifies its revenues in four sales channels:
- --------------
"Distribution," "Direct," "Volume Licensing," and "OEM." Distribution revenues
represent sales of packaged products through national distributors and
corporate, retail and mail order resellers. Direct revenues represent sales of
packaged products directly by the Company, including upgrades, generally to end
users responding to advertising or marketing promotions. Volume Licensing
revenues are derived from volume licenses, which are generally administered
through corporate resellers after the Company's sales staff has negotiated the
sale. The typical sales cycle for a volume license is six to eighteen months.
Volume Licensing revenues usually do not include any significant amount of
packaged goods, but do include maintenance and support revenues, which are
priced separately and recognized over the lives of the contracts. OEM revenues
include licenses of Visio products to hardware and software manufacturers for
bundling arrangements. OEM revenues include packaged product sales, as well as
royalty payments with no associated product costs.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Distribution........................... 75% 76% 75%
Direct................................. 14 10 7
Volume Licensing....................... 6 10 17
OEM.................................... 5 4 1
---- ---- ----
Total.......................... 100% 100% 100%
==== ==== ====
</TABLE>
Percentage growth was most significant for the Volume Licensing channel, which
grew 198% and 177% for fiscal 1996 and 1997, respectively. This growth is
primarily the result of continued infrastructure investment in the volume
licensing program. The Company expects to hire additional sales staff in fiscal
1998 and therefore expects the percentage of Volume Licensing to increase as a
percentage of total revenues. Direct revenues decreased as a percentage of
total revenues in fiscal 1996 and 1997 due to a greater percentage of upgrades
being fulfilled through the Distribution channel.
A map showing the following information appears here:
Revenues by Geography in fiscal 1997:
United States and Canada: $64.0 Million
Europe: $22.2 Million
Rest of World: $13.3 Million
Countries in Europe include: Austria, Belgium, Czech Republic, Denmark, France,
Germany, Greece, Hungary, Ireland, Israel, Netherlands, Norway, Poland,
Portugal, Slovenia, Spain, Sweden, Switzerland, Turkey, U.K. and South Africa.
Countries in Rest of World include: Australia, Argentina, Bolivia, Brazil,
Chile, China, Columbia, India, Japan, Korea, Malaysia, Mexico, New Zealand,
Peru, Singapore, Taiwan, Thailand and Uruguay.
Geography: Revenues in the United States and Canada increased 55% to $37.7
- ---------
million in fiscal 1996 and 70% to $64.0 million in fiscal 1997. The increase in
revenues in fiscal 1996 primarily reflects the contribution of Visio Technical
and the release of upgrade versions of Visio Standard and Visio Technical. The
increase in fiscal 1997 is due primarily to the release of Visio Professional
and continued growth of Visio Technical. International revenues increased 122%
to $22.0 million in fiscal 1996 and 62% to $35.5 million in fiscal 1997. As a
percentage of total revenues, international revenues represented 29%, 37% and
36% in fiscal 1995, 1996 and 1997, respectively. The growth in fiscal 1996
primarily reflects the release of upgrade localized versions of Visio Standard,
particularly in Japan, and the introduction of Visio Technical in Europe. The
decrease of international revenues as a percentage of
15
<PAGE>
total revenues in fiscal 1997 was due primarily to the strong performance of
Visio Professional in the United States and a lower growth rate in Europe due to
weakness in certain European markets.
The Company's operating results are affected by foreign exchange rates.
Approximately 22%, 20% and 19% of the Company's revenues were collected in
foreign currencies during fiscal 1995, 1996 and 1997, respectively. The impact
on income from operations due to exchange rate fluctuation is partially offset
as most of the Company's international production costs and operating expenses
are incurred in foreign currencies. Therefore, the net impact of exchange rate
fluctuations on income from operations is less than the impact on revenues.
COST OF REVENUES
Bar charts showing the following information appear here:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
(IN MILLIONS)
Cost of revenues.............................................. $ 6.1 $ 8.7 $10.6
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1996 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
Cost of revenues as a percent of revenues..................... 17.8% 14.6% 10.6%
</TABLE>
Cost of revenues varies with the mix of Distribution, Direct, Volume Licensing
and OEM revenues, due to relative variations in the standard product costs
associated with each revenue category, and with fluctuations in period costs.
Standard product costs consist primarily of documentation, packaging, media
duplication, assembly and material management costs. Period costs consist
primarily of technical support, production management, freight and fulfillment,
certain royalties, amortization of capitalized acquired technology, standard
material variances and inventory valuation adjustments.
Standard costs associated with each revenue category are primarily determined by
the amount of packaged product delivered in that revenue category. Accordingly,
most of the Company's standard costs are associated with Distribution and Direct
revenues, all of which are derived from sales of packaged products. Volume
Licensing revenues have the lowest standard cost because they generally do not
include any significant amount of packaged goods.
The decrease in cost of revenues as a percentage of revenues in fiscal 1996 and
1997 resulted primarily from the increased use of lower-cost CD-ROM media which
carry lower cost of goods than disks, disk duplication cost control measures,
increased Volume Licensing revenues which have little or no standard costs and
an increase in the percentage of revenue from Visio Technical and Visio
Professional, which have lower standard costs as a percentage of revenue than
Visio Standard. These decreases were partially offset by increased royalty
costs for licensed technology including Visual Basic for Applications (VBA) from
Microsoft Corporation.
16
<PAGE>
RESEARCH AND DEVELOPMENT
Bar charts showing the following information appear here:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
(IN MILLIONS)
Research and development...................................... $ 5.1 $ 8.8 $15.5
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1995 1996 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
Research and development as a percent of revenues............. 14.9% 14.8% 15.6%
</TABLE>
Research and development expenses consist primarily of personnel, contract
services, occupancy and equipment costs required to conduct the Company's
product development efforts. Product development includes product engineering,
documentation development, localization, usability testing, quality assurance
and advanced research and development costs. Product localization costs and lump
sum payments for technology such as file converters are capitalized and
amortized to development over the lesser of the useful life or 18 months. Such
amortization has not been significant. Research and development expenses are
charged to operations as incurred. The Company has not capitalized certain
software development costs subsequent to the establishment of technological
feasibility as these costs have been immaterial.
Increases in research and development expenses for fiscal 1996 resulted
primarily from planned additions to the Company's development organization and
the acquisition of source code and other intellectual property from Arcland,
Inc. Research and development expenses for fiscal 1997 increased primarily due
to planned additions to the Company's development organization, which included
additions associated with the acquisitions of Boomerang Technology Inc. and
Sysdraw Software Company. The Company believes increased research and
development expenses will be required during fiscal 1998 and beyond to expand
its product lines and introduce new language versions to international markets.
SALES AND MARKETING
Bar charts showing the following information appear here:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
(IN MILLIONS)
Sales and marketing........................................... $17.3 $23.0 $38.8
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1995 1996 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
Sales and marketing as a percent of revenues.................. 50.7% 38.5% 39.0%
</TABLE>
Sales and marketing expenses have increased in absolute terms as the Company
continues building its worldwide sales, marketing and customer service
infrastructure. The fiscal 1996 and 1997 growth in these expenses was primarily
due to expansion in international markets, increased product marketing costs to
support new products and upgrades to existing products as well as continued
development of the sales infrastructure. As a percentage of revenues, sales and
marketing expenses decreased in fiscal 1996 primarily due to increased revenues
and the significant sales and marketing investment made in fiscal 1995. The
investment made in fiscal 1995 consisted primarily of brand awareness activities
including an advertising campaign aimed at developing the Visio brand and
accelerating awareness levels.
The Company believes substantial spending on marketing awareness and corporate
sales staffing is essential to achieve revenue growth and to maintain and
enhance the Company's competitive position. Accordingly, Visio expects sales and
marketing expenses will continue to increase in absolute terms over time.
17
<PAGE>
GENERAL AND ADMINISTRATIVE
Bar charts showing the following information appear here:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
(IN MILLIONS)
General and administrative.................................... $ 2.5 $ 4.6 $ 7.3
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1995 1996 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
General and administrative as a percent of revenues........... 7.3% 7.7% 7.3%
</TABLE>
General and administrative expenses increased in absolute terms in fiscal 1996
primarily due to the cost of developing the infrastructure and personnel
associated with becoming a public company and with supporting the Company's
increased operations. The increase in fiscal 1997 resulted primarily from
increased staffing to support the Company's growth as well as the establishment
of Visio's operational headquarters for the Asia Pacific region. The Company
expects to show increased general and administrative expenses in absolute terms
in future periods for infrastructure to support the Company's revenue growth.
ACQUIRED TECHNOLOGY
In connection with the fiscal 1997 acquisition of assets of Boomerang Technology
Inc. and Sysdraw Software Company, the Company recorded charges of $6.7 million
and $3.6 million, respectively, related to acquired in-process research and
development and related acquisition costs. (See Note 9 of Notes to Financial
Statements).
INTEREST AND OTHER INCOME, NET
Interest income was $0.2 million, $1.7 million and $3.2 million for fiscal 1995,
1996 and 1997, respectively. The increase in fiscal 1996 was primarily due to
interest earned on investment of proceeds from the Company's initial public
offering completed in November 1995, and was partially offset by other non-
operating expenses. The increase in fiscal 1997 was primarily due to a larger
cash and short-term investment balance. Other income includes grant income from
the Industrial Development Agency of Ireland and foreign currency transaction
gains and losses. Visio began hedging foreign exchange transaction exposures in
fiscal 1997.
INCOME TAXES
The Company's effective income tax rate was 35%, 31% and 26% for fiscal 1995,
1996 and 1997, respectively. The declines in the effective tax rate were
primarily due to the benefit of the utilization of foreign net operating loss
carryforwards in fiscal 1996 as well as tax-exempt interest income and income
taxed in other jurisdictions at rates lower than the U.S. rate in both fiscal
1996 and 1997.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and short-term investments totaled $79.6 million at September
30, 1997, compared to $61.1 million at September 30, 1996. The investment
portfolio consisted of high-quality municipal bonds and investment grade
commercial paper. The increase in cash and cash equivalents was due primarily
to cash generated from operations and cash proceeds from the issuance of shares
through the employee stock option and stock purchase programs. The Company has
an unused $1.0 million unsecured bank line of credit, which matures on February
28, 1998. The Company anticipates renewal of this line of credit under
substantially similar terms.
At September 30, 1997, the Company's principal commitments consisted primarily
of leases on its facilities. The Company's capital expenditures of $7.0 million
in fiscal 1997 included the purchase of an enterprisewide business software
system that enables the Company to be year 2000 compliant. At September
30,1997, the Company had commitments for capital expenditures of approximately
$0.7 million related to facility expansion. The Company believes that its
current cash balances, funds available under its line of credit and cash flow
from operations will be sufficient to meet its working capital and capital
expenditure requirements for at least the next 12 months.
From time to time, the Company evaluates potential acquisitions of businesses,
products or technologies that complement the Company's business. In fiscal 1997
the Company paid a combined $12.5 million related to the acquisition of
technology and other assets from Boomerang Technology Inc. and Sysdraw Software
Company. In addition, the Company issued a $1 million note payable to Sysdraw
Software Company which matures in fiscal 1998 and agreed to pay contingent
consideration based on the achievement of certain performance goals within the
next three years. At September 30, 1997, the Company had no other material
agreements or commitments with respect to any such transaction.
CERTAIN RISK FACTORS THAT MAY IMPACT FUTURE RESULTS OF OPERATIONS
Except for the historical information contained in this Annual Report, the
matters discussed herein, particularly those identified with the words
"expects," "believes," "anticipates" and similar expressions, are forward-
looking statements. These statements reflect management's best judgment based on
factors known to them at the time of such statements. Such forward-looking
statements are subject to certain risks and uncertainties, including without
limitation those set forth below, many of which are beyond the Company's
control, that could cause actual results to differ materially from those
anticipated. The factors set forth below should be carefully considered when
evaluating the Company's business and prospects, and the forward-looking
information provided by Visio pursuant to the safe harbor provisions established
by recent securities legislation. Readers should also carefully review the risk
factors described in other documents the Company files from time to time with
the Securities and Exchange Commission.
Fluctuations in Quarterly Performance. The Company's quarterly results of
- -------------------------------------
operations can be affected substantially by demand for the Company's products,
the timing and customer acceptance of new products, product enhancements and
promotions by the Company or its competitors, product returns, fluctuations in
foreign exchange rates, the impact of acquisitions of other technologies or
companies and changes in economic conditions. The Company is increasingly
focusing its sales efforts on volume licensing to large accounts. The timing of
those licenses could significantly affect quarterly results of operations. A
significant portion of the Company's operating expenses are relatively fixed in
the short term, and planned expenditures are based on the Company's estimates
for quarterly revenues. As a result, variations in timing of revenues can cause
significant variations in quarterly results of operations. In general, the
Company has experienced the strongest demand for its software products during
the December quarter and the weakest demand in the June quarter. These seasonal
patterns have been overshadowed in particular quarters by the timing of new
product introductions, expansion into international markets, the execution of
volume licenses and other factors affecting the Company's business.
Dependence on Microsoft Windows; Relationship With Microsoft. Substantially all
- ------------------------------------------------------------
of the Company's revenues are derived from sales of products that are designed
to work within a Microsoft Windows environment and are marketed primarily to
Windows users. As a result, sales of the Company's products would be materially
affected by market developments adverse to Windows-based products. As a
developer of products for Windows, the Company has historically enjoyed a
collaborative working relationship with Microsoft. If the relationship were
disrupted for
19
<PAGE>
any reason, such as a decision by Microsoft to introduce or acquire products
that compete directly with the Company's products, the Company's development
efforts and results of operations could be materially adversely affected.
Competition. The computer software drawing and diagramming markets are
- -----------
intensely competitive and subject to rapidly changing technology and evolving
standards. The software industry has limited barriers to entry, and the
availability of personal computers with continuously expanding capabilities, at
progressively lower prices, contributes to the ease of market entry. Because of
this and other factors, competitive conditions in the future are likely to
intensify. The markets for the Company's products are characterized by
significant price competition, and the Company expects it will face increasing
pricing pressures. Increased competition could result in price reductions,
reduced profit margins and loss of market share, which could materially
adversely affect the Company's results of operations.
Substantial Dependence on a Single Technology; Limited Product Line. The
- -------------------------------------------------------------------
Company has derived substantially all of its revenues to date from sales of
drawing and diagramming products based on its core technology. The Visio product
line and related enhancements are expected to continue to account for a
significant percentage of the Company's revenues for the foreseeable future. A
decline in demand for these products as a result of competition, technological
change or any other reason would have a material adverse effect on the Company's
results of operations.
Rapid Technological Change and New Product Development. The markets for the
- ------------------------------------------------------
Company's products are characterized by rapidly changing technology, evolving
industry standards, changes in customer needs and frequent new product
introductions. The Company's future success will depend on its ability to
enhance its current products, to develop new products that meet changing
customer needs on a timely and cost-effective basis and to respond to emerging
industry standards and other technological changes. Any failure by the Company
to anticipate or respond adequately to changes in technology and customer
preferences, or any significant delays in product development or introduction,
would have a material adverse effect on the Company's results of operations.
New Product Introductions. The Company periodically introduces new products and
- -------------------------
upgrades its current products in order to meet changing customer needs and
anticipated market demand. Due to potential difficulties in the development
process, there can be no assurance that such future products and upgrades will
be released in a timely manner or that they will receive market acceptance, if
and when released. Despite significant testing by the Company and by current
and potential customers, errors or "bugs" may still be found in new products or
upgrades after commencement of commercial shipments. Delays in the commencement
of commercial shipments of new products or upgrades, as well as the discovery of
errors or bugs after release, may result in adverse publicity, customer
dissatisfaction and delay or loss of product revenues. Furthermore, from time
to time the Company and others may announce new products, capabilities or
technologies that have the potential to replace or shorten the life cycles of
the Company's existing products. There can be no assurance that announcements
of currently planned or other new products by the Company, by Microsoft or by
the Company's competitors will not cause customers to defer purchasing existing
Company products or cause distributors to return products to the Company.
Delays or difficulties associated with new product introductions or upgrades
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Management of Growth and Future Acquisitions. The Company has recently
- --------------------------------------------
experienced rapid growth that has placed, and will continue to place, a
significant strain on its management and operations. The Company's ability to
manage its growth effectively will require it to improve its operating,
financial and management information systems and to attract, train, motivate,
manage and retain key employees. Furthermore, the Company intends to enter into
strategic relationships and make strategic acquisitions of technologies and
businesses in order to expand its product lines and the capabilities of its
current products. The risks associated with acquisitions including increased
costs and uncertain benefits and the ability to integrate operations of acquired
companies could adversely affect the Company's results of operations.
Risks Associated With International Operations. The Company expects that
- ----------------------------------------------
international sales will account for an increasing portion of its revenues. Most
of the Company's international revenues are denominated in foreign
20
<PAGE>
currencies. Consequently, a decrease in the value of a relevant foreign currency
in relation to the U.S. dollar occurring after establishing prices and before
receipt of payment by the Company would have an adverse effect on the Company's
results of operations. Additionally, the Company may be materially and adversely
affected by increases in duty rates, exchange or price controls, repatriation
restrictions, or other restrictions on foreign currencies. The Company's
international operations are subject to certain other risks common to
international operations, including without limitation government regulations,
import restrictions, and, in certain jurisdictions, reduced protection for the
Company's intellectual property rights.
Change in Licensing and Marketing Methods. The Company is increasingly
- -----------------------------------------
emphasizing sales to enterprises through volume, installment and enterprise
licensing arrangements. These licensing arrangements typically involve a longer
cycle (up to 18 months from first contact to execution of an initial license)
than sales through other distribution channels, require a greater investment of
resources in establishing the enterprise relationship and result in lower
operating margins. The timing of the execution of volume licenses, or their
nonrenewal or renegotiation by large customers, could cause volatility in the
Company's quarterly results of operations and could materially adversely affect
it's results of operations.
Continued Reliance on Resellers and Distributors. The Company expects to
- ------------------------------------------------
continue to rely on resellers and distributors for sales of its products in
domestic and international markets. Sales to the Company's two largest
distributors during fiscal 1997, 1996 and 1995 accounted for an aggregate of
47%, 50% and 47% of the Company's revenues, respectively. The distribution
channels through which software products are sold have been characterized by
rapid change, including consolidations and financial difficulties of certain
distributors and resellers, the emergence of new resellers such as general mass
merchandisers and the development of new channels such as electronic networks.
The Company's resellers and distributors carry competing product lines. There
can be no assurance that resellers and distributors will continue to purchase
the Company's products or be able to market them effectively or that the Company
will be able to effectively distribute its products through new distribution
channels.
Reliance on Outsourcing. The Company outsources most of the production of its
- -----------------------
products, which primarily involves duplication of various media and the printing
of user manuals and packaging materials. In addition, the Company outsources
procurement, order fulfillment, technical support, customer service and
localization of its products. So long as it remains economically advantageous to
do so, the Company intends to continue, and possibly to increase, outsourcing in
the future. Although the Company believes that it has adequate alternative
suppliers of such services, the loss of a supplier or its inability to perform
contracted services could materially adversely affect the Company's results of
operations.
Dependence on Proprietary Technology. The Company's ability to compete
- ------------------------------------
effectively depends in large part on its ability to develop and maintain
proprietary aspects of its technology. The Company relies on a combination of
copyright and trademark laws, trade secret protection, confidentiality
procedures and contractual provisions, including nondisclosure agreements with
employees and others, to protect its proprietary rights. There can be no
assurance that such measures will be adequate to protect the Company's
proprietary intellectual property or that claims of infringement of third
parties' intellectual property rights will not occur and, possibly, prevail.
Costs associated with an adverse judgment or settlement of intellectual property
litigation, as well as the cost of responding to a claim, both in legal fees and
expenses and the diversion of management resources, whether or not the claim is
valid, could have a material adverse effect on the Company's results of
operations.
Dependence on Key Personnel. The Company's success depends to a significant
- ---------------------------
extent on a small number of senior management and technical personnel. The
Company's growth and future success will depend in large part on its continuing
ability to hire, motivate and retain highly qualified management, technical,
sales and marketing personnel. Competition for such personnel is intense and
there can be no assurance that the Company will be successful in hiring,
motivating or retaining such qualified personnel.
Reliance on Independent Developers for Future Market Expansion. The Company has
- --------------------------------------------------------------
designed its technology with an open architecture and has incorporated certain
features to encourage independent solution providers, system integrators and
other software developers to design industry or customer-specific drawing and
diagramming solutions that will extend the adoption and use of the Company's
products. There can be no assurance, however, that
21
<PAGE>
developers will design solutions to extend the Company's products, and the
failure of these development efforts to materialize could adversely affect the
expansion of the markets for the Company's products. If independent developers
do design solutions for specific industries or customers, the Company could be
effectively precluded from offering add-on products that address the same
industries or customers.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report............................................ 23
Balance Sheets as of September 30, 1997 and 1996........................ 24
Statements of Income for each of the three years ended
September 30, 1997.................................................... 25
Statements of Cash Flows for each of the three years ended
September 30, 1997.................................................... 26
Statements of Shareholders' Equity (Deficit) for each of the
three years ended September 30, 1997.................................. 27
Notes to Financial Statements........................................... 28
Schedule II - Valuation and Qualifying Accounts for each of the
three years ended September 30, 1997.................................. 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
22
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Visio Corporation
We have audited the accompanying balance sheets of Visio Corporation as of
September 30, 1997 and 1996, and the related statements of income, shareholders'
equity (deficit), and cash flows for each of the three years in the period ended
September 30, 1997. Our audits also included the financial statement schedule
listed in the Index at Item 14. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Visio Corporation at September
30, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended September 30, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ ERNST & YOUNG LLP
Seattle, Washington
October 24, 1997
23
<PAGE>
VISIO CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments............................................ $61,107 $ 79,594
Accounts receivable........................................................ 2,242 6,360
Inventories................................................................ 604 1,079
Prepaid expenses........................................................... 2,431 3,991
Deferred income taxes...................................................... 1,779 7,291
------- --------
Total current assets.................................................... 68,163 98,315
Equipment and leasehold improvements........................................ 3,445 8,039
Capitalized technology...................................................... - 2,861
------- --------
Total assets............................................................ $71,608 $109,215
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $ 3,525 $ 5,954
Accrued compensation and benefits.......................................... 2,002 2,706
Other accrued liabilities.................................................. 5,485 10,717
Deferred revenue........................................................... 3,313 8,998
Income taxes payable....................................................... 1,584 2,988
Current portion of notes payable........................................... 326 1,024
------- --------
Total current liabilities............................................... 16,235 32,387
Long-term notes payable..................................................... 148 --
Shareholders' equity :
Common stock, $.01 par value: 45,688 52,258
Authorized - 100,000 shares; issued and outstanding - 27,306 and 28,201...
Retained earnings.......................................................... 9,537 24,570
------- --------
Total shareholders' equity.............................................. 55,225 76,828
------- --------
Total liabilities and shareholders' equity.............................. $71,608 $109,215
======= ========
</TABLE>
See accompanying notes.
24
<PAGE>
VISIO CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
1995 1996 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues.................................................. $34,224 $59,699 $99,515
Cost of revenues.......................................... 6,077 8,701 10,579
------- ------- -------
Gross profit.............................................. 28,147 50,998 88,936
Operating expenses:
Research and development................................. 5,086 8,842 15,479
Sales and marketing...................................... 17,340 22,974 38,841
General and administrative............................... 2,515 4,609 7,286
Acquired technology...................................... -- -- 10,255
------- ------- -------
Total operating expenses.............................. 24,941 36,425 71,861
------- ------- -------
Operating income.......................................... 3,206 14,573 17,075
Interest and other income, net............................ 403 1,500 3,348
------- ------- -------
Income before income taxes................................ 3,609 16,073 20,423
Provision for income taxes................................ 1,263 4,982 5,310
------- ------- -------
Net Income................................................ $ 2,346 $11,091 $15,113
======= ======= =======
Earnings per share........................................ $0.10 $0.38 $0.50
======= ======= =======
Shares used in computation of earnings per share......... 23,676 29,152 30,412
======= ======= =======
</TABLE>
See accompanying notes.
25
<PAGE>
VISIO CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1995 1996 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income................................................ $ 2,346 $ 11,091 $ 15,113
Adjustments to reconcile net income to net cash from
operations:
Depreciation and amortization........................... 839 1,341 2,680
Deferred income taxes................................... (2,136) 357 (5,533)
Changes:
Accounts receivable.................................... (3,518) 2,227 (4,227)
Inventories............................................ (1,175) 828 (460)
Prepaid expenses....................................... (764) (580) (1,598)
Accounts payable....................................... 2,294 (661) 2,448
Accrued compensation and benefits...................... 308 976 749
Other accrued liabilities.............................. 1,053 2,255 5,357
Deferred revenue....................................... 1,521 1,496 5,712
Income taxes payable................................... 2,322 614 4,543
------- -------- --------
Net cash from operations.................................. 3,090 19,944 24,784
------- -------- --------
CASH FLOWS USED FOR INVESTMENTS:
Purchases of short-term investments....................... -- (27,751) (21,012)
Proceeds from maturities of short-term investments........ -- 9,150 18,275
Purchases of equipment and leasehold improvements......... (1,182) (2,473) (6,950)
Purchases of capitalized technology....................... -- -- (2,135)
------- -------- --------
Net cash used for investments............................. (1,182) (21,074) (11,822)
------- -------- --------
CASH FLOWS FROM FINANCING:
Issuance of common stock.................................. 121 1,237 3,480
Issuance of preferred stock............................... 1,490 -- --
Proceeds from initial public offering..................... -- 35,680 --
Proceeds from notes payable............................... 260 -- --
Payments on notes payable................................. (343) (373) (474)
------- -------- --------
Net cash from financing................................... 1,528 36,544 3,006
------- -------- --------
Net increase in cash and cash equivalents.................. 3,436 35,414 15,968
Effect of exchange rate changes on cash.................... (42) 29 (252)
Cash and cash equivalents, beginning....................... 3,669 7,063 42,506
------- -------- --------
Cash and cash equivalents, end............................. 7,063 42,506 58,222
Short-term investments..................................... -- 18,601 21,372
------- -------- --------
Cash and short-term investments............................ $ 7,063 $ 61,107 $ 79,594
======= ======== ========
SUPPLEMENTAL DISCLOSURES
Income tax payments....................................... $ 1,073 $ 4,010 $ 6,996
Noncash financing activity
Conversion of preferred stock............................. $ -- $ 6,545 $ --
Issuance of note payable for capitalized technology....... $ -- $ -- $ 1,000
</TABLE>
See accompanying notes.
26
<PAGE>
VISIO CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1995 1996 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Common stock
Balance, beginning of year................................. $ 422 $ 543 $45,688
Conversion of preferred stock............................. -- 6,545 --
Initial public offering, net of offering of $3,848........ -- 35,680 --
Stock options exercised................................... 122 153 1,722
Stock warrants exercised.................................. -- 750 395
Stock issued under employee stock purchase plan........... -- 341 1,427
Repurchase of common stock................................ (1) (7) (64)
Stock option tax benefit.................................. -- 1,683 3,090
------- ------- -------
Balance, end of year....................................... $ 543 $45,688 $52,258
------- ------- -------
Retained earnings (deficit)
Balance, beginning of year................................. $(3,898) $(1,583) $(9,537)
Net income................................................ 2,346 11,091 15,113
Translation adjustments................................... (31) 29 (230)
Net short-term investment unrealized gains and losses..... -- -- 150
------- ------- -------
Balance, end of year....................................... $(1,583) $ 9,537 $24,570
------- ------- -------
Total shareholders' equity (deficit)........................ $(1,040) $55,225 $76,828
======= ======= =======
</TABLE>
See accompanying notes.
27
<PAGE>
VISIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
--------
Visio Corporation ("Visio" or the "Company") is a leading supplier of business
drawing and diagramming software products. The Company's primary products are
Visio Standard, Visio Technical and Visio Professional. Visio software enables
business and technical users to create drawings and diagrams ranging from simple
diagrams such as flowcharts, block diagrams and organizational charts to complex
technical drawings such as space plans, electrical schematics and network
designs.
Basis of Presentation
---------------------
The Company's fiscal year is the 52/53-week period that ends on the Friday
nearest September 30. For convenience of presentation, all fiscal periods in
these financial statements are treated as ending on a calendar month end. The
accompanying financial statements are consolidated to include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Certain reclassifications were
made to prior-year financial statements to conform to the current year
presentation.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Foreign Currency Translation
----------------------------
Assets and liabilities denominated in foreign currencies are translated to U.S.
dollars at the exchange rate on the balance sheet date. Revenues and expenses
are translated at the average rates of exchange prevailing during the year. The
translation adjustment, which is immaterial for all periods presented, resulting
from this process is included in retained earnings. Gains and losses on foreign
currency transactions are included in other income, net. At September 30,1997,
the Company had a contract to deliver $980,000 in a foreign currency, expiring
October 1997, which hedges foreign exchange rate risk related to a foreign
currency denominated assets. At September 30, 1997, the fair value of the
contract approximated its cost.
Revenue Recognition
-------------------
Revenues and accounts receivable are principally from distributors and
resellers of the Company's products. The Company performs periodic credit
evaluations of its customers and maintains reserves for potential credit losses.
Revenues are generally recognized at the time of shipment, net of deferrals for
inventory at distributors which the Company estimates to be in excess of levels
appropriate for that channel and adjustments for estimated future returns.
Revenues attributable to free upgrade rights are deferred and not recognized
until the free upgrade has been shipped to the customer. Revenues attributable
to the sale of extended customer support and maintenance programs are deferred
and recognized ratably over the contract period. Revenues from corporate or
organization license programs is recorded when the user installs the product.
The Company accrues estimated costs of technical support to customers as the
related revenues are recognized.
Financial Instruments
---------------------
The Company considers highly liquid financial instruments purchased with an
original maturity of three months or less to be cash equivalents. Management
currently classifies its short-term investments consisting primarily of debt
securities as available-for-sale. These securities are reported at market
value. Unrealized gains and losses are included in shareholders' equity.
Realized gains and losses and declines in value judged to be other than
temporary on available-for-sale securities are included in investment income.
The cost of securities sold is based on the
28
<PAGE>
VISIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
specific identification method. At September 30, 1997, the short-term
investments had contractual maturities of one to eighteen months.
Inventories
-----------
Inventories are stated at the lower of cost or market and include adjustments
for estimated obsolescence. Cost is principally determined using currently
adjusted standard costs, which approximate actual cost on a first-in, first-out
basis.
Equipment and Leasehold Improvements
------------------------------------
Equipment and leasehold improvements are recorded at cost. Equipment
depreciation is provided on the straight-line method for financial statement
purposes over its estimated useful life of two to five years. Leasehold
improvements are amortized over the lesser of the lease term or estimated useful
life.
Capitalized Technology
----------------------
Capitalized technology represents the amount of developed technology acquired
from third parties. Amortization is provided on the straight-line method over
its remaining useful life.
Research and Development
------------------------
Research and development costs are expensed as incurred and consist primarily of
software development costs. Financial accounting rules requiring capitalization
of certain internally developed software costs have not materially affected the
Company.
Acquired Technology
-------------------
Acquired technology represents the amount of in-process technology acquired from
third parties.
Income Taxes
------------
Income taxes are computed using the liability method whereby the provision for
income taxes includes income taxes currently payable and deferred taxes arising
from temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.
Per Share Data
--------------
Earnings per share is based on weighted average common and dilutive common
equivalent shares outstanding using the treasury stock method. Dilutive common
equivalent shares include stock options and warrants. Fully diluted earnings
per share for all periods presented were not materially different from primary
earnings per share.
Recently Issued Accounting Standards
------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", which is required to be adopted in the quarter ended
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options and warrants will be excluded. The impact
is expected to result in an increase in primary earnings per share for the year
ended September 30, 1995, 1996 and 1997 of $0.11, $0.04 and $0.04 per share,
respectively. The impact of Statement 128 on the calculation of fully diluted
earnings per share for these periods is not expected to be material.
29
<PAGE>
VISIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
2. BALANCE SHEET INFORMATION
Detailed balance sheet data is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------
1996 1997
------------------ ------------------
<S> <C> <C>
(IN THOUSANDS)
Cash and short-term investments:
Cash and equivalents............................................. $42,506 $ 58,222
Short-term investments........................................... 18,601 21,372
------- --------
$61,107 $ 79,594
======= ========
Accounts receivable:
Receivables...................................................... $ 2,891 $ 7,509
Allowance for doubtful accounts.................................. (649) ( 1,149)
------- --------
$ 2,242 $ 6,360
======= ========
Inventories:
Raw materials.................................................... $ 189 $ 299
Finished goods................................................... 415 780
------- --------
$ 604 $ 1,079
======= ========
Equipment and leasehold improvements:
Computer hardware................................................ $ 4,057 $ 7,275
Office furniture, equipment, and leasehold improvements.......... 2,343 5,987
------- --------
6,400 13,262
Accumulated depreciation and amortization........................ (2,955) ( 5,223)
------- --------
$ 3,445 $ 8,039
======= ========
Capitalized technology:
Capitalized technology........................................... $ -- $ 3,135
Accumulated amortization......................................... -- (274)
------- --------
$ -- $ 2,861
======= ========
Other accrued liabilities:
Advertising and promotion........................................ $ 1,669 $ 4,339
Other............................................................ 3,816 6,378
------- --------
$ 5,485 $ 10,717
======= ========
</TABLE>
3. BANK LINE OF CREDIT
The Company has an unsecured $1 million working capital line of credit that
expires on February 28, 1998. Borrowings under the credit line bear interest at
the lending bank's prime interest rate (8.5% at September 30, 1997). The line
of credit agreement requires the Company to meet certain financial covenants.
There were no borrowings under this line at September 30, 1997.
30
<PAGE>
VISIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
4. COMMITMENTS
Visio rents office facilities and automobiles under operating leases. Certain
office facility leases contain renewal and escalation clauses and space
expansion provisions. Future minimum lease payments under noncancelable
operating leases are:
<TABLE>
<CAPTION>
OPERATING LEASES
(IN THOUSANDS)
<S> <C>
1998............................................................................ $2,461
1999............................................................................ 2,168
2000............................................................................ 1,002
2001............................................................................ 390
2002............................................................................ 344
2003 and thereafter............................................................. 1,344
------
Total minimum lease payments.................................................... $7,709
======
</TABLE>
Rental expenses under operating leases totaled $875,000, $1,100,000 and
$1,143,000 in fiscal 1995, 1996 and 1997, respectively.
5. INCOME TAXES
Income before income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1995 1996 1997
---------------- ------------- -------------
<S> <C> <C> <C>
(IN THOUSANDS)
U.S..................................................... $3,664 $13,209 $16,904
International........................................... (55) 2,864 3,519
------ ------- -------
$3,609 $16,073 $20,423
====== ======= =======
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1995 1996 1997
---------------- ------------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
Current tax expense:
U.S. federal............................................... $ 3,198 $4,445 $ 9,555
State.................................................... 8 -- 385
Foreign.................................................. 193 180 882
------- ------ -------
Total current provision...................................... 3,399 4,625 10,822
------- ------ -------
Deferred tax (provision) benefit.............................
U.S. federal............................................. (2,136) 357 (4,955)
State.................................................... -- -- (255)
Foreign.................................................. -- -- (302)
------- ------ -------
Total deferred tax........................................... (2,136) 357 (5,512)
------- ------ -------
Total provision for income taxes............................. $ 1,263 $4,982 $ 5,310
======= ====== =======
</TABLE>
31
<PAGE>
VISIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
The effective rate differs from the U.S. federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1995 1996 1997
---------------- -------------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
Income tax provision at statutory rate....................... $1,227 $5,465 $ 6,944
State taxes, not of federal benefit.......................... -- -- 86
Impact of international operations........................... -- -- (1,293)
Losses producing no current tax benefit...................... 865 77 --
Tax-free interest............................................ -- (429) (454)
Valuation allowance for deferred tax assets.................. (999) (167) --
Other........................................................ 170 36 27
------ ------ -------
$1,263 $4,982 $ 5,310
====== ====== =======
</TABLE>
Net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Reserves for sales returns and doubtful accounts...................... $ 624 $ 933
Deferred revenue...................................................... 798 2,951
Reserves and expenses not currently deductible........................ 488 791
Acquired technology................................................... -- 2,825
------ ------
1,910 7,500
Valuation allowance for deferred tax assets.............................. -- --
------ ------
1,910 7,500
Deferred tax liabilities:
Deductible prepaid expenses and other................................. (131) (209)
------ ------
Net deferred tax assets.................................................. $1,779 $7,291
====== ======
</TABLE>
6. EMPLOYEE BENEFITS
401(k) Plan
-----------
Effective January 1, 1993, Visio implemented a salary deferral 401(k) plan for
all of its domestic employees. Employees may contribute a percentage of their
pretax earnings annually, up to the maximum dollar limitation prescribed by the
Internal Revenue Service. The plan also provides that Visio contribute an
amount equal to 50% of employee contributions, up to 6% of salary. Visio
recognized expense of $147,000, $188,000 and $330,000 in fiscal 1995, 1996 and
1997, respectively, related to the plan.
1990 Stock Option Plan
----------------------
In 1990, Visio adopted the 1990 Stock Option Plan, which provided for the
granting of incentive stock options and nonqualified stock options to employees,
officers, directors, agents, consultants and independent contractors. Options
under the 1990 Stock Option Plan have generally been granted at fair market
value on the date of grant, expire after ten years, and vest ratably over a
period of four years. As a result of the adoption of the 1995 Long-Term
Incentive Compensation Plan in May 1995, all previously reserved shares of
common stock under the 1990
32
<PAGE>
VISIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
Stock Option Plan were transferred to the 1995 Long-Term Incentive Compensation
Plan upon the effective date of the Company's initial public offering.
1995 Non- Employee Director Stock Option Plan
---------------------------------------------
In April 1995, Visio adopted the 1995 Nonemployee Director Stock Option Plan,
which took effect upon the effective date of the Company's initial public
offering and provides for the granting of options to nonemployee directors of
the Company. As of September 30, 1997, a total of 195,000 shares of Common
Stock remained available under the plan for future grants. There were 45,000
options granted under the plan in fiscal 1997.
1995 Long- Term Incentive Compensation Plan
-------------------------------------------
In May 1995, Visio adopted the 1995 Long-Term Incentive Compensation Plan, which
provides for the granting of incentives and awards to employees, agents and
consultants of the Company and its subsidiaries. The plan is a long-term
incentive compensation plan and combines the features of an incentive and a
nonqualified stock option plan, a stock appreciation rights plan, a stock award
plan and a performance-based plan. In fiscal 1997, the Company's shareholders
approved to increase the number of shares of common stock which may be issued
under the plan by 1,640,000. As of September 30, 1997, a total of 737,067
shares of common stock remained available under the plan for future grants.
There were 1,699,400 options granted under the plan in fiscal 1997. In fiscal
1997, there were 1,794 shares of common stock repurchased by the Company for
$43,000 concurrent with the exercise of stock options.
1995 Employee Stock Purchase Plan
---------------------------------
In August 1995, Visio adopted the 1995 Employee Stock Purchase Plan (the
"ESPP"). The Company has reserved an aggregate of 750,000 shares of common
stock for issuance under the ESPP. The ESPP permits eligible employees of the
Company to purchase common stock at not less than 85% of fair market value as
defined in the plan through payroll deductions of up to 15% of their
compensation, provided that no employee may purchase common stock worth more
than $15,000 in any calendar year or more than 10,000 shares of common stock
during any offering period. The ESPP will expire in 2005. There were 156,054
shares issued under the ESPP in fiscal 1997.
33
<PAGE>
VISIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
Stock option activity and option price information were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES SHARE PRICE
----------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Balance, October 1, 1994........................................... 2,906 $ .12
Granted......................................................... 1,392 1.91
Exercised....................................................... (136) .07
Exercised and converted to restricted stock..................... (818) .14
Canceled........................................................ (216) .14
-----
Balance, September 30, 1995 3,128 .91
Granted......................................................... 956 14.69
Exercised....................................................... (518) .27
Exercised and converted to restricted stock..................... (82) .10
Canceled........................................................ (158) 4.01
-----
Balance, September 30, 1996........................................ 3,326 4.85
Granted......................................................... 1,744 24.01
Exercised....................................................... (587) 2.91
Exercised and converted to restricted stock..................... (20) .37
Canceled........................................................ (274) 10.88
-----
Balance, September 30, 1997........................................ 4,189 $12.72
=====
</TABLE>
Balances are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------
1996 1997
---------------- -----------------
<S> <C> <C>
(IN THOUSANDS)
Available for future grants.................................... 790 960
Exercisable.................................................... 2,450 1,418
Exercised, subject to repurchase............................... 530 167
</TABLE>
For various price ranges, weighted average characteristics of outstanding stock
options at September 30, 1997 were as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
-------------------------------------------------------- ------------------------------------
RANGE OF EXERCISE REMAINING LIFE WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICES SHARES (YEARS) PRICE SHARES PRICE
---------------- ------------------ ------------------ --------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
$ 0.60 - $1.00 1,181 5.72 $ .19 934 $ .17
1.01 - 6.00 649 7.74 3.36 294 3.13
6.01 - 20.00 1,214 8.63 17.46 183 15.06
20.01 - 41.38 1,145 9.46 25.93 7 21.38
</TABLE>
The Company follows APB 25, Accounting for Stock Issued to Employees, to account
for stock option and employee stock purchase plans. No compensation cost is
recognized because the option exercise price is equal to the market price of the
underlying stock on the date of grant. Had compensation cost for these plans
been
34
<PAGE>
VISIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
determined based on the Black-Scholes value at the grant dates for awards
as prescribed in SFAS Statement 123, "Accounting for Stock-Based Compensation,"
pro forma net income and earnings per share would have been:
<TABLE>
<CAPTION>
1996 1997
---------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Pro forma net income.................................................. $10,434 $11,741
Pro forma earnings per share.......................................... $ 0.36 $ 0.39
</TABLE>
The pro forma disclosures above include the amortization of the fair value of
all options vesting during 1996 and 1997 net of stock option tax benefits. The
weighted average Black-Scholes value of options granted under the stock option
plans during 1996 and 1997 was $15.0 and $27.4 per share, respectively. Value
was estimated using an expected life of five years, no dividends, volatility of
.38, and risk-free interest rates of 6.0% and 6.5% in 1996 and 1997,
respectfully.
Because the method prescribed by SFAS 123 has not been applied to options
granted prior to September 30 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
7. SHAREHOLDERS' EQUITY
Common Shares Outstanding
-------------------------
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year......................................... 10,200 11,140 27,306
Conversion of preferred stock...................................... -- 10,410 --
Initial public offering, net of offering of $3,848................. -- 4,941 --
Stock options exercised............................................ 954 600 607
Stock warrants exercised........................................... -- 226 146
Stock issued under employee stock purchase plan.................... -- 43 156
Repurchase of common stock......................................... (14) (54) (14)
------ ------ ------
Balance, end of year............................................. 11,140 27,306 28,201
====== ====== ======
</TABLE>
Stock Split
-----------
In August 1997, shares of common stock were split two-for-one. All share and
per share amounts have been retroactively restated to reflect the stock split.
Common Stock Repurchase Rights
------------------------------
In 1994, all employees of Visio were offered the opportunity to accelerate the
vesting of stock options and purchase an equal number of restricted common stock
shares at the original option price. These restricted shares vest according to
the vesting schedule of the corresponding options. The Company has the right of
first refusal to purchase vested shares before they can be transferred at the
then fair market value. Nonvested shares are not transferable. In fiscal 1997,
employees purchased 19,500 restricted shares for $7,000 and the Company
repurchased 11,250 shares for $1,000. As of September 30, 1997, a total of
167,676 shares were subject to repurchase.
35
<PAGE>
VISIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
Initial Public Offering
-----------------------
In November 1995, the Company completed its initial public offering for the sale
of 4,941,000 shares of common stock at $8.00 per share. The net proceeds, after
underwriting discounts and offering expenses, from the sale of common stock was
$35.7 million. Upon closing, all outstanding shares of preferred stock
converted into 10,410,178 shares of common stock.
Warrants
--------
In connection with a venture lease agreement entered into in fiscal 1993, Visio
granted a warrant to purchase 33,518 shares of Series B preferred stock at $0.60
per share. The warrant is exercisable for ten years after date of issuance or
five years after an initial public offering of Visio's common stock, whichever
period is shorter. Since the effective date of the initial public offering, the
Series B preferred stock converted to common stock, and the warrant became
exercisable for 33,518 shares of common stock at a purchase price of
approximately $0.60 per share. In fiscal 1997, the warrant was exercised in
full. Concurrent with the exercise of this warrant, 890 shares of common stock
were repurchased by the Company for $20,000.
In connection with the 1994 sale of Series B preferred stock, Visio granted a
warrant to purchase 450,000 shares of Common Stock at approximately $3.34 per
share to an officer of the Company. The warrant is exercisable for six years
after the date of issuance and vests ratably over a period of four years. In
the event of a merger, consolidation, acquisition, reorganization or liquidation
of the Company, the warrant will be canceled and all rights will terminate. The
Company is required to deliver notice of reorganization no less than 15 business
days before the date scheduled for reorganization. The holder has the right
immediately prior to the reorganization to exercise the warrant. In fiscal
1997, 112,500 of these warrants were exercised.
Common Shares Reserved
----------------------
Visio has reserved shares of common stock for future issuance as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
1997
----
(IN THOUSANDS)
<S> <C>
Stock options.................................................................. 5,149
Employee stock purchase plan................................................... 551
Common stock purchase warrants................................................. 113
-----
5,813
=====
</TABLE>
8. BUSINESS SEGMENT AND OTHER INFORMATION
The Company operates in one business segment: software products and related
services for users of personal computers. Sales to unaffiliated customers
accounting for greater than 10% of sales are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1995 1996 1997
---------------- ------------- -------------
<S> <C> <C> <C>
Customer A...................................................... 30% 34% 35%
Customer B...................................................... 17 16 12
Customer C...................................................... 12 8 1
</TABLE>
36
<PAGE>
VISIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
Information regarding the Company's operations in different geographic areas is
set forth below. Revenues, operating income and identifiable assets are
reported based on the location of the Company's facilities. Transfers between
geographic locations are recorded based on a percentage of list price
commensurate with respective costs.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1995 1996 1997
-------------- ---------------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
Revenues:
U.S. domestic customers.................................... $24,320 $37,708 $63,963
Export customers........................................... 60 117 --
Transfer between geographic locations...................... 34 90 (3)
------- ------- -------
24,414 37,915 63,960
------- ------- -------
European operations customers................................ 9,844 21,874 35,552
Transfer between geographic locations...................... 138 100 89
------- ------- -------
9,982 21,974 35,641
Eliminations............................................... (172) (190) (86)
------- ------- -------
$34,224 $59,699 $99,515
======= ======= =======
Operating Income (loss)
U.S. operations............................................ $3,540 $11,652 $13,844
European operations........................................ (296) 2,927 3,229
Eliminations............................................... (38) (6) 2
------ ------- -------
$3,206 $14,573 $17,075
====== ======= =======
Identifiable assets:
U.S. operations............................................ $ 9,965 $ 6,406 $ 23,003
European operations........................................ 2,585 4,467 7,134
Eliminations............................................... (366) (372) (516)
------- ------- --------
12,184 10,501 29,621
Corporate assets............................................. 7,063 61,107 79,594
------- ------- --------
$19,247 $71,608 $109,215
======= ======= ========
</TABLE>
9. ACQUIRED TECHNOLOGY
In February 1997, the Company acquired certain assets of Boomerang Technology
Inc., a privately held developer of Autodesk AutoCAD-compatible software,
located in San Diego, California. Under the terms of the agreement, the Company
primarily acquired source code for cash payments totaling $6.7 million. Visio
accounted for the acquisition as a purchase with the entire purchase price
allocated to acquired in-process technology and expensed in the period of
purchase. The Company expects this technology will be incorporated into a
future product offering.
In May 1997, the Company acquired certain assets of Sysdraw Software Company, a
privately held network design and documentation solutions provider located in
Lombard, Illinois. Visio acquired technology including the world's largest
library of network diagramming shapes, an operating organization for creating
new network diagramming shapes and solutions and certain other technology and
assets for $5.5 million in cash, the issuance of a $1 million note payable as
well as contingent consideration based on the achievement of certain performance
goals within the next three years. The note payable bears interest at 6% and
matures in August 1998. In addition to the purchase price, Visio incurred
approximately $0.3 million in related acquisition costs. Visio accounted for
the acquisition as a purchase with approximately $3.6 million of the purchase
price allocated to acquired in-process
37
<PAGE>
VISIO CORPORATION
NOTES TO FINANCIAL STATEMENTS
technology and the balance of the purchase price of $3.2 million was capitalized
and will be amortized on a straight-line basis over its remaining useful life of
five years.
The operating results of Boomerang Technology Inc. and Sysdraw Software Company
were not considered material to the consolidated financial statements of Visio
and, accordingly, pro forma information has not been presented.
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR 1997 QUARTER ENDED
-------------------------------------------------------------------
DEC 31 MAR 31 JUN 30 SEP 30 FISCAL YR
------------- ----------- ----------- ----------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues............................. $19,010 $23,536 $ 25,805 $31,164 $99,515
Gross profit......................... $17,033 $21,145 $ 23,074 $27,684 $88,936
Net income........................... $ 4,384 $ 481 $ 3,286 $ 6,962 $15,113
Earnings per share................... $ 0.15 $ 0.02 $ 0.11 $ 0.23 $ 0.50
Shares used in computation of
earnings per share.................. 30,136 30,126 30,540 30,846 30,412
Common stock prices
High $26 1/4 $26 5/8 $34 9/16 $41 3/4 $41 3/4
Low $20 5/8 $18 1/8 $19 1/2 $32 1/2 $18 1/8
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1996 QUARTER ENDED
--------------------------------------------------------------------
DEC 31 MAR 31 JUN 30 SEP 30 FISCAL YR
------------- ------------ ----------- ----------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 13,417 $14,527 $15,231 $16,524 $ 59,699
Gross profit......................... $ 11,072 $12,143 $13,106 $14,677 $ 50,998
Net income........................... $ 2,079 $ 2,321 $ 2,845 $ 3,846 $ 11,091
Earnings per share................... $0.08 $ 0.08 $ 0.10 $ 0.13 $ 0.39
Shares used in computation of
earnings per share.................. 27,096 29,698 29,888 29,928 29,152
Common Stock Prices
High $ 14 1/8 $14 7/8 $22 1/4 $22 1/8 $22 1/4
Low $ 10 13/16 $11 $12 3/8 $14 7/8 $10 13/16
</TABLE>
Visio's common stock has been traded on the Nasdaq National Market under the
symbol VSIO since the Company's initial public offering in November 1995. The
high and low closing sales prices noted above are as reported on the Nasdaq
National Market. On November 28, 1997, there were 119 holders of record of the
Company's common stock. The Company has not paid cash dividends on its common
stock.
38
<PAGE>
SCHEDULE II
VISIO CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED BALANCE
BEGINNING OF TO COSTS AND REDUCTIONS AT END
PERIOD EXPENSES WRITE-OFFS OF PERIOD
-------------- --------------------- -------------- -------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<S> <C> <C> <C> <C>
Year ended September 30, 1997................... $649 $524 $(24) $1,149
Year ended September 30, 1996................... $344 $329 $(24) $ 649
Year ended September 30, 1995................... $162 $172 $ - $ 344
BALANCE AT ADDITIONS CHARGED BALANCE
BEGINNING OF TO COSTS AND REDUCTIONS AT END
PERIOD EXPENSES WRITE-OFFS OF PERIOD
-------------- --------------------- -------------- -------------
RESERVE FOR OBSOLETE INVENTORY:
Year ended September 30, 1997................... $579 $281 $(288) $572
Year ended September 30, 1996................... $746 $646 $(813) $579
Year ended September 30, 1995................... $253 $651 $(158) $746
</TABLE>
39
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from the
sections labeled "Election of Directors" and "Additional Information" in the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders to
be held on February 25, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
sections labeled "Election of Directors" and "Additional Information" in the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders to
be held on February 25, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
sections labeled "Additional Information" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on February 25,
1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
sections labeled "Additional Information" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on February 25,
1998.
40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The financial statements included in Item 8, Financial Statements and
Supplementary Data, are set forth in the Index to Financial Statements
listed on page 22 of this Annual Report on Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES
The financial statement schedule is set forth in the Index to Financial
Statements listed on page 22 of this Annual Report on Form 10-K.
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the financial statements or notes thereto.
3. EXHIBITS
The exhibits filed in response to Item 601 of Regulation S-K are listed in
the Exhibit Index contained herein.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of the fiscal
year ended September 30, 1997.
41
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- ------------ ------------------------------------------------------------------------------------- -----------
<C> <S> <C>
3.1 Fourth Restated Articles of Incorporation of Visio Corporation +
3.2 Restated Bylaws of Visio Corporation +
4.1 Specimen Common Stock Certificate of Visio Corporation *
10.1 1990 Stock Option Plan, as amended +
10.2 1995 Long-Term Incentive Stock Option Plan, as amended +
10.3 1995 Stock Option Plan for Nonemployee Directors, as amended +
10.4 Office Lease between Visio Corporation and Sixth & Pike Associates, L.P. dated *
October 28, 1993
10.4(a) Amendment to Office Lease between Visio Corporation and Sixth & Pike Associates, ***
L.P. dated June 13, 1996.
10.5 Office Lease between Shapeware International Limited and Irish Airlines Pensions *
Limited dated March 25, 1995
10.6 Master Lease Agreement between Visio Corporation and Comdisco, Inc. dated *
February 23, 1993
10.7 Registration Rights Agreement among Visio Corporation and the Investors, as *
defined therein, dated as of April 11, 1991, as amended
10.8 Warrant Agreement dated as of February 23, 1993 between Visio Corporation and *
Comdisco, Inc.
10.9 Common Stock Purchase Warrant issued April 22, 1994 to Gary Gigot *
10.10 Loan and Security Agreement between Silicon Valley Bank and Visio Corporation *
dated January 26, 1994, as amended
10.10(a) Amendment to the Loan and Security Agreement between Silicon Valley Bank and Visio ***
Corporation dated April 3, 1996
10.10(b) Amendment to the Loan and Security Agreement between Silicon Valley Bank and Visio *****
Corporation dated February 28, 1997
10.11 Form of Indemnification Agreement for directors and officers *
10.12/o/ Distribution Agreement dated as of December 14, 1992, as amended, between Visio *
Corporation and Merisel, Inc.
10.13/o/ Distributor Agreement dated as of November 2, 1992, as amended, between Visio *
Corporation and Ingram Micro, Inc.
10.14/o/ Reseller Agreement dated as of August 8, 1993, as amended, between Visio Corporation *
and Egghead, Inc.
10.15/o/ Distribution Agreement dated as of January 1, 1995, between Visio Corporation and *
ASCII Corporation
10.15(a)/o/ Agreement for the Amendment of Distribution Agreement dated January 15, 1996, **
between Visio Corporation and ASCII Corporation
10.16/o/ License Agreement dated as of July 10, 1995 *
10.17/o/ Distribution Agreement dated September 25, 1996, between Visio Corporation and ASCII ****
Corporation
10.18 Office Lease between Visio International Limited and Erin Executor & Trustee Co. ****
Limited dated August 20, 1996
10.19 Asset Purchase Agreement between Visio Corporation and Boomerang Technology, Inc. *****
dated February 21,1997
10.20 Asset Purchase Agreement between Visio Corporation and SysDraw Software Company ******
dated May 1, 1997
10.21 1995 Employee Stock Purchase Plan, as amended +
11.1 Computation of Net Income Per Share +
21.1 Subsidiaries of the registrant +
23.1 Consent of Ernst & Young LLP, Independent Auditors +
24.1 Power of Attorney (contained on signature page)
</TABLE>
42
<PAGE>
<TABLE>
<S> <C>
27.1 Financial Data Schedule, which is submitted electronically to the Securities and +
Exchange Commission for information purposes only and not filed.
- ----------------------
+ Filed herewith.
* Filed as an exhibit to the registrant's Registration Statement on Form S-1 (Registration No.
33-96986) effective November 9, 1995 and incorporated herein by reference.
** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1996 and incorporated herein by reference.
*** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996 and incorporated herein by reference.
**** Filed as an exhibit to the Company's Annual Report on Form 10-K for the period ended September
30, 1996 and incorporated herein by reference.
***** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997 and incorporated herein by reference.
****** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1997 and incorporated herein by reference.
/o/ Confidential treatment.
</TABLE>
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf of the undersigned, thereunto duly authorized.
VISIO CORPORATION
/s/ JEREMY A. JAECH
-------------------
Jeremy A. Jaech
President and Chief Executive Officer
Date: December 23, 1997
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and appoints Jeremy
A. Jaech and Theodore C. Johnson, and each of them, with full power of
substitution and full power to act without the other, as his true and lawful
attorney-in-fact and agent to act in his name, place and stead and to execute in
the name and on behalf of each person, individually and in each capacity stated
below, and to file, any and all amendments to this Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Act of 1934, as amended, this
report has been signed by the following persons, on behalf of the registrant, in
the capacities and on the days indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- ------------------------------------------------------- ----------------------
<S> <C> <C>
/s/ JEREMY A. JAECH President, Chief Executive Officer and Chairman of December 23, 1997
- --------------------------------- the Board of Directors(Principal Executive Officer)
Jeremy A. Jaech
/s/ STEVE M. GORDON Chief Financial Officer, Senior Vice President, December 23, 1997
- --------------------------------- Finance and Operations, and Assistant Secretary
Steve M. Gordon (Principal Financial and Accounting Officer)
/s/ THEODORE C. JOHNSON Chief Technology Officer, Executive Vice President, December 23, 1997
- --------------------------------- and Director
Theodore C. Johnson
/s/ TOM A. ALBERG Director December 23, 1997
- ---------------------------------
Tom A. Alberg
/s/ THOMAS H. BYERS Director December 23, 1997
- ---------------------------------
Thomas H. Byers
/s/ JOHN R. JOHNSTON Director December 23, 1997
- ---------------------------------
John R. Johnston
/s/ DOUGLAS MACKENZIE Director December 23, 1997
- ---------------------------------
Douglas Mackenzie
/s/ SCOTT OKI Director December 23, 1997
- ---------------------------------
Scott Oki
</TABLE>
44
<PAGE>
EXHIBIT 3.1
VISIO CORPORATION
Fourth Restated Articles of Incorporation
Visio Corporation, a Washington corporation, by its President, hereby
submits the following Fourth Restated Articles of Incorporation of said
corporation, pursuant to provisions of RCW 23B.10.070, and resolutions duly
adopted by the Board of Directors on July 23, 1997. These Fourth Restated
Articles of Incorporation were duly approved by the Board of Directors in
accordance with the provisions of RCW 23B.10.010 and 23B.10.020, and supersede
the original Articles of Incorporation and all amendments and prior restatements
thereto as of the date of their adoption.
ARTICLE 1. NAME
The name of this corporation is Visio Corporation.
ARTICLE 2. DURATION
This corporation is organized under the Washington Business Corporation Act
and shall have perpetual existence.
ARTICLE 3. PURPOSE AND POWERS
The purpose and powers of this corporation are as follows:
3.1 To engage in the business of software development and
commercialization.
3.2 To engage in any and all activities that may, in the judgment of the
Board of Directors, at any time be incidental or conducive to the attainment of
the foregoing purpose.
3.3 To exercise any and all powers that a corporation formed under the
Washington Business Corporation Act, or any amendment thereto or substitute
therefor, may at the time lawfully exercise.
ARTICLE 4. CAPITAL STOCK
4.1 Authorized Capital
The total authorized stock of this corporation shall consist of 200,000,000
shares of Common Stock, par value $.01 per share, and 40,000,000 shares of
Preferred Stock, par value $.01 per share.
Page 1
<PAGE>
4.2 Issuance of Preferred Stock in Series
The Preferred Stock may be issued from time to time in one or more series,
the shares of each series to have such voting powers, full or limited, and such
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof as are stated and
expressed herein or in the resolution or resolutions providing for the issue of
such series adopted by the Board of Directors.
4.2.1 Authority of the Board of Directors
Authority is hereby expressly granted to the Board of Directors of this
corporation, subject to the provisions of this Article 4 and to the limitations
prescribed by law, to authorize the issue of one or more series of Preferred
Stock, and with respect to each such series to fix by resolution or resolutions
providing for the issue of each series the number of shares of such series, the
voting powers, full or limited, if any, of the shares of such series and the
designations, preferences and relative, participating, optional or other special
rights and the qualifications, limitations or restrictions thereof. The
authority of the Board of Directors with respect to each series of Preferred
Stock shall include, but not be limited to, the determination or fixing of the
following:
(a) The number of shares of such series;
(b) The designation of such series;
(c) The dividends of such series, the conditions and dates upon
which such dividends shall be payable, the relation which such dividends shall
bear to the dividends payable on any other class or classes of stock and whether
such dividends shall be cumulative or noncumulative;
(d) Whether the shares of such series shall be subject to
redemption by this corporation and, if made subject to such redemption, the
times, prices, rates, adjustments, and other terms and conditions of such
redemption;
(e) The terms and amounts of any sinking fund provided for the
purchase or redemption of the shares of such series;
(f) Whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes or of any other
series of any class or classes of stock of this corporation and, if provision be
made for conversion or exchange, the times, prices, rates, adjustments, and
other terms and conditions of such conversion or exchange;
(g) The extent, if any, to which the holders of the shares of
such series shall be entitled to vote with respect to the election of directors
or otherwise, including the right to elect a specified number or class of
directors, the number or
Page 2
<PAGE>
percentage of votes required for certain actions, and the extent to which a vote
by class or series shall be required for certain actions;
(h) The restrictions, if any, on the issue or reissue of any
Preferred Stock;
(i) The rights of the holders of the shares of such series upon
the dissolution of, or upon the distribution of the assets of, this corporation;
and
(j) The extent, if any, to which any committee of the Board of
Directors may fix the designations and any of the preferences or rights of the
shares of such series relating to dividends, redemption, dissolution, any
distribution of assets of this corporation or the conversion into or exchange of
such shares for shares of any other class or classes of stock of this
corporation or any other series of the same or any other class or classes of
stock of this corporation, or fix the number of shares of any such series or
authorize the increase or decrease in the shares of such series.
4.2.2 Dividends
Subject to any preferential rights granted for any series of Preferred
Stock, the holders of shares of the Common Stock shall be entitled to receive
dividends, out of the funds of this corporation legally available therefor, at
the rate and at the time or times, whether cumulative or noncumulative, as may
be provided by the Board of Directors. The holders of shares of the Preferred
Stock shall be entitled to receive dividends to the extent provided herein or by
the Board of Directors in designating the particular series of Preferred Stock.
The holders of shares of the Common Stock shall not be entitled to receive any
dividends thereon other than the dividends referred to in this section.
4.2.3 Voting
The holders of shares of the Common Stock, on the basis of one vote per
share, shall have the right to vote for the election of members of the Board of
Directors of this corporation and the right to vote on all other matters, except
those matters on which a separate class of this corporation's shareholders vote
by class or series to the exclusion of the holders of the shares of the Common
Stock. To the extent provided herein or by resolution or resolutions of the
Board of Directors providing for the issue of a series of Preferred Stock, the
holders of each such series shall have the right to vote for the election of
members of the Board of Directors of this corporation and the right to vote on
all other matters, except those matters in which a separate class of this
corporation's shareholders vote by class or series to the exclusion of the
holders of the shares of such series.
4.2.4 Issuance of Shares
This corporation may from time to time issue and dispose of any of the
authorized and unissued shares of the Common Stock or the Preferred Stock for
such consideration as
Page 3
<PAGE>
may be fixed from time to time by the Board of Directors, without action by the
shareholders. The Board of Directors may provide for payment therefor to be
received by this corporation in cash, property, services or such other
consideration as is approved by the Board of Directors. Any and all such shares
of the Common Stock or the Preferred Stock of this corporation, the issuance of
which has been so authorized, and for which consideration so fixed by the Board
of Directors has been paid or delivered, shall be deemed fully paid stock and
shall not be liable to any further call or assessment thereon.
ARTICLE 5. PREEMPTIVE RIGHTS
No preemptive rights shall exist with respect to shares of stock or
securities convertible into shares of stock of this corporation.
ARTICLE 6. CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall not exist
with respect to shares of stock of this corporation.
ARTICLE 7. BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws of this corporation, subject to the power of the shareholders to amend or
repeal such Bylaws. The shareholders shall also have the power to amend or
repeal the Bylaws of this corporation and to adopt new Bylaws.
ARTICLE 8. REGISTERED OFFICE AND AGENT
The name of the initial registered agent of this corporation and the
address of its initial registered office are as follows:
Lawco of Washington, Inc.
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
ARTICLE 9. DIRECTORS
The number of Directors of this corporation shall be determined in the
manner provided by the Bylaws and may be increased or decreased from time to
time in the manner provided therein.
ARTICLE 10. AMENDMENTS TO ARTICLES OF INCORPORATION
This corporation reserves the right to amend or repeal any of the
provisions contained in these Articles of Incorporation in any manner now or
hereafter permitted by law, and the rights of the shareholders of this
corporation are granted subject to this reservation.
Page 4
<PAGE>
ARTICLE 11. LIMITATION OF DIRECTOR LIABILITY
To the full extent that the Washington Business Corporation Act, as it
exists on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of Directors, a Director of this corporation shall
not be liable to this corporation or its shareholders for monetary damages for
conduct as a Director. Any amendment to or repeal of this Article 11 shall not
adversely affect any right or protection of a Director of this corporation for
or with respect to any acts or omissions of such Director occurring prior to
such amendment or repeal.
ARTICLE 12. SPECIAL MEETINGS OF SHAREHOLDERS
The Chairman of the Board of Directors, the President or the Board of
Directors may call special meetings of the shareholders for any purpose.
Further, a special meeting of the shareholders shall be held if the holders of
not less than 10% of all the votes entitled to be cast on any issue proposed to
be considered at such special meeting have dated, signed and delivered to the
Secretary of this corporation one or more written demands for such meeting,
describing the purpose or purposes for which it is to be held; provided,
--------
however, that upon qualification of the corporation as a "public company" under
- -------
RCW Title 23B the percentage of votes required to call a special meeting shall
be 50%.
DATED: July 23, 1997
VISIO CORPORATION
By:
-------------------------------------------------
Jeremy Jaech, President
Page 5
<PAGE>
EXHIBIT 3.2
RESTATED BYLAWS
OF
VISIO CORPORATION
Originally adopted on: October 22, 1997
Amendments are listed on page i
<PAGE>
VISIO CORPORATION
AMENDMENTS
<TABLE>
<CAPTION>
Date of
Section Effect of Amendment Amendment
------- ------------------- ---------
<S> <C> <C>
</TABLE>
Restated Bylaws (October 22, 1997) -i-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. OFFICES....................................................... 1
SECTION 2. SHAREHOLDERS.................................................. 1
2.1 Annual Meeting.................................................. 1
2.2 Special Meetings................................................ 1
2.3 Meetings by Communication Equipment............................. 1
2.4 Date, Time and Place of Meeting................................. 2
2.5 Notice of Meeting............................................... 2
2.6 Business for Shareholders' Meetings............................. 2
2.6.1 Business at Annual Meetings............................... 2
2.6.2 Business at Special Meetings.............................. 3
2.6.3 Notice to Corporation..................................... 3
2.7 Waiver of Notice................................................ 3
2.8 Fixing of Record Date for Determining Shareholders.............. 4
2.9 Voting Record................................................... 4
2.10 Quorum.......................................................... 4
2.11 Manner of Acting................................................ 5
2.12 Proxies......................................................... 5
2.13 Voting of Shares................................................ 5
2.14 Voting for Directors............................................ 5
2.15 Action by Shareholders Without a Meeting........................ 5
SECTION 3. BOARD OF DIRECTORS............................................ 6
3.1 General Powers.................................................. 6
3.2 Number and Tenure............................................... 6
3.3 Nomination and Election......................................... 6
3.3.1 Nomination................................................ 6
3.3.2 Election.................................................. 7
3.4 Annual and Regular Meetings..................................... 7
3.5 Special Meetings................................................ 7
3.6 Meetings by Communication Equipment............................. 8
3.7 Notice of Special Meetings...................................... 8
3.7.1 Personal Delivery......................................... 8
3.7.2 Delivery by Mail.......................................... 8
3.7.3 Delivery by Private Carrier.............................. 8
3.7.4 Facsimile Notice......................................... 8
3.7.5 Delivery by Telegraph..................................... 9
3.7.6 Oral Notice............................................... 9
3.8 Waiver of Notice................................................ 9
</TABLE>
Restated Bylaws (October 22, 1997) -ii-
<PAGE>
<TABLE>
<S> <C>
3.8.1 In Writing................................................ 9
3.8.2 By Attendance............................................. 9
3.9 Quorum.......................................................... 9
3.10 Manner of Acting................................................ 9
3.11 Presumption of Assent........................................... 10
3.12 Action by Board or Committees Without a Meeting................. 10
3.13 Resignation..................................................... 10
3.14 Removal......................................................... 10
3.15 Vacancies....................................................... 11
3.16 Executive and Other Committees.................................. 11
3.16.1 Creation of Committees................................... 11
3.16.2 Authority of Committees.................................. 11
3.16.3 Audit Committee.......................................... 12
3.16.4 Quorum and Manner of Acting.............................. 12
3.16.5 Minutes of Meetings...................................... 12
3.16.6 Resignation.............................................. 12
3.16.7 Removal.................................................. 12
3.17 Compensation.................................................... 13
SECTION 4. OFFICERS...................................................... 13
4.1 Number.......................................................... 13
4.2 Election and Term of Office..................................... 13
4.3 Resignation..................................................... 13
4.4 Removal......................................................... 13
4.5 Contract Rights of Officers..................................... 14
4.6 Vacancies....................................................... 14
4.7 Chairman of the Board........................................... 14
4.8 President....................................................... 14
4.9 Vice President.................................................. 14
4.10 Secretary....................................................... 15
4.11 Treasurer....................................................... 15
4.12 Salaries........................................................ 15
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS......................... 15
5.1 Contracts....................................................... 15
5.2 Loans to the Corporation........................................ 16
5.3 Loans to Directors.............................................. 16
5.4 Checks, Drafts, Etc............................................. 16
5.5 Deposits........................................................ 16
</TABLE>
Restated Bylaws (October 22, 1997) -iii-
<PAGE>
<TABLE>
<S> <C>
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER.................... 16
6.1 Issuance of Shares.............................................. 16
6.2 Certificates for Shares......................................... 16
6.3 Stock Records................................................... 17
6.4 Restriction on Transfer......................................... 17
6.5 Transfer of Shares.............................................. 17
6.6 Lost or Destroyed Certificates.................................. 18
SECTION 7. BOOKS AND RECORDS............................................. 18
SECTION 8. ACCOUNTING YEAR............................................... 19
SECTION 9. SEAL.......................................................... 19
SECTION l0. INDEMNIFICATION............................................... 19
10.1 Right to Indemnification........................................ 19
10.2 Restriction on Indemnification.................................. 20
10.3 Advancement of Expenses......................................... 20
10.4 Right of Indemnitee to Bring Suit............................... 20
10.5 Procedures Exclusive............................................ 21
10.6 Nonexclusivity of Rights........................................ 21
10.7 Insurance, Contract and Funding................................. 21
10.8 Indemnification of Employee and Agent of the Corporation........ 21
10.9 Person Serving Other Entities................................... 21
SECTION 11. AMENDMENTS.................................................... 22
</TABLE>
Restated Bylaws (October 22, 1997) -iv-
<PAGE>
RESTATED BYLAWS
OF
VISIO CORPORATION
SECTION 1. OFFICES
The principal office of the corporation shall be located at its principal
place of business or such other place as the Board of Directors (the "Board")
may designate. The corporation may have such other offices, either within or
without the state of Washington, as the Board may designate or as the business
of the corporation may require from time to time.
SECTION 2. SHAREHOLDERS
2.1 Annual Meeting
The annual meeting of the shareholders shall be held the last Wednesday of
February in each year at 10:00 a.m. for the purpose of electing Directors and
transacting such other business as may properly come before the meeting. If the
day fixed for the annual meeting is a legal holiday at the place of the meeting,
the meeting shall be held on the next succeeding business day. If the annual
meeting is not held on the date designated therefor, the Board shall cause the
meeting to be held as soon thereafter as may be convenient.
2.2 Special Meetings
The Chairman of the Board, the President or the Board may call special
meetings of the shareholders for any purpose. Further, a special meeting of the
shareholders shall be held if the holders of not less than 10% of all the votes
entitled to be cast on any issue proposed to be considered at such special
meeting have dated, signed and delivered to the Secretary one or more written
demands for such meeting, describing the purpose or purposes for which it is to
be held; provided, however, that upon qualification of the corporation as a
-------- -------
"public company" under Title 23B RCW the percentage of votes required to call a
special meeting shall be 50%.
2.3 Meetings by Communication Equipment
Shareholders may participate in a meeting of the shareholders by conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
Restated Bylaws (October 22, 1997) -1-
<PAGE>
2.4 Date, Time and Place of Meeting
Except as otherwise provided, all meetings of shareholders shall be held on
such date and at such time and place within or without the state of Washington
as designated by the Board, by any persons entitled to call a meeting hereunder
or in a waiver of notice signed by all of the shareholders entitled to notice of
the meeting.
2.5 Notice of Meeting
Written notice stating the place, day and time of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called shall be given by or at the direction of the Board, the Chairman of the
Board, the President or the Secretary to each shareholder entitled to notice of
or to vote at the meeting not less than 10 nor more than 60 days before the
meeting, except that notice of a meeting to act on an amendment to the Articles
of Incorporation, a plan of merger or share exchange, the sale, lease, exchange
or other disposition of all or substantially all of the corporation's assets
other than in the regular course of business or the dissolution of the
corporation shall be given not less than 20 nor more than 60 days before such
meeting. Such notice may be transmitted by mail, private carrier, personal
delivery, telegraph, teletype or communications equipment which transmits a
facsimile of the notice to like equipment which receives and reproduces such
notice. If these forms of written notice are impractical in the view of the
Board, the Chairman of the Board, the President or the Secretary, written notice
may be transmitted by an advertisement in a newspaper of general circulation in
the area of the corporation's principal office. If such notice is mailed, it
shall be deemed effective when deposited in the official government mail, first-
class postage prepaid, properly addressed to the shareholder at such
shareholder's address as it appears in the corporation's current record of
shareholders. Notice given in any other manner shall be deemed effective when
dispatched to the shareholder's address, telephone number or other number
appearing on the records of the corporation. Any notice given by publication as
herein provided shall be deemed effective five days after first publication.
2.6 Business for Shareholders' Meetings
2.6.1 Business at Annual Meetings
In addition to the election of directors, other proper business may be
transacted at an annual meeting of shareholders, provided that such business is
properly brought before such meeting. To be properly brought before an annual
meeting, business must be (a) brought by or at the direction of the Board or (b)
brought before the meeting by a shareholder pursuant to written notice thereof,
in accordance with subsection 2.6.3 hereof, and received by the Secretary not
fewer than 60 nor more than 90 days prior to the date specified in subsection
2.1 hereof for such annual meeting (or, if less than 60 days' notice
Restated Bylaws (October 22, 1997) -2-
<PAGE>
or prior public disclosure of the date of the annual meeting is given or made to
the shareholders, not later than the tenth day following the day on which the
notice of the date of the annual meeting was mailed or such public disclosure
was made). Any such shareholder notice shall set forth (i) the name and address
of the shareholder proposing such business; (ii) a representation that the
shareholder is entitled to vote at such meeting and a statement of the number of
shares of the corporation which are beneficially owned by such shareholder;
(iii) a representation that the shareholder intends to appear in person or by
proxy at the meeting to propose such business; and (iv) as to each matter the
shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting, the language of the proposal (if appropriate), and
any material interest of the shareholder in such business. No business shall be
conducted at any annual meeting of shareholders except in accordance with this
subsection 2.6.1. If the facts warrant, the Board, or the chairman of an annual
meeting of shareholders, may determine and declare (a) that a proposal does not
constitute proper business to be transacted at the meeting or (b) that business
was not properly brought before the meeting in accordance with the provisions of
this subsection 2.6.1 and, if, in either case, it is so determined, any such
business shall not be transacted. The procedures set forth in this subsection
2.6.1 for business to be properly brought before an annual meeting by a
shareholder are in addition to, and not in lieu of, the requirements set forth
in Rule 14a-8 under Section 14 of the Securities Exchange Act of 1934, as
amended, or any successor provision.
2.6.2 Business at Special Meetings
At any special meeting of the shareholders, only such business as is
specified in the notice of such special meeting given by or at the direction of
the person or persons calling such meeting, in accordance with subsection 2.5
hereof, shall come before such meeting.
2.6.3 Notice to Corporation
Any written notice required to be delivered by a shareholder to the
corporation pursuant to subsection 2.5, subsection 2.6.1 or subsection 2.6.2
hereof must be given, either by personal delivery or by registered or certified
mail, postage prepaid, to the Secretary at the corporation's executive offices
in the city of Seattle, state of Washington.
2.7 Waiver of Notice
Whenever any notice is required to be given to any shareholder under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Further,
notice of the time, place and purpose of any meeting
Restated Bylaws (October 22, 1997) -3-
<PAGE>
will be deemed to be waived by any shareholder by attendance thereat in person
or by proxy, unless such shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting.
2.8 Fixing of Record Date for Determining Shareholders
For the purpose of determining shareholders entitled (a) to notice of or to
vote at any meeting of shareholders or any adjournment thereof, (b) to demand a
special meeting, or (c) to receive payment of any dividend, or in order to make
a determination of shareholders for any other purpose, the Board may fix in
advance a date as the record date for any such determination. Such record date
shall be not more than seventy (70) days, and in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action requiring such determination is to be taken. If no record
date is fixed for the determination of shareholders entitled to notice of or to
vote at a meeting, the record date shall be the day immediately preceding the
date on which notice of the meeting is first given to shareholders. Such a
determination shall apply to any adjournment of the meeting unless the Board
fixes a new record date, which it shall do if the meeting is adjourned to a date
more than 120 days after the date fixed for the original meeting. If no record
date is fixed for the determination of shareholders entitled to receive payment
of any stock dividend or distribution (other than one involving a purchase,
redemption or other acquisition of the corporation's shares) the record date
shall be the date the Board authorizes the stock dividend or distribution.
2.9 Voting Record
At least 10 days before each meeting of shareholders, a complete record of
the shareholders entitled to vote at such meeting, or any adjournment thereof,
shall be made, arranged by voting group and by each class or series of shares
therein, with the address of and number of shares held by each shareholder.
This record shall be kept on file at the registered office of the corporation
for 10 days prior to such meeting and shall be kept open at such meeting for the
inspection of any shareholder or any shareholder's agent.
2.10 Quorum
A majority of the votes entitled to be cast on a matter by the holders of
shares that, pursuant to the Articles of Incorporation or the Washington
Business Corporation Act, are entitled to vote and be counted collectively upon
such matter, represented in person or by proxy, shall constitute a quorum of
such shares at a meeting of shareholders. If less than a majority of such votes
are represented at a meeting, a majority of the votes so represented may adjourn
the meeting from time to time without further notice if the new date, time or
place is announced at the meeting before adjournment. Any business may be
transacted at a reconvened meeting that might have been transacted at the
meeting as originally called, provided a quorum is present or represented
thereat. Once a share is
Restated Bylaws (October 22, 1997) -4-
<PAGE>
represented for any purpose at a meeting other than solely to object to holding
the meeting or transacting business thereat, it is deemed present for quorum
purposes for the remainder of the meeting and any adjournment thereof (unless a
new record date is or must be set for the adjourned meeting), notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.
2.11 Manner of Acting
If a quorum is present, action on a matter other than the election of
Directors shall be approved if the votes cast in favor of the action by the
shares entitled to vote and be counted collectively upon such matter exceed the
votes cast against such action by the shares entitled to vote and be counted
collectively thereon, unless the Articles of Incorporation or the Washington
Business Corporation Act requires a greater number of affirmative votes.
2.12 Proxies
A shareholder may vote by proxy executed in writing by the shareholder or
by his or her attorney-in-fact or agent or other officer or agent authorized to
tabulate votes. Such proxy shall be effective when received by the Secretary of
the corporation before or at the time of the meeting. A proxy shall become
invalid 11 months after the date of its execution, unless otherwise provided in
the proxy. A proxy with respect to a specified meeting shall entitle the holder
thereof to vote at any reconvened meeting following adjournment of such meeting,
but shall not be valid after the final adjournment thereof.
2.13 Voting of Shares
Except as provided in the Articles of Incorporation or in Section 2.14
hereof, each outstanding share entitled to vote with respect to the subject
matter of an issue submitted to a meeting of shareholders shall be entitled to
one vote upon each such issue.
2.14 Voting for Directors
Each shareholder entitled to vote at an election of Directors may vote, in
person or by proxy, the number of shares owned by such shareholder for as many
persons as there are Directors to be elected and for whose election such
shareholder has a right to vote.
2.15 Action by Shareholders Without a Meeting
Any action which could be taken at a meeting of the shareholders may be
taken without a meeting if a written consent setting forth the action so taken
is signed by all shareholders entitled to vote with respect to the subject
matter thereof. If not otherwise fixed by the Board, the record date for
determining shareholders entitled to take action without a meeting is the date
the first shareholder signs the consent. A shareholder may
Restated Bylaws (October 22, 1997) -5-
<PAGE>
withdraw a consent only by delivering a written notice of withdrawal to the
corporation prior to the time that all consents are in the possession of the
corporation. Action taken by written consent of shareholders without a meeting
is effective when all consents are in the possession of the corporation, unless
the consent specifies a later effective date. Any such consent shall be inserted
in the minute book as if it were the minutes of a meeting of the shareholders.
SECTION 3. BOARD OF DIRECTORS
3.1 General Powers
All corporate powers shall be exercised by or under the authority of, and
the business and affairs of the corporation shall be managed under the direction
of, the Board, except as may be otherwise provided in these Bylaws, the Articles
of Incorporation or the Washington Business Corporation Act.
3.2 Number and Tenure
The Board shall be composed of not less than one nor more than seven
Directors, the specific number to be set by resolution of the Board. The number
of Directors may be changed from time to time by amendment to these Bylaws, but
no decrease in the number of Directors shall have the effect of shortening the
term of any incumbent Director. Unless a Director dies, resigns, or is removed,
he or she shall hold office until the next annual meeting of shareholders or
until his or her successor is elected and qualified, whichever is later.
Directors need not be shareholders of the corporation or residents of the State
of Washington.
3.3 Nomination and Election
3.3.1 Nomination
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as Directors. Nominations for the election of
Directors may be made (a) by or at the direction of the Board or (b) by any
shareholder of record entitled to vote for the election of Directors at such
meeting; provided, however, that a shareholder may nominate persons for election
as Directors only if written notice (in accordance with subsection 2.6.3 hereof)
of such shareholder's intention to make such nomination is received by the
Secretary not later than (i) with respect to an election to be held at an annual
meeting of the shareholders, not fewer than sixty (60) nor more than ninety (90)
days prior to the date specified in subsection 2.1 hereof for such annual
meeting (or if less than sixty (60) days' notice or prior public disclosure of
the date of the annual meeting is given or made to the shareholders, not later
than the tenth day following the day on which such notice of the date of the
annual meeting was mailed or
Restated Bylaws (October 22, 1997) -6-
<PAGE>
such public disclosure was made) and (ii) with respect to an election to be held
at a special meeting of the shareholders for the election of Directors, the
close of business on the seventh business day following the date on which notice
of such meeting is first given to shareholders. Any such shareholder's notice
shall set forth (a) the name and address of the shareholder who intends to make
a nomination; (b) a representation that the shareholder is entitled to vote at
such meeting and a statement of the number of shares of the corporation which
are beneficially owned by such shareholder; (c) a representation that the
shareholder intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (d) as to each person the
shareholder proposes to nominate for election or re-election as a Director, the
name and address of such person and such other information regarding such
nominee as would be required in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had such nominee been nominated
by the Board, and a description of any arrangements or understandings, between
the shareholder and such nominee and any other persons (including their names),
pursuant to which the nomination is to be made; and (e) the consent of each such
nominee to serve as a Director if elected. If the facts warrant, the Board, or
the chairman of a shareholders' meeting at which Directors are to be elected,
shall determine and declare that a nomination was not made in accordance with
the foregoing procedure and, if it is so determined, the defective nomination
shall be disregarded. The right of shareholders to make nominations pursuant to
the foregoing procedure is subject to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation. The procedures set forth in this subsection 3.3 for nomination
for the election of Directors by shareholders are in addition to, and not in
limitation of, any procedures now in effect or hereafter adopted by or at the
direction of the Board or any committee thereof.
3.3.2 Election
At each election of Directors, the persons receiving the greatest number of
votes shall be the Directors.
3.4 Annual and Regular Meetings
An annual Board meeting shall be held without notice immediately after and
at the same place as the annual meeting of shareholders. By resolution, the
Board, or any committee thereof, may specify the time and place either within or
without the state of Washington for holding regular meetings thereof without
other notice than such resolution.
3.5 Special Meetings
Special meetings of the Board or any committee designated by the Board may
be called by or at the request of the Chairman of the Board, the President, the
Secretary or, in
Restated Bylaws (October 22, 1997) -7-
<PAGE>
the case of special Board meetings, any two Directors and, in the case of any
special meeting of any committee designated by the Board, by the Chairman
thereof. The person or persons authorized to call special meetings may fix any
place either within or without the State of Washington as the place for holding
any special Board or committee meeting called by them.
3.6 Meetings by Communication Equipment
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
3.7 Notice of Special Meetings
Notice of a special Board or committee meeting stating the place, date and
time of the meeting shall be given to a Director in writing or orally by
telephone or in person. Neither the business to be transacted at, nor the
purpose of, any special meeting need be specified in the notice of such meeting.
3.7.1 Personal Delivery
If notice is given by personal delivery, the notice shall be effective if
delivered to a Director at least two days before the meeting.
3.7.2 Delivery by Mail
If notice is delivered by mail, the notice shall be deemed effective if
deposited in the official government mail at least five days before the meeting
properly addressed to a Director at his or her address shown on the records of
the corporation with postage prepaid.
3.7.3 Delivery by Private Carrier
If notice is given by private carrier, the notice shall be deemed effective
when dispatched to a Director at his or her address shown on the records of the
corporation at least three days before the meeting.
3.7.4 Facsimile Notice
If notice is delivered by wire or wireless equipment which transmits a
facsimile of the notice, the notice shall be deemed effective when dispatched at
least two days before
Restated Bylaws (October 22, 1997) -8-
<PAGE>
the meeting to a Director at his or her telephone number or other number
appearing on the records of the corporation.
3.7.5 Delivery by Telegraph
If notice is delivered by telegraph, the notice shall be deemed effective
if the contents thereof are delivered to the telegraph company for delivery to a
Director at his or her address shown on the records of the corporation at least
three days before the meeting.
3.7.6 Oral Notice
If notice is delivered orally, by telephone or in person, the notice shall
be deemed effective if personally given to the Director at least two days before
the meeting.
3.8 Waiver of Notice
3.8.1 In Writing
Whenever any notice is required to be given to any Director under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board or any committee designated by the Board
need be specified in the waiver of notice of such meeting.
3.8.2 By Attendance
A Director's attendance at or participation in a Board or committee meeting
shall constitute a waiver of notice of such meeting, unless the Director at the
beginning of the meeting, or promptly upon his or her arrival, objects to
holding the meeting or transacting business thereat and does not thereafter vote
for or assent to action taken at the meeting.
3.9 Quorum
A majority of the number of Directors fixed by or in the manner provided in
these Bylaws shall constitute a quorum for the transaction of business at any
Board meeting but, if less than a majority are present at a meeting, a majority
of the Directors present may adjourn the meeting from time to time without
further notice.
3.10 Manner of Acting
If a quorum is present when the vote is taken, the act of the majority of
the Directors present at a Board meeting at which there is a quorum shall be the
act of the
Restated Bylaws (October 22, 1997) -9-
<PAGE>
Board, unless the vote of a greater number is required by these Bylaws, the
Articles of Incorporation or the Washington Business Corporation Act.
3.11 Presumption of Assent
A Director of the corporation who is present at a Board or committee
meeting at which any action is taken shall be deemed to have assented to the
action taken unless (a) the Director objects at the beginning of the meeting, or
promptly upon the Director's arrival, to holding the meeting or transacting any
business thereat, (b) the Director's dissent or abstention from the action taken
is entered in the minutes of the meeting, or (c) the Director delivers written
notice of the Director's dissent or abstention to the presiding officer of the
meeting before its adjournment or to the corporation within a reasonable time
after adjournment of the meeting. The right of dissent or abstention is not
available to a Director who votes in favor of the action taken.
3.12 Action by Board or Committees Without a Meeting
Any action which could be taken at a meeting of the Board or of any
committee designated by the Board may be taken without a meeting if a written
consent setting forth the action so taken is signed by each of the Directors or
by each committee member either before or after the action is taken and
delivered to the corporation. Action taken by written consent of Directors
without a meeting is effective when the last Director signs the consent, unless
the consent specifies a later effective date. Any such written consent shall be
inserted in the minute book as if it were the minutes of a Board or a committee
meeting.
3.13 Resignation
Any Director may resign at any time by delivering written notice to the
Chairman of the Board, the President, the Secretary or the Board. Any such
resignation shall take effect at the time specified therein, or, if the time is
not specified, upon delivery thereof and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
3.14 Removal
At a meeting of shareholders called expressly for that purpose, one or more
members of the Board (including the entire Board) may be removed with or without
cause, unless the Articles of Incorporation permit removal for cause only, by a
vote of the holders of a majority of the shares then entitled to vote on the
election of Directors. If the Articles of Incorporation permit cumulative
voting in the election of Directors, then if less than the entire Board is to be
removed, no one of the Directors may be removed if the votes cast against his or
her removal would be sufficient to elect such Director if then
Restated Bylaws (October 22, 1997) -10-
<PAGE>
cumulatively voted at an election of the entire Board or, if there are classes
of Directors, at an election of the class of Directors of which such Director is
a part.
3.15 Vacancies
Subject to the provisions of Section 3.14 hereof and unless the Articles of
Incorporation provide otherwise, any vacancy occurring on the Board may be
filled by the shareholders, the Board or, if the Directors in office constitute
fewer than a quorum, by the affirmative vote of a majority of the remaining
Directors. Any vacant office held by a Director elected by the holders of one
or more classes or series of shares entitled to vote and be counted collectively
thereon shall be filled only by the vote of the holders of such class or series
of shares. A Director elected to fill a vacancy shall serve only until the next
election of Directors by the shareholders.
3.16 Executive and Other Committees
3.16.1 Creation of Committees
The Board, by resolution adopted by a majority of the number of Directors
fixed by or in the manner provided in these Bylaws, may appoint standing or
temporary committees, including an Executive Committee, from its own number and
invest such committees with such powers as it may see fit, subject to such
conditions as may be prescribed by the Board, these Bylaws and applicable law.
3.16.2 Authority of Committees
Each committee shall have and may exercise all of the authority of the
Board to the extent provided in the resolution of the Board designating the
committee and any subsequent resolutions pertaining thereto and adopted in like
manner, except that no such committee shall have the authority to: (1)
authorize or approve a distribution except according to a general formula or
method prescribed by the Board, (2) approve or recommend to shareholders actions
or proposals required by the Washington Business Corporation Act to be approved
by shareholders, (3) fill vacancies on the Board or any committee thereof, (4)
adopt, amend or repeal these Bylaws, (5) approve a plan of merger,
consolidation, or exchange of shares not requiring shareholder approval, (6)
amend the Articles of Incorporation pursuant to RCW 23B.10.020, or (7) authorize
or approve the issuance or sale or contract for sale of shares, or determine the
designation and relative rights, preferences and limitations of a class or
series of shares, except that the Board may authorize a committee or a senior
executive officer of the corporation to do so within limits specifically
prescribed by the Board.
Restated Bylaws (October 22, 1997) -11-
<PAGE>
3.16.3 Audit Committee
In addition to any committees appointed pursuant to this Section 3.16,
there shall be an Audit Committee, appointed annually by the Board, consisting
of at least two Directors who are not members of management. It shall be the
responsibility of the Audit Committee to review the scope and results of the
annual independent audit of books and records of the corporation, to review
compliance with all corporate policies which have been approved by the Board and
to discharge such other responsibilities as may from time to time be assigned to
it by the Board. The Audit Committee shall meet at such times and places as the
members deem advisable, and shall make such recommendations to the Board as they
consider appropriate.
3.16.4 Quorum and Manner of Acting
A majority of the number of Directors composing any committee of the Board,
as established and fixed by resolution of the Board, shall constitute a quorum
for the transaction of business at any meeting of such committee but, if less
than a majority is present at a meeting, a majority of such Directors present
may adjourn the meeting from time to time without further notice. Except as may
be otherwise provided in the Washington Business Corporation Act, the act of a
majority of the members of a committee present at a meeting at which a quorum is
present shall be the act of the committee.
3.16.5 Minutes of Meetings
All committees shall keep regular minutes of their meetings and shall cause
them to be recorded in books kept for that purpose.
3.16.6 Resignation
Any member of any committee may resign at any time by delivering written
notice thereof to the Chairman of the Board, the President, the Secretary, the
Board, or the Chairman of such committee. Any such resignation shall take
effect at the time specified therein, or, if the time is not specified, upon
delivery thereof and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
3.16.7 Removal
The Board may remove from office any member of any committee elected or
appointed by it but only by the affirmative vote of not less than a majority of
the number of Directors fixed by or in the manner provided in these Bylaws.
Restated Bylaws (October 22, 1997) -12-
<PAGE>
3.17 Compensation
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, or a fixed
sum for attendance at each Board or committee meeting, or a stated salary as
Director or a committee member, or a combination of the foregoing. No such
payment shall preclude any Director or committee member from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 4. OFFICERS
4.1 Number
The officers of the corporation shall consist of a President, a Secretary
and a Treasurer, each of whom shall be elected by the Board. One or more Vice
Presidents and such other officers and assistant officers, including a Chairman
of the Board, may be elected or appointed by the Board, such officers and
assistant officers to hold office for such period, have such authority and
perform such duties as are provided in these Bylaws or as may be provided by
resolution of the Board. Any officer may be assigned by the Board any
additional title that the Board deems appropriate. The Board may delegate to
any officer or agent the power to appoint any subordinate officers or agents and
to prescribe their respective terms of office, authority and duties. Any two or
more offices may be held by the same person.
4.2 Election and Term of Office
The officers of the corporation shall be elected annually by the Board at
the Board meeting held after the annual meeting of the shareholders. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as a Board meeting conveniently may be held. Unless an officer
dies, resigns or is removed from office, he or she shall hold office until the
next annual meeting of the Board or until his or her successor is elected.
4.3 Resignation
Any officer may resign at any time by delivering written notice to the
corporation. Any such resignation shall take effect at the time specified
therein, or, if the time is not specified, upon delivery thereof and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
4.4 Removal
Any officer or agent elected or appointed by the Board may be removed by
the Board whenever in its judgment the best interests of the corporation would
be served
Restated Bylaws (October 22, 1997) -13-
<PAGE>
thereby, with or without cause. An officer or assistant officer, if appointed by
another officer, may be removed by any officer authorized to appoint officers or
assistant officers.
4.5 Contract Rights of Officers
The appointment of an officer does not itself create contract rights.
4.6 Vacancies
A vacancy in any office because of death, resignation, removal,
disqualification, creation of a new office or any other cause may be filled by
the Board for the unexpired portion of the term or for a new term established by
the Board.
4.7 Chairman of the Board
If elected, the Chairman of the Board shall perform such duties as shall be
assigned to him or her by the Board from time to time and shall preside over
meetings of the Board and shareholders unless another officer is appointed or
designated by the Board as Chairman of such meetings.
4.8 President
The President shall be the chief executive officer of the corporation
unless some other officer is so designated by the Board, shall preside over
meetings of the Board and shareholders in the absence of a Chairman of the
Board, and, subject to the Board's control, shall supervise and control all of
the assets, business and affairs of the corporation. The President may sign
certificates for shares of the corporation, deeds, mortgages, bonds, contracts
or other instruments, except when the signing and execution thereof have been
expressly delegated by the Board or by these Bylaws to some other officer or
agent of the corporation or are required by law to be otherwise signed or
executed by some other officer or in some other manner. In general, the
President shall perform all duties incident to the office of President and such
other duties as are prescribed by the Board from time to time.
4.9 Vice President
In the event of the death of the President or his or her inability to act,
the Vice President (or, if there is more than one Vice President, the Vice
President who was designated by the Board as the successor to the President, or,
if no Vice President is so designated, the Vice President first elected to such
office) shall perform the duties of the President, except as may be limited by
resolution of the Board, with all the powers of and subject to all the
restrictions upon the President. Any Vice President may sign, with the
Secretary or any Assistant Secretary, certificates for shares of the
corporation. Vice Presidents shall have, to the extent authorized by the
President or the Board, the same
Restated Bylaws (October 22, 1997) -14-
<PAGE>
powers as the President to sign deeds, mortgages, bonds, contracts, or other
instruments. Vice Presidents shall perform such other duties as from time to
time may be assigned to them by the President or by the Board.
4.10 Secretary
If appointed, the Secretary shall be responsible for preparation of minutes
of the meetings of the Board and shareholders, maintenance of the corporation
records and stock registers, and authentication of the corporation's records,
and shall in general perform all duties incident to the office of Secretary and
such other duties as from time to time may be assigned to him or her by the
President or by or at the direction of the Board. In the absence of the
Secretary, an Assistant Secretary may perform the duties of the Secretary.
4.11 Treasurer
If required by the Board, the Treasurer shall provide a bond for the
faithful discharge of his or her duties in such amount and with such surety or
sureties as the Board shall determine. The Treasurer shall have charge and
custody of and be responsible for all funds and securities of the corporation;
receive and give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the corporation in
banks, trust companies or other depositories selected in accordance with the
provisions of these Bylaws; and in general perform all of the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him or her by the President or by the Board. In the absence of the
Treasurer, an Assistant Treasurer may perform the duties of the Treasurer.
4.12 Salaries
The salaries of the officers shall be fixed from time to time by the Board
or by any person or persons to whom the Board has delegated such authority. No
officer shall be prevented from receiving such salary by reason of the fact that
he or she is also a Director of the corporation.
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 Contracts
The Board may authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation. Such authority may be general or confined to
specific instances.
Restated Bylaws (October 22, 1997) -15-
<PAGE>
5.2 Loans to the Corporation
No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the Board. Such authority may be general or confined to specific instances.
5.3 Loans to Directors
The corporation may not lend money to or guarantee the obligation of a
Director unless approved by the holders of at least a majority of the votes
represented by the outstanding shares of all classes entitled to vote thereon,
excluding the votes of the benefited Director, or the Board determines that the
loan or guarantee benefits the corporation and either approves the specific loan
or guarantee or a general plan authorizing loans and guarantees.
5.4 Checks, Drafts, Etc.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, or agent or agents, of the corporation and in such
manner as is from time to time determined by resolution of the Board.
5.5 Deposits
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositories as the Board may authorize.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Issuance of Shares
No shares of the corporation shall be issued unless authorized by the
Board, or by a committee designated by the Board and empowered to do so.
6.2 Certificates for Shares
Certificates representing shares of the corporation shall be signed by the
President or any Vice President and by the Secretary or any Assistant Secretary
or the Treasurer or any Assistant Secretary and shall include on their face
written notice of any restrictions which may be imposed on the transferability
of such shares. All certificates shall be consecutively numbered or otherwise
identified.
Restated Bylaws (October 22, 1997) -16-
<PAGE>
6.3 Stock Records
The stock transfer books shall be kept at the registered office or
principal place of business of the corporation or at the office of the
corporation's transfer agent or registrar. The name and address of each person
to whom certificates for shares are issued, together with the class and number
of shares represented by each such certificate and the date of issue thereof,
shall be entered on the stock transfer books of the corporation. The person in
whose name shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
6.4 Restriction on Transfer
Except to the extent that the corporation has obtained an opinion of
counsel acceptable to the corporation that transfer restrictions are not
required under applicable securities laws, or has otherwise satisfied itself
that such transfer restrictions are not required, all certificates representing
shares of the corporation shall bear a legend on the face of the certificate, or
on the reverse of the certificate if a reference to the legend is contained on
the face, which reads substantially as follows: "The securities evidenced by
this certificate have not been registered under the Securities Act of 1933 or
any applicable state law, and no interest therein may be sold, distributed,
assigned, offered, pledged or otherwise transferred unless (a) there is an
effective registration statement under such Act and applicable state securities
laws covering any such transaction involving said securities or (b) this
corporation receives an opinion of legal counsel for the holder of these
securities (concurred in by legal counsel for this corporation) stating that
such transaction is exempt from registration or this corporation otherwise
satisfies itself that such transaction is exempt from registration. Neither the
offering of the securities nor any offering materials have been reviewed by any
administrator under the Securities Act of 1933, or any applicable state law."
6.5 Transfer of Shares
The transfer of shares of the corporation shall be made only on the stock
transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to
the corporation for transfer shall be cancelled and no new certificates shall be
issued until the former certificates for a like number of shares shall have been
surrendered and cancelled.
Restated Bylaws (October 22, 1997) -17-
<PAGE>
6.6 Lost or Destroyed Certificates
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
corporation as the Board may prescribe.
SECTION 7. BOOKS AND RECORDS
The corporation shall:
(a) Keep as permanent records minutes of all meetings of its shareholders
and the Board, a record of all actions taken by the shareholders or the Board
without a meeting, and a record of all actions taken by a committee of the Board
exercising the authority of the Board on behalf of the corporation.
(b) Maintain appropriate accounting records.
(c) Maintain a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders, in
alphabetical order by class of shares showing the number and class of shares
held by each; provided, however, such record may be maintained by an agent of
the corporation.
(d) Maintain its records in written form or in another form capable of
conversion into written form within a reasonable time.
(e) Keep a copy of the following records at its principal office:
1. the Articles of Incorporation and all amendments thereto as
currently in effect;
2. the Bylaws and all amendments thereto as currently in effect;
3. the minutes of all meetings of shareholders and records of all
action taken by shareholders without a meeting, for the past three years;
4. the financial statements described in Section 23B.16.200(1) of the
Washington Business Corporation Act for the past three years;
5. all written communications to shareholders generally within the
past three years;
6. a list of the names and business addresses of the current Directors
and officers; and
Restated Bylaws (October 22, 1997) -18-
<PAGE>
7. the most recent annual report delivered to the Washington Secretary
of State.
SECTION 8. ACCOUNTING YEAR
The accounting year end of the corporation shall be the Friday nearest
September 30, provided that if a different accounting year is at any time
selected by the Board for purposes of federal income taxes, or any other
purpose, the accounting year shall be the year so selected.
SECTION 9. SEAL
The Board may provide for a corporate seal which shall consist of the name
of the corporation, the state of its incorporation and the year of its
incorporation.
SECTION l0. INDEMNIFICATION
10.1 Right to Indemnification
Each person who was, is or is threatened to be made a named party to or is
otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
Director or officer of the corporation or, that being or having been such a
Director or officer or an employee of the corporation, he or she is or was
serving at the request of the corporation as a Director, officer, partner,
trustee, employee or agent of another corporation or of a partnership, joint
venture, trust, employee benefit plan or other enterprise (hereinafter an
"indemnitee"), whether the basis of a proceeding is alleged action in an
official capacity as such a Director, officer, partner, trustee, employee or
agent or in any other capacity while serving as such a Director, officer,
partner, trustee, employee or agent, shall be indemnified and held harmless by
the corporation against all expense, liability and loss (including counsel fees,
judgments, fines, ERISA excise taxes or penalties and amounts to be paid in
settlement) actually and reasonably incurred or suffered by such indemnitee in
connection therewith, and such indemnification shall continue as to an
indemnitee who has ceased to be a Director, officer, partner, trustee, employee
or agent and shall inure to the benefit of the indemnitee's heirs, executors and
administrators. Except as provided in subsection 10.2 of this Section with
respect to proceedings seeking to enforce rights to indemnification, the
corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if a proceeding (or part
thereof) was authorized or ratified by the Board. The right to indemnification
conferred in this Section 10.1 shall be a contract right.
Restated Bylaws (October 22, 1997) -19-
<PAGE>
10.2 Restriction on Indemnification
No indemnification shall be provided to any such indemnitee for acts or
omissions of the indemnitee finally adjudged to be intentional misconduct or a
knowing violation of law, for conduct of the indemnitee finally adjudged to be
in violation of Section 23B.08.310 of the Washington Business Corporation Act,
for any transaction with respect to which it was finally adjudged that such
indemnitee personally received a benefit in money, property or services to which
the indemnitee was not legally entitled or if the corporation is otherwise
prohibited by applicable law from paying such indemnification, except that if
Section 23B.08.560 or any successor provision of the Washington Business
Corporation Act is hereafter amended, the restrictions on indemnification set
forth in this subsection 10.2 shall be as set forth in such amended statutory
provision.
10.3 Advancement of Expenses
The right to indemnification conferred in this Section shall include the
right to be paid by the corporation the expenses incurred in defending any
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"). An advancement of expenses shall be made upon delivery to the
corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under this subsection 10.3.
10.4 Right of Indemnitee to Bring Suit
If a claim under subsection 10.1 or 10.3 of this Section is not paid in
full by the corporation within 60 days after a written claim has been received
by the corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the indemnitee
may at any time thereafter bring suit against the corporation to recover the
unpaid amount of the claim. If successful in whole or in part, in any such suit
or in a suit brought by the corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit. The indemnitee
shall be presumed to be entitled to indemnification under this Section upon
submission of a written claim (and, in an action brought to enforce a claim for
an advancement of expenses, where the required undertaking has been tendered to
the corporation) and thereafter the corporation shall have the burden of proof
to overcome the presumption that the indemnitee is so entitled.
Restated Bylaws (October 22, 1997) -20-
<PAGE>
10.5 Procedures Exclusive
Pursuant to Section 23B.08.560(2) or any successor provision of the
Washington Business Corporation Act, the procedures for indemnification and
advancement of expenses set forth in this Section are in lieu of the procedures
required by Section 23B.08.550 or any successor provision of the Washington
Business Corporation Act.
10.6 Nonexclusivity of Rights
The right to indemnification and the advancement of expenses conferred in
this Section shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of the Articles of
Incorporation or Bylaws of the corporation, general or specific action of the
Board, contract or otherwise.
10.7 Insurance, Contract and Funding
The corporation may maintain insurance, at its expense, to protect itself
and any Director, officer, partner, trustee, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Washington Business Corporation Act. The
corporation may enter into contracts with any Director, officer, partner,
trustee, employee or agent of the corporation in furtherance of the provisions
of this Section and may create a trust fund, grant a security interest or use
other means (including, without limitation, a letter of credit) to ensure the
payment of such amounts as may be necessary to effect indemnification as
provided in this Section.
10.8 Indemnification of Employee and Agent of the Corporation
The corporation may, by action of the Board, grant rights to
indemnification and advancement of expenses to employees and agents or any class
or group of employees and agents of the corporation (i) with the same scope and
effect as the provisions of this Section with respect to the indemnification and
advancement of expenses of Directors and officers of the corporation; (ii)
pursuant to rights granted pursuant to, or provided by, the Washington Business
Corporation Act; or (iii) otherwise consistent with law.
10.9 Person Serving Other Entities
Any person who, while a Director, officer or employee of the corporation,
is or was serving (a) as a Director or officer of another foreign or domestic
corporation of which a majority of the-shares entitled to vote in the election
of its Directors is held by the corporation, or (b) as a partner, trustee or
otherwise in an executive or management capacity in a partnership, joint
venture, trust or other enterprise of which the corporation
Restated Bylaws (October 22, 1997) -21-
<PAGE>
or a wholly owned subsidiary of the corporation is a general partner or has a
majority ownership shall be deemed to be so serving at the request of the
corporation and entitled to indemnification and advancement of expenses under
subsections 10.1 and 10.3 of this Section.
SECTION 11. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board. The shareholders may also alter, amend and repeal these
Bylaws or adopt new Bylaws. All Bylaws made by the Board may be amended,
repealed, altered or modified by the shareholders.
The foregoing Restated Bylaws were adopted by the Board of Directors on
October 22, 1997.
----------------------------------------
Secretary
Restated Bylaws (October 22, 1997) -22-
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 1
TO
AXON CORPORATION
1990 STOCK OPTION PLAN
The Axon Corporation l990 Stock Option Plan (the "Plan") is hereby amended
as follows:
1. Section 3 of the Plan is amended to read as follows:
SECTION 3. Stock Subject to this Plan. The stock subject to this
--------------------------
Plan shall be the Company's Common Stock (the "Common Stock")
presently authorized but unissued or subsequently acquired by the
Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be delivered upon the exercise
of all options granted under this Plan shall not exceed Six Hundred
Fifty Thousand (650,000) shares as such Common Stock was constituted
on the effective date of Amendment No. 1 to this Plan. If any option
granted under this Plan shall expire, be surrendered, exchanged for
another option, cancelled or terminated for any reason without
having been exercised in full, the unpurchased shares subject
thereto shall thereupon again be available for purposes of this
Plan, including for replacement options which may be granted in
exchange for such surrendered, cancelled or terminated options.
The effective date of such amendment shall be April 2, 1991, the date of
-------
adoption by the Board, unless the shareholders of the corporation fail to
approve such amendment within twelve months before or after the date of adoption
by the Board of Directors.
28481
<PAGE>
AMENDMENT NO. 2
TO
AXON CORPORATION
1990 STOCK OPTION PLAN
The Axon Corporation l990 Stock Option Plan (the "Plan") is hereby amended
as follows:
1. Section 3 of the Plan is amended to read as follows:
SECTION 3. Stock Subject to this Plan. The stock subject to this
--------------------------
Plan shall be the Company's Common Stock (the "Common Stock")
presently authorized but unissued or subsequently acquired by the
Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be delivered upon the exercise
of all options granted under this Plan shall not exceed Seven
Hundred Ten Thousand (710,000) shares as such Common Stock was
constituted on the effective date of Amendment No. 2 to this Plan.
If any option granted under this Plan shall expire, be surrendered,
exchanged for another option, cancelled or terminated for any reason
without having been exercised in full, the unpurchased shares
subject thereto shall thereupon again be available for purposes of
this Plan, including for replacement options which may be granted in
exchange for such surrendered, cancelled or terminated options.
The effective date of such amendment shall be April 10, 1991, the date of
--------
adoption by the Board, unless the shareholders of the corporation fail to
approve such amendment within twelve months before or after the date of adoption
by the Board of Directors.
28481
<PAGE>
AMENDMENT NO. 3
TO
AXON CORPORATION
1990 STOCK OPTION PLAN
The Axon Corporation l990 Stock Option Plan (the "Plan") is hereby amended
as follows:
1. Section 3 of the Plan is amended to read as follows:
SECTION 3. Stock Subject to this Plan. The stock subject to this
--------------------------
Plan shall be the Company's Common Stock (the "Common Stock")
presently authorized but unissued or subsequently acquired by the
Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be delivered upon the exercise
of all options granted under this Plan shall not exceed Nine Hundred
Sixty Thousand (960,000) shares as such Common Stock was constituted
on the effective date of Amendment No. 3 to this Plan. If any option
granted under this Plan shall expire, be surrendered, exchanged for
another option, cancelled or terminated for any reason without
having been exercised in full, the unpurchased shares subject
thereto shall thereupon again be available for purposes of this
Plan, including for replacement options which may be granted in
exchange for such surrendered, cancelled or terminated options.
The effective date of such amendment shall be February 19, 1992, the date
of adoption by the Board, unless the shareholders of the corporation fail to
approve such amendment within twelve months before or after the date of adoption
by the Board of Directors.
<PAGE>
AMENDMENT NO. 4
TO
AXON CORPORATION
1990 STOCK OPTION PLAN
The Axon Corporation l990 Stock Option Plan (the "Plan") is hereby amended
as follows:
1. Section 3 of the Plan is amended to read as follows:
SECTION 3. Stock Subject to this Plan. The stock subject to this
--------------------------
Plan shall be the Company's Common Stock (the "Common Stock")
presently authorized but unissued or subsequently acquired by the
Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be delivered upon the exercise
of all options granted under this Plan shall not exceed One Million
Sixty Thousand (1,060,000) shares as such Common Stock was
constituted on the effective date of Amendment No. 4 to this Plan.
If any option granted under this Plan shall expire, be surrendered,
exchanged for another option, cancelled or terminated for any reason
without having been exercised in full, the unpurchased shares
subject thereto shall thereupon again be available for purposes of
this Plan, including for replacement options which may be granted in
exchange for such surrendered, cancelled or terminated options.
The effective date of such amendment shall be June 30, 1992, the date of
adoption by the Board, unless the shareholders of the corporation fail to
approve such amendment within twelve months before or after the date of adoption
by the Board of Directors.
<PAGE>
AMENDMENT NO. 5
TO
AXON CORPORATION
1990 STOCK OPTION PLAN
The Axon Corporation l990 Stock Option Plan (the "Plan") is hereby amended
as follows:
1. Section 1 of the Plan is amended to read as follows:
SECTION 1. Purpose. The purpose of the Shapeware Corporation
-------
1990 Stock Option Plan (the "Plan") is to provide a means whereby
selected employees, directors (subject to the restrictions contained
in Sections 2 and 4), officers, agents, consultants and independent
contractors of Shapeware Corporation (the "Company") or of any
parent or subsidiary (as defined in subsection 5.7 and referred to
hereinafter as "related corporations") thereof, may be granted
incentive stock options and/or nonqualified stock options to
purchase the Common Stock (as defined in Section 3) of the Company,
in order to attract and retain the services or advice of such
employees, directors, offices, agents, consultants and independent
contractors and to provide added incentive to them by encouraging
stock ownership in the Company.
The effective date of such amendment shall be July 24, 1992, the date of
adoption by the Board of Directors.
<PAGE>
AMENDMENT NO. 6
TO
AXON CORPORATION
1990 STOCK OPTION PLAN
The Axon Corporation l990 Stock Option Plan (the "Plan") is hereby amended
as follows:
1. Section 3 of the Plan is amended to read as follows:
"SECTION 3. Stock Subject to this Plan. The stock subject to
--------------------------
this Plan shall be the Company's Common Stock (the "Common Stock")
presently authorized but unissued or subsequently acquired by the
Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be delivered upon the exercise
of all options granted under this Plan shall not exceed One Million
Three Hundred Ten Thousand (1,310,000) shares as such Common Stock
was constituted on the effective date of Amendment No. 6 to this
Plan. If any option granted under this Plan shall expire, be
surrendered, exchanged for another option, cancelled or terminated
for any reason without having been exercised in full, the
unpurchased shares subject thereto shall thereupon again be
available for purposes of this Plan, including for replacement
options which may be granted in exchange for such surrendered,
cancelled or terminated options."
The effective date of such amendment shall be March 22, 1993, the date of
adoption by the Board, unless the shareholders of the corporation fail to
approve such amendment within twelve months before or after the date of adoption
by the Board of Directors.
<PAGE>
AMENDMENT NO. 7
TO
AXON CORPORATION
1990 STOCK OPTION PLAN
Section 5.13 of the Shapeware Corporation 1990 Stock Option Plan (the
"Plan") is hereby amended to read as follows:
"5.13 Stock Restriction Agreement. Notwithstanding the provisions
---------------------------
of Section 5.2 or the option agreement evidencing an option regarding the
time or times at which an option becomes exercisable, an option shall
become exercisable immediately upon execution by the optionee of a Stock
Restriction Agreement in the form attached to the Plan as Exhibit 1."
The effective date of such amendment, shall be January 4, 1994, the date of
adoption by the Board of Directors.
<PAGE>
AMENDMENT NO. 8
TO
SHAPEWARE CORPORATION
1990 STOCK OPTION PLAN
Section 3 of the Shapeware Corporation 1990 Stock Option Plan (the "Plan")
is hereby amended to read as follows:
"SECTION 3. Stock Subject to this Plan. The stock subject to this
--------------------------
Plan shall be the Company's Common Stock (the "Common Stock")
presently authorized but unissued or subsequently acquired by the
Company. Subject to adjustment as provided in Section 7 hereof, the
aggregate amount of Common Stock to be delivered upon the exercise of
all options granted under this Plan shall not exceed Two Million Three
Hundred Ten Thousand (2,310,000) shares as such Common Stock was
constituted on the effective date of Amendment No. 8 to this Plan. If
any option granted under this Plan shall expire, be surrendered,
exchanged for another option, cancelled or terminated for any reason
without having been exercised in full, the unpurchased shares subject
thereto shall thereupon again be available for purposes of this Plan,
including for replacement options which may be granted in exchange for
such surrendered, cancelled or terminated options."
The effective date of such amendment shall be January 19, 1994, the date of
adoption by the Board of Directors.
-1-
<PAGE>
AMENDMENT NO. 9
TO
VISIO CORPORATION
(formerly Shapeware Corporation and Axon Corporation)
1990 STOCK OPTION PLAN
Section 1 of the Visio Corporation 1990 Stock Option Plan (the "Plan") is
hereby amended to read as follows:
"SECTION 1. Purpose. The purpose of the Visio Corporation 1990
-------
Stock Option Plan (this "Plan") is to provide a means whereby selected
employees, directors (subject to restrictions contained in Sections 2
and 4), officers, agents, consultants and independent contractors of
Visio Corporation (the "Company") or of any parent or subsidiary (as
defined in subsection 5.7 and referred to hereinafter as "related
corporations") thereof, may be granted incentive stock options and/or
nonqualified stock options to purchase the Common Stock (as defined in
Section 3) of the Company, in order to attract and retain the services
or advice of such employees, directors, officers, agents, consultants
and independent contractors and to provide added incentive to them by
encouraging stock ownership in the Company."
The effective date of the amendment shall be July 27, 1995, the date of
adoption by the Board of Directors.
<PAGE>
AMENDMENT NO. 10
TO THE
VISIO CORPORATION
1990 STOCK OPTION PLAN
The Visio Corporation (formerly Axon Corporation and Shapeware Corporation)
1990 Stock Option Plan (the "Plan") is hereby amended as follows:
1. The first two paragraphs of Section 2 of the Plan shall be amended in
their entirety to read as follows:
Administration. This Plan shall be administered by the Board of
--------------
Directors of the Company (the "Board") or a committee or committees
(which term includes subcommittees) appointed by, and consisting of
two or more members of, the Board. The administrator of this Plan
shall hereinafter be referred to as the "Plan Administrator." If and
so long as the Common Stock is registered under Section 12(b) or 12(g)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Board shall consider, in selecting the Plan Administrator
and the membership of any committee acting as Plan Administrator of
the Plan with respect to any persons subject or likely to become
subject to Section 16 under the Exchange Act, the provisions regarding
(a) "outside directors," as contemplated by Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), and (b)
"nonemployee directors," as contemplated by Rule 16b-3 under the
Exchange Act. The Board may delegate the responsibility for
administering this Plan with respect to designated classes of eligible
participants to different committees, subject to such limitations as
the Board deems appropriate. Committee members shall serve for such
term as the Board may determine, subject to removal by the Board at
any time.
2. The first sentence of Section 2.3 shall be deleted.
3. Section 5.6 shall be amended in its entirety to read:
5.6 Transferability. No Option, Stock Appreciation Right,
---------------
Performance Award or Other Stock-Based Award granted under the
<PAGE>
Plan may be assigned, pledged or transferred by the Holder other than
by will or by the laws of descent and distribution and, during the
Holder's lifetime, such Awards may be exercised only by the Holder or
a permitted assignee or transferee of the Holder (as provided below).
Notwithstanding the foregoing, and to the extent permitted by Section
422 of the Code, the Plan Administrator, in its sole discretion, may
permit such assignment, transfer and exercisability and may permit a
Holder of such Awards to designate a beneficiary who may exercise the
Award or receive compensation under the Award after the Holder's
death; provided, however, that any such Award so assigned, pledged or
transferred shall be subject to all the same terms and conditions
contained in the instrument evidencing the award.
4. The following sentence shall be inserted at the beginning of Section
5.7:
If the Optionee's relationship with the Company or any related
corporation ceases for any reason, then the portion of the Optionee's
option which is not exercisable at the time of such cessation shall
terminate immediately upon such cessation, unless the Plan
Administrator determines otherwise.
The effective date of such amendments shall be ____________, 1996.
-2-
<PAGE>
AXON CORPORATION
1990 STOCK OPTION PLAN
Section 1. Purpose. The purpose of the Axon Corporation 1990 Stock
-------
Option Plan (this "Plan") is to provide a means whereby selected employees,
directors (subject to the restrictions contained in Sections 2 and 4), officers,
agents, consultants and independent contractors of Axon Corporation (the
"Company") or of any parent or subsidiary (as defined in subsection 5.7 and
referred to hereinafter as "related corporations") thereof, may be granted
incentive stock options and/or nonqualified stock options to purchase the Common
Stock (as defined in Section 3) of the Company, in order to attract and retain
the services or advice of such employees, directors, officers, agents ,
consultants and independent contractors and to provide added incentive to them
by encouraging stock ownership in the Company.
Section 2. Administration. This Plan shall be administered by the Board
--------------
of Directors of the Company (the "Board") or, in the event the Board shall
appoint and/or authorize a committee to administer this Plan, by such committee.
The administrator of this Plan shall hereinafter be referred to as the "Plan
Administrator."
The foregoing notwithstanding, in the event the Company shall register any
of its equity securities pursuant to Section 12 (b) or 12 (g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and any directors are
eligible to receive options under this Plan, then the following provisions shall
apply to the administration of the Plan with respect to grants made to
directors. The Plan Administrator shall be constituted at all times so as to
meet the requirements of Section 16 (b) of the Exchange Act, as amended from
time to time. Currently, the Plan Administrator shall be the Board, a majority
of which Board and a majority of which directors acting in the matter are
disinterested, or may be a committee which consists solely of not less than
three disinterested directors of the Company. In the event the Plan
Administrator is a committee and state corporate law does not permit a committee
to grant options to directors, then directors shall not be eligible to receive
options under this Plan as any committee serving as Plan Administrator shall be
appointed by the Board for such term as the Board may determine. The Board may
from time to time remove members from, or add members to, the committee.
Vacancies on the committee, however caused, may be filled by the Board. If at
any time an insufficient number of disinterested directors is available to serve
on such committee, interested directors may serve on the committee; however,
during such time, no options shall be granted under this Plan to any person if
the granting of such option would not meet the requirements of Section 16(b) of
the Exchange Act.
1
<PAGE>
For purposes of this Section 2, a disinterested director is a member of the
Board who meets the definition of "disinterested person" as set forth in the
rules and regulations promulgated under Section 16 (b) of the Exchange Act, as
amended from time to time. Currently, a disinterested director for purposes of
this Section 2 is a member of the Board who is not at the time he or she
exercises discretion in administering this Plan eligible and has not been
eligible at any time within one year prior thereto (or since the effective date
of the Company's registration under Section 12 (b) or 12 (g) of the Exchange Act
if the Company has been registered for less than 12 months) for selection as a
person to whom stock may be allocated or to whom stock options or stock
appreciation rights may be granted pursuant to this Plan or any other
discretionary plan of the Company or any related corporation entitling the
participants therein to acquire stock, stock options, or stock appreciation
rights of the Company or any related corporation.
2.1 Procedures. The Board shall designate one of the members of
----------
the Plan Administrator as chairman. The Plan Administrator may hold meetings at
such times and places as it shall determine. The acts of majority of the
members of the Plan Administrator present at meetings at which a quorum
Administrator members, shall be valid acts of the Plan.
2.2 Responsibilities. Except for the terms and conditions
----------------
explicitly set forth in this Plan, the Plan Administrator shall have the
authority, in its discretion, to determine all matters relating to the options
to be granted under this Plan, including selection of the individuals to be
granted options, the number of shares to be subject to each of the options.
Grants under this Plan need not be identical in any respect, even when made
simultaneously. The interpretation and construction by the Plan Administrator
of any terms or provisions of this Plan or any option issued hereunder, or of
any rule or regulation promulgated in connection herewith, shall be conclusive
and binding on all interested parties, so long as such interpretation and
construction with respect to incentive stock options correspond to the
requirements of Internal Revenue Code (the "Code") Section 422A, the regulations
thereunder, and any amendments thereto.
2.3 Section 16(b) Compliance and Bifurcation of Plan. It is the
------------------------------------------------
intention of the Company that this Plan comply in all respects with Rule 16b-3
under the Exchange Act and, if any Plan provision is later found not to be in
compliance with such Section, the provision shall be deemed null and void, and
in the Plan to the contrary, the Board, in its absolute discretion, may
bifurcate the Plan so as to restrict, limit or condition the use of any
provisions of the Plan to participants who are officers and directors subject to
Section 16(b) of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other participants.
SECTION 3. Stock Subject to This Plan. The stock subject to this Plan
--------------------------
shall be the Company's common Stock (the "Common Stock") presently authorized by
unissued or subsequently acquired by the Company. Subject to adjustment as
provided in Section 7 hereof, the aggregate amount of Common Stock to be
delivered upon the exercise of all
2
<PAGE>
options granted under this Plan shall not exceed 500,000 shares as such Common
Stock was constituted on the effective date of this Plan. If any option granted
under this Plan shall expire, be surrendered, exchanged for another option,
cancelled or terminated for any reason without having been exercised in full,
the unpurchased shares subject thereto shall thereupon again be available for
purposes of this Plan, including for replacement options which may be granted in
exchange for such surrendered, cancelled or terminated options.
SECTION 4. Eligibility. An incentive stock option may be granted only
-----------
to any individual who, at the time the option is granted, is an employee of the
Company or any related corporation. A nonqualified stock option may be granted
to any employee, director, officer, agent, consultant or independent contractor
of the Company or any related corporation., whether an individual or an entity.
The members of the Board who are not also employees of the Company shall not be
eligible to receive options under this Plan once the Company has registered any
of its equity securities pursuant to Section 12(b) or 12(g) of the Exchange Act.
Any party to whom an option is granted under this Plan shall be referred to
hereinafter as an "Optionee."
SECTION 5. Terms and Conditions of Options. Options granted under this
-------------------------------
Plan shall be evidenced by written agreements which shall contain such terms,
conditions, limitations and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with this Plan. Notwithstanding the
foregoing, options shall include or incorporate by reference the following terms
and conditions.
5.1 Number of Shares and Price. The maximum number of shares that
--------------------------
may be purchased pursuant to the exercise of each option and the price per share
at which such option is exercisable (the "exercise price") shall be as
established by the Plan Administrator, provided that the Plan Administrator
shall act in good faith to establish the exercise price which shall be not less
than the fair market value per share on the Common Stock at the time the option
is granted with respect to incentive stock options an, after the Company has
registered any of its equity securities pursuant to Section 12(b) or 12(g) of
the Exchange act, not less than 85% of the fair market value per share of the
common Stock at the time the options is granted with respect to nonqualified
stock options and also provided that, with respect to incentive stock options
granted to greater than 10% shareholders, the exercise price shall be as
required by Section 6.
5.2 Term and Maturity. Subject to the restrictions contained in
-----------------
Section 6 with respect to granting incentive stock options to greater than 10%
shareholders, the term of each incentive stock option shall be as established by
the Plan Administrator and, if not so established, shall be 10 years from the
date it is granted but in no event shall the term of any incentive stock option
exceed 10 years. The term of each nonqualified stock option shall be as
established by the Plan Administrator, and if not so established, shall be 10
years. To ensure that the Company or related corporation will achieve the
purpose and receive the benefits contemplated in this Plan, any option granted
to any Optionee hereunder shall, unless the condition of this sentence is waived
or modified in the
3
<PAGE>
agreement evidencing the option or by resolution adopted by the Plan
Administrator, be exercisable according to the following schedule:
<TABLE>
<CAPTION>
Period of Optionee's
Continuous Relationship With
the Company or a Related
Corporation From the Portion of Total Option
Date the Option is Granted Which is Exercisable
------------------------------ -------------------------
<S> <C>
After one year 25%
After each three-month period An additional 6.25%
completed thereafter
After 4 years 100%
</TABLE>
5.3 Exercise. Subject to the vesting schedule described in
--------
subsection 5.2 above and to any additional holding period required by applicable
law, each option may be exercised in whole or in part; provided, however, that
no fewer than 50 shares (or the remaining shares then purchasable under the
option, if less than 50 shares) may be purchased upon any exercise of option
rights hereunder and the only whole shares will be issued pursuant to the
exercise of any option. During an Optionee's lifetime, any incentive stock
options granted under this Plan are personal to him or her and are exercisable
solely by such Optionee. Options shall be exercised by delivery to the Company
of Notice of the number of shares with respect to which the option is exercised,
together with payment of the exercise price.
5.4 Payment of Exercise Price. Payment of the option exercise
--------------------------
price shall be made in full at the time the notice of exercise of the option is
delivered to the Company and shall be in cash, bank certified or cashier's check
or personal check (unless at the time of exercise the Plan Administrator in a
particular case determines not to accept a personal check) for the Common Stock
being purchased.
The Plan Administrator can determine at the time the option is granted for
incentive stock options, or at any time before exercise for nonqualified stock
options, that additional forms of payment will be permitted, To the extent
permitted by the Plan Administrator and applicable laws and regulations
(including, but not limited to, federal tax and securities laws and regulations
and state corporate law), an option may be exercised by:
(a) delivery of shares of stock of the Company held by and Optionee
having a fair market value equal to the exercise price, such fair market value
to be determined in good faith by the Plan Administrator; provided, however,
that payment
4
<PAGE>
in stock held by an Optionee shall not be made unless the stock shall have been
owned by the Optionee for a period of at least six months;
(b) delivery of a full-recourse promissory note executed by the
Optionee; provided that (i) such note delivered in connection with an incentive
stock option shall, and such note delivered in connection with a nonqualified
stock option may, in the sole discretion of the Plan Administrator, bear
interest at a rate specified by the Plan Administrator but in no case less than
the rate required to avoid imputation of interest (taking into account any
exceptions to the inputed interest rules) for federal income tax purposes, and
(ii) the Plan Administrator in its sole discretion shall specify the term and
other provisions of such note at the time an incentive stock option is granted
or at any time prior to exercise of a nonqualified stock option, and (iii) the
Plan Administrator may require that the Optionee pledge the Optionee's shares to
the Company for the purpose of securing the payment of such note and may require
that the certificate representing such shares be held in escrow in order to
perfect the Company's security interest, and (iv) the Plan Administrator in its
sole discretion may at any time restrict or rescind this right upon notification
to the Optionee; or
(c) delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, all in accordance with the regulations of
the Federal Reserve Board, to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price and any federal, state or local
withholding tax obligations that may arise in connection with the exercise;
provided, that the Plan Administrator, in its sole discretion, ,may at any time
determine that this subparagraph (c), to the extent the instructions to the
broker call for an immediate sale of the shares, shall not be applicable to any
Optionee who is subject to Section 16(b) of the Exchange Act if such transaction
would be in violation of Section 16(b), or is not an employee at the time of
exercise.
5.5 Withholding Tax Requirement. The Company or related
---------------------------
corporation shall have the right to retain and withhold from any payment of cash
or Common Stock under the plan the amount of taxes required by any government to
be withheld or otherwise deducted and paid with respect to such payment. At its
discretion, the Company may require an Optionee receiving shares of Common Stock
to reimburse the Company for any such taxes required to be withheld by the
Company and withhold any distribution in whole or in part until the Company is
so reimbursed. In lieu thereof, the Company shall have the right to withhold
from any other cash amounts due or to become due from the Company to the
Optionee an amount equal to such taxes or retain and withhold a number of shares
having a market value not less than the amount of such taxes required to be
withheld by the Company to reimburse the Company for any such taxes and cancel
(in whole or in part) any such shares so withheld. If required by Section 16(b)
of the Exchange Act, the election to pay withholding taxes by delivery of shares
held by any person who at the time of exercise is subject to Section 16(b) of
the Exchange Act, shall be made either by six months prior to the date the
option exercise becomes taxable or during the quarterly 10-day window period
required under Section 16(b) of the Exchange Act for exercises of stock
appreciation rights.
5
<PAGE>
5.6 Nontransferability of Options. Options granted under this Plan
-----------------------------
and the rights and privileges conferred hereby may not be transferred, assigned,
pledged or hypothecated in any manner (whether by operation of law or otherwise)
other than by will or by the applicable laws of descent and distribution, and
shall not be subject to execution, attachment or similar process. Any attempt to
transfer. assign, pledge, hypothecate or otherwise dispose of any option under
this Plan or of any right or privilege conferred hereby, contrary to the Code or
to the provisions of this Plan, or the sale or levy or any attachment or similar
process upon the rights and privileges conferred hereby shall be null and void.
Notwithstanding the foregoing, an Optionee may during the Optionee's lifetime,
designate a person who may exercise the option after the Optionee's death by
giving written notice of such designation to the Plan Administrator. Such
designation may be changed from time to time by the Optionee by giving written
notice to the Plan Administrator revoking any earlier designation and making a
new designation.
5.7 Termination of Relationship. If the Optionee's relationship
---------------------------
with the Company or any related corporation ceases for any reason other than
termination for cause, death or total disability, and unless by its terms the
option sooner terminates or expires, then the Optionee may exercise, for a
three-month period, that portion of the Optionee's option which is exercisable
at the time of such ce6sation, but the Optionee's option shall terminate at the
end of the three-month period following such cessation as to all shares for
which it has not theretofore been exercised unless this provision is waived in
the agreement evidencing the option or by resolution adopted by the Plan
Administrator, Incentive stock options not exercised within three months after
cessation of employment will no longer qualify as incentive stock options under
the Code. If, in the case of an incentive stock option, an Optionee's
relationship with the Company or related corporation changes (i.e., from
employee to nonemployee, such as a consultant), such change shall constitute a
termination of an Optionee's employment with the Company or related corporation
and the Optionee's incentive stock option shall terminate in accordance with
this subsection 5.7.
If an Optionee is terminated for cause, any option granted hereunder shall
automatically terminate as of the first discovery by the Company of any reason
for termination for cause, and such Optionee shall thereupon have no right to
purchase any shares pursuant to such option. "Termination for cause" shall mean
dismissal for dishonesty, conviction or confession of a crime punishable by law
(except minor violations), fraud, misconduct or disclosure of confidential
information. If an Optionee's relationship with the Company or any related
corporation is suspended pending an investigation of whether or not the Optionee
shall be terminated for cause, all Optionee's rights under any option granted
hereunder likewise shall be suspended during the period of investigation.
If an Optionee's relationship with the Company or any related corporation
ceases because of a total disability, the Optionee's option shall not terminate
or, in the case of an
6
<PAGE>
incentive stock option, cease to be treated as an incentive stock option until
the end of the 12-month period following such cessation (unless by its terms it
sooner terminates and expires). As used in this Plan, the term "total
disability" refers to a mental or physical impairment of the Optionee which is
expected to result in death or which has lasted or is expected to last for a
continuous period of 12 months or more and which causes the Optionee to be
unable, in the opinion of the Company and two independent physicians, to perform
his or her duties for the Company and to be engaged in any substantial gainful
activity. Total disability shall be deemed to have occurred on the first day
after the Company and the two independent physicians have furnished their
opinion of total disability to the Plan Administrator.
For purposes of this subsection 5.7, a transfer of relationship between or
among the Company and/or any related corporation shall not be deemed to
constitute a cessation of relationship with the Company or any of its related
corporations. For purposes of this subsection 5. 7, with respect to incentive
stock options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Plan Administrator). The foregoing notwithstanding, employment shall not be
deemed to continue beyond the first 90 days of such leave, unless the Optionee's
reemployment rights are guaranteed by statute or by contract.
As used herein, the term "related corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the company) in,
at the time of the granting of the option, an unbroken chain of corporations
ending with the company, if stock possessing 50% or more of the total combined
voting power of all classes of stock of each of the corporations other than the
Company is owned by one of the other corporations in such chain. When referring
to a parent corporation, the term "related corporation" shall mean any
corporation in an unbroken chain of corporations ending with the Company if, at
the time of the granting of the option, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
5.8 Death of Optionee. If an optionee dies while he or she has a
-----------------
relationship with the Company or any related corporation or within the three-
month period (or 12-month period in the case of totally disabled optionees)
following cessation of such relationship, any option held by such Optionee to
the extent that the Optionee would have been entitled to exercise such option,
may be exercised within 12 months after his or her death by the personal
representative of his or her estate or by the person or persons to whom the
Optionee's rights under the option shall pass by will or by the applicable laws
of descent and distribution.
5.9 Status of Shareholder. Neither the Optionee nor any party to
---------------------
which the Optionee's rights and privileges under the option may pass shall be.
or have any of the rights or privileges of, a shareholder of the Company with
respect to any of the shares issuable upon the exercise of any option granted
under this Plan unless and until such option has been exercised.
7
<PAGE>
5.10 Contribution of Employment. Nothing in this Plan or in any
--------------------------
option granted pursuant to this Plan shall confer upon any Optionee any right to
continue in the employ of the Company or of a related corporation, or to
interfere in any way with the right of the Company or of any such related
corporation to terminate his or her employment or other relationship with the
Company at any time.
5.11 Modification and Amendment of Option. Subject to the
------------------------------------
requirements of Code Section 422A with respect to incentive stock options and to
the terms and conditions and within the limitations of this Plan, the Plan
Administrator may modify or amend outstanding options granted under this Plan.
The modification or amendment of an outstanding option shall not, without the
consent of the Optionee, impair or diminish any of his or her rights or any of
the obligations of the Company under such option. Except as otherwise provided
in this Plan, no outstanding option shall be terminated without the consent of
the Optionee. Unless the Optionee agrees otherwise, any changes or adjustments
made to outstanding incentive stock options granted under this Plan shall be
made in such a manner so as not to constitute a "modification" as defined in
Code Section 425(h) and so as not to cause any incentive stock option issued
hereunder to fail to continue to qualify as an incentive stock option as defined
in Code Section 422(b).
5.12 Limitation on Value for Incentive Stock Options. As to all
-----------------------------------------------
incentive stock options granted under the terms of this Plan, to the extent that
the aggregate fair market value (determined at the time the incentive stock
option is granted) of the stock with respect to which incentive stock options
are exercisable for the first time by the Optionee during any calendar year
(under this Plan and all other incentive stock option plans of the Company, a
related corporation or a predecessor corporation) exceeds $100,000, such options
shall be treated as nonqualified stock options. The previous sentence shall not
apply if the Internal Revenue Service publicly rules, issues a private ruling to
the Company, any Optionee, or any legatee, personal representative or
distributee of an Optionee or issues regulations changing or eliminating such
annual limit.
SECTION 6. Greater Than 10% Shareholders.
-----------------------------
6.1 Exercise Price and Term of Incentive Stock Options. If incentive
--------------------------------------------------
stock options are granted under this Plan to employees who own more than 10% of
the total combined voting power of all classes of stock of the Company or any
related corporation, the term of such incentive stock options shall not exceed
five years and the exercise price shall be not less than 110% of the fair market
value of the Common Stock at the time the incentive stock option is granted.
This provision shall control notwithstanding any contrary terms contained in an
option agreement or any other document.
6.2 Attribution Rule. For purposes of subsection 6.1, in
----------------
determining stock ownership, an employee shall be deemed to own the stock owned,
directly or
8
<PAGE>
indirectly, by or for his or her brothers, sisters, spouse, ancestors and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be deemed to be owned proportionately by or
for its shareholders, partners or beneficiaries. If an employee or a person
related to the employee owns an unexercised option or warrant to purchase stock
of the Company, the stock subject to that portion of the option or warrant which
is unexercised shall not be counted in determining stock ownership. For purposes
of this Section 6, stock owned by an employee shall include all stock actually
issued and outstanding immediately before the grant of the incentive stock
option to the employee.
SECTION 7. Adjustments Upon Changes in Capitalization. The aggregate
------------------------------------------
number and class of shares for which options may be granted under this Plan, the
number and class of shares covered by each outstanding option and the exercise
price per share thereof (but not the total price), and each such option, shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a split-up or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.
7.1 Effect of Liquidation, Reorganization or Change in Control.
----------------------------------------------------------
7.1.1 Cash, Stock or Other Property for Stock. Except as provided
---------------------------------------
in subsection 7.1.2, upon a merger (other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation,
reorganization (other than a mere reincorporation or the creation of a holding
company) or liquidation of the Company, as a result of which the shareholders of
the Company receive cash, stock or other property in exchange for or in
connection with their shares of Common Stock, any option granted hereunder shall
terminate, but the Optionee shall have the right immediately prior to any such
merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to exercise such Optionee's option to the extent
the vesting requirements set forth in the option agreement have been satisfied.
7.1.2 Conversion of Options on Stock for Stock Exchange. If the
-------------------------------------------------
shareholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted hereunder shall be converted into options
to purchase shares of Exchange Stock unless the Company and the corporation
issuing the Exchange Stock, in their sole discretion, determine that any or all
such options granted hereunder shall not be converted into options to purchase
shares
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of Exchange Stock but instead shall terminate in accordance with the provisions
of subsection 7.1.1. The amount and price of converted options shall be
determined by adjusting the amount and price of the options granted hereunder in
the same proportion as used for determining the number of shares of Exchange
Stock the holders of the Common Stock receive in such merger, consolidation,
acquisition of property or stock, separation or reorganization. Unless
accelerated by the Board, the vesting schedule set forth in the option agreement
shall continue to apply to the options granted for the Exchange Stock.
7.1.3 Change in Control. In the event of a "Change in Control" as
-----------------
defined below, of the Company after the Company has registered any of its equity
securities pursuant to Section 12(b) or 12(g) of the Exchange Act, unless
otherwise determined by the Board prior to the occurrence of such Change in
Control, the following acceleration and cash-out provisions shall apply:
(a) Any options or portions thereof outstanding as of the date such
Change in Control is determined to have occurred that are not yet fully vested
on such date shall become immediately exercisable in full, and
(b) Optionees shall have, as an alternative to the right to exercise
any nonqualified stock option, the right to elect within 90 days following a
Change in Control to receive in cash an amount equal to the difference between
the option exercise price and the fair market value of the stock on the date of
exercising this election, times the number of shares subject to the option or
portion thereof for which this election is made; provided, however. if during
the six months prior to the date of such Change in Control such Optionee is
subject to Section 16(b) of the Exchange Act with respect to the Company's
securities, then with respect to options held by the Optionee, the period
following the Change in Control during which an election may be made shall be
extended for one month after the end of the six-month period required to avoid
any liability under Section 16(b) of the Exchange Act. The election shall be
made by delivering written notice of making such election to the Company within
the ninety (90) day period. The notice shall specify the options or portions
thereof to which the election relates. The cash-out proceeds shall be paid to
the Optionee or, in the event of death of an Optionee prior to full payment, to
the estate of the Optionee or to a person who acquired the right to exercise the
option by bequest or inheritance.
7.1.4 Definition of "Change in Control." For purposes of the Plan,
----------------------------------
a "Change in Control" shall mean (a) the first approval by the Board or by the
shareholders of the Company of an Extraordinary Event, (b) a Purchase, or (c) a
Board Change. For purposes of the Plan, an "Extraordinary Event" shall mean any
of the following actions:
(i) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which
shares of Common Stock would be converted into cash, securities or other
property other than a merger of the Company in which the holders of Common
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Stock immediately prior to the merger have the same proportionate ownership
of common stock of the surviving corporation immediately after the merger;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially
all, the assets of the Company; or
(iii) the adoption of any plan or proposal for liquidation or
dissolution of the Company.
For purposes of the Plan, a "Purchase" shall mean the acquisition by any
person (as such term is defined in Section 13(d) of the Exchange Act) of any
shares of Common Stock (or securities convertible into Common Stock) without the
prior approval of a majority of the Continuing Directors (as defined below) of
the Company, if after making such acquisition such person is the beneficial
owner (as such term is defined in Rule 13d-3 under the Exchange Act) directly or
indirectly of securities of the Company representing 20% or more of the combined
voting power of the Company's then outstanding securities (calculated as
provided in paragraph (d) of such Rule 13d-3). For purposes of the Plan, a
"Board Change" shall have occurred if individuals who constitute the Board of
the Company at the time of adoption of this Plan (the "Continuing Directors")
cease for any reason to constitute at least a majority of the Board, provided
that any person becoming a Director subsequent to the date of adoption of this
Plan whose nomination for election was approved by a vote of at least a majority
of the Continuing Directors (other than a nomination of an individual those
initial assumption of office is in connection with an actual threatened election
contest relating to the election of the Directors of the Company, as such terms
are used in Rule 14a-11 of Regulation 14A under the Exchange Act) shall be
deemed to be a Continuing Director.
7.2 Fractional Shares. In the event of any adjustment in the number
-----------------
of shares covered by any option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full shares resulting from such adjustment.
7.3 Determination of Board to Be Final. All Section 7 adjustments
----------------------------------
shall be made by the Board, and its determination as to what adjustments shall
be made, and the extent thereof, shall be final, binding and conclusive. Unless
an Optionee agrees otherwise, any change or adjustment to an incentive stock
option shall be made in such a manner so as not to constitute a "modification"
as defined in Code Section 425(h) and so as not to cause his or her incentive
stock option issued hereunder to fail to continue to qualify as an incentive
stock option as defined in Code Section 422A(b).
SECTION 8. Securities Regulation. Shares shall not be issued with
---------------------
respect to an option granted under this Plan unless the exercise of such option
and the issuance and delivery of such shares pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, any applicable
state securities laws, the Securities Act of
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l933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance, including the availability of an
exemption from registration for the issuance and sale of any shares hereunder.
Inability of the Company to obtain from any regulatory body having jurisdiction,
the authority deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares hereunder or the unavailability of an exemption
from registration for the issuance and sale of any shares hereunder shall
relieve the Company of any liability in respect of the nonissuance or sale of
such shares as to which such requisite authority shall not have been obtained.
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order against
any shares of stock may be placed on the official stock books and records of the
Company, and a legend indicating that the stock may not be pledged, sold or
otherwise transferred unless an opinion of counsel is provided (concurred in by
counsel for the Company) stating that such transfer is not in violation of any
applicable law or regulation, may be stamped on stock certificates in order to
assure exemption from registration.
The Plan Administrator may also require such other action or agreement by the
Optionees as may from time to time be necessary to comply with the federal and
state securities laws. THIS PROVISION SHALL NOT OBLIGATE THE COMPANY TO
UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class as the stock
subject to options granted hereunder be listed on a national securities
exchange, all stock issued hereunder if not previously listed on such exchange
shall be authorized by that exchange for listing thereon prior to the issuance
thereof.
SECTION 9. Amendment and Termination.
-------------------------
9.1 Board Action. The Board may at any time suspend, amend or
------------
terminate this Plan, provided that except as set forth in Section 7, the
approval of the holders of a majority of the Company's outstanding shares of
voting capital stock is necessary within 12 months before or after the adoption
by the Board of any amendment which will:
(a) increase the number of shares which are to be reserved for
the issuance of options under this Plan;
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(b) permit the granting of stock options to a class of persons
other than those presently permitted to receive stock options under this Plan;
or
(c) require shareholder approval under applicable law, including
Section 16(b) of the Exchange Act.
9.2 Automatic Termination. Unless sooner terminated by the Board,
---------------------
this Plan shall terminate ten years from the earlier of (a) the date on which
this Plan is adopted by the Board or (b) the date on which this Plan is approved
by the shareholders of the Company. No option may be granted after such
termination or during any suspension of this Plan. The amendment or termination
of this Plan shall not, without the consent of the option holder, alter or
impair any rights or obligations under any option theretofore granted under this
Plan.
SECTION 10. Effectiveness of This Plan. This Plan shall become effective
--------------------------
upon adoption by the Board so long as it is approved by the holders of a
majority of the Company's outstanding shares of voting capital stock at any time
within 12 months before or after the adoption of this Plan.
Original Plan adopted by the Board on November 26, 1990 and approved by the
shareholders on November 26, 1990.
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EXHIBIT 10.2
VISIO CORPORATION
1995 LONG-TERM INCENTIVE COMPENSATION PLAN
As Amended and Restated on January 22, 1997
SECTION 1. PURPOSE
The purpose of the Visio Corporation 1995 Incentive Compensation Plan (the
"Plan") is to enhance the long-term profitability and shareholder value of Visio
Corporation, a Washington corporation (the "Company"), by offering incentives
and rewards to those employees, consultants and agents of the Company and its
Subsidiaries (as defined in Section 2.26) who are key to the Company's growth
and success, and to encourage them to remain in the service of the Company and
its Subsidiaries and to acquire and maintain stock ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below. All references to "sections" shall be to the sections of the Plan.
2.1 "Award" means an award or grant made to a Participant pursuant to the
Plan, including, without limitation, awards or grants of Options, Stock
Appreciation Rights, Stock Awards, Performance Awards, Other Stock-Based Awards
or any combination of the foregoing.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Cause" means dishonesty, fraud, misconduct, unauthorized use or
disclosure of confidential information or trade secrets, or conviction or
confession of a crime punishable by law (except minor violations), in each case
as determined by the Plan Administrator, and its determination shall be
conclusive and binding.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.5 "Common Stock" means the common stock, par value $.01 per share, of
the Company.
2.6 "Corporate Transaction" means any of the following events:
(a) Approval by the holders of the Common Stock of any merger or
consolidation of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Common Stock are
converted into cash, securities or other property, other than a merger of the
Company in which the holders of the Common Stock immediately prior to the merger
have substantially the same proportionate ownership of common stock of the
surviving corporation immediately after the merger;
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(b) Approval by the holders of the Common Stock of any sale, lease,
exchange or other transfer in one transaction or a series of related
transactions of all or substantially all of the Company's assets other than a
transfer of the Company's assets to a majority-owned subsidiary (as the term
"subsidiary" is defined in Section 8.3) of the Company; or
(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company.
2.7 "Disability" means a mental or physical impairment of the Holder that
is expected to result in death or that has lasted or is expected to last for a
continuous period of 12 months or more and that causes the Holder to be unable,
in the opinion of the Company and two independent physicians, to perform his or
her duties for the Company and to be engaged in any substantial gainful
activity. Disability shall be deemed to have occurred on the first day after
the Company and the two independent physicians have furnished their opinion of
disability to the Plan Administrator.
2.8 "Early Retirement" means retirement as that term is defined by the
Plan Administrator from time to time for purposes of the Plan.
2.9 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.10 "Fair Market Value" means the average of the high and low per share
trading prices for the Common Stock as reported by the Nasdaq National Market
for a single trading day.
2.11 "Good Reason" means the occurrence of any of the following events or
conditions:
(a) a change in the Holder's status, title, position or
responsibilities (including reporting responsibilities) that, in the Holder's
reasonable judgment, represents a substantial reduction of the status, title,
position or responsibilities as in effect immediately prior thereto; the
assignment to the Holder of any duties or responsibilities that, in the Holder's
reasonable judgment, are inconsistent with such status, title, position or
responsibilities; or any removal of the Holder from or failure to reappoint or
reelect the Holder to any of such positions, except in connection with the
termination of the Holder's employment for Cause, for Disability or as a result
of his or her death, or by the Holder other than for Good Reason;
(b) a reduction in the Holder's annual base salary;
(c) the Successor Corporation's requiring the Holder (without the
Holder's consent) to be based at any place outside a 35-mile radius of his or
her place of employment prior to a Corporate Transaction, except for reasonably
required travel on Successor Corporation business that is not materially greater
than such travel requirements prior to the Corporate Transaction;
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(d) the Successor Corporation's failure to (i) continue in effect any
material compensation or benefit plan (or the substantial equivalent thereof) in
which the Holder was participating at the time of a Corporate Transaction,
including, but not limited to, the Plan, or (ii) provide the Holder with
compensation and benefits at least equal (in terms of benefit levels and/or
reward opportunities) to those provided for under each employee benefit plan,
program and practice as in effect immediately prior to the Corporate Transaction
(or as in effect following the Corporate Transaction, if greater);
(e) any material breach by the Successor Corporation of any provision
of the Plan; or
(f) any purported termination of the Holder's employment or service
for Cause by the Successor Corporation that does not comply with the terms of
the Plan.
2.12 "Grant Date" means (i) the date on which the Plan Administrator
adopted the resolution granting an Award; (ii) a date following the date on
which the Plan Administrator adopted the resolution, which is designated as the
date an Award is granted; or (iii) if a Pricing Period is used, the last day of
the Pricing Period."
2.13 "Holder" means the Participant to whom an Award is granted, or, for a
Holder who has died, the personal representative of the Holder's estate, the
person(s) to whom the Holder's rights under the Award have passed by will or the
applicable laws of descent and distribution or the beneficiary designated
pursuant to Section 14.
2.14 "Incentive Stock Option" means an option to purchase Common Stock
granted under Section 7 of the Plan with the intention that it qualify as an
"incentive stock option" as that term is defined in Section 422 of the Code.
2.15 "Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 of the Plan other than an Incentive Stock Option.
2.16 "Option" means the right to purchase Common Stock granted under
Section 7 of the Plan.
2.17 "Other Stock-Based Award" means an Award granted under Section 12 of
the Plan.
2.18 "Participant" means an individual who is a Holder of an Award or, as
the context may require, any employee, consultant or agent of the Company or a
Subsidiary who has been designated by the Plan Administrator as eligible to
participate in the Plan.
2.19 "Performance Award" means an Award granted under Section 11 of the
Plan the payout of which is subject to achievement through a performance period
of performance goals prescribed by the Plan Administrator.
2.20 "Plan Administrator" means any committee of the Board designated to
administer the Plan under Section 3.1 of the Plan.
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2.21 "Pricing Period" means the period beginning 15 consecutive trading
days preceding and ending 15 consecutive trading days following the date
designated in a resolution of the Plan Administrator as the date an Award is
granted or, if the Plan Administrator does not designate such a date in the
resolution, the date on which the Plan Administrator adopted the resolution."
2.22 "Restricted Stock" means shares of Common Stock granted under Section
10 of the Plan the rights of ownership of which are subject to restrictions
prescribed by the Plan Administrator.
2.23 "Retirement" means retirement as of the individual's normal
retirement date under the Company's Profit Sharing and Savings Plan or other
similar successor plan applicable to salaried employees.
2.24 "Stock Appreciation Right" means an Award granted under Section 9 of
the Plan.
2.25 "Stock Award" means an Award granted under Section 10 of the Plan.
2.26 "Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Plan Administrator, and any entity that may
become a direct or indirect parent of the Company.
2.27 "Successor Corporation" has the meaning set forth in Section 15.2 of
the Plan.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by a committee or committees (which term
includes subcommittees) appointed by, and consisting of one or more members of,
the Board. If and so long as the Company's Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, the Board shall consider, in
selecting the Plan Administrator and the membership of any committee acting as
Plan Administrator of this Plan with respect to any persons subject or likely to
become subject to Section 16 under the Exchange Act, the provisions regarding
(a) "outside directors," as contemplated by Section 162(m) of the Code, and (b)
"nonemployee directors," as contemplated by Rule 16b-3 under the Exchange Act.
The Board may delegate the responsibility for administering the Plan with
respect to designated classes of eligible Participants to different committees,
subject to such limitations as the Board deems appropriate. Committee members
shall serve for such term as the Board may determine, subject to removal by the
Board at any time.
3.2 Administration and Interpretation by the Plan Administrator
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under
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the Plan, including the selection of individuals to be granted Awards, the type
of Awards, the number of shares of Common Stock subject to an Award, all terms,
conditions, restrictions and limitations, if any, of an Award and the terms of
any instrument that evidences the Award. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt, and
change, rules and regulations of general application for the Plan's
administration. The Plan Administrator's interpretation of the Plan and its
rules and regulations, and all actions taken and determinations made by the Plan
Administrator pursuant to the Plan, shall be conclusive and binding on all
parties involved or affected. The Plan Administrator may delegate administrative
duties to such of the Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section 15.1 of the
Plan, a maximum of 2,540,000 shares of Common Stock shall be available for
issuance under the Plan, except that any shares of Common Stock that, as of the
date the Company becomes subject to the reporting requirements of the Exchange
Act, are available for issuance under the Company's 1990 Stock Option Plan
adopted by the Company's shareholders on November 26, 1990 (or that thereafter
become available for issuance under that plan in accordance with its terms as in
effect on such date) and that are not issued under that plan shall be added to
the aggregate number of shares available for issuance under the Plan. Shares
issued under the Plan shall be drawn from authorized and unissued shares or
shares now held or subsequently acquired by the Company as treasury shares.
4.2 Limitations
(a) Subject to adjustment from time to time as provided in Section 15.1,
not more than an aggregate of 420,000 shares shall be available for issuance
pursuant to grants of Stock Awards, Performance Awards or Other Stock-Based
Awards under the Plan.
(b) Subject to adjustment from time to time as provided in Section 15.1,
not more than 150,000 shares of Common Stock may be made subject to Awards under
the Plan to any individual Participant in the aggregate in any one fiscal year
of the Company, except that the Company may make additional one-time grants of
up to 400,000 shares to newly hired Participants, such limitation to be applied
in a manner consistent with the requirements of, and only to the extent required
for compliance with, the exclusion from the limitation on deductibility of
compensation under Section 162(m) of the Code.
4.3 Reuse of Shares
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares), including,
without limitation, in connection with the cancellation of an Award and the
grant of a replacement Award, shall again be available for issuance in
connection with future grants of Awards under the Plan; provided, however, that
for
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purposes of Section 4.2, any such shares shall be counted in accordance with the
requirements of Section 162(m) of the Code. Shares that are subject to tandem
Awards shall be counted only once.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and key
employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects; provided that directors who are not also employees may not
be awarded Incentive Stock Options. Awards may also be made to consultants and
agents who provide services to the Company and its Subsidiaries.
SECTION 6. AWARDS
6.1 Form and Grant of Awards
The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards
may include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Stock Awards, Performance Awards and Other
Stock-Based Awards. Awards may be granted singly, in combination or in tandem
so that the settlement or payment of one automatically reduces or cancels the
other. Awards may also be made in combination or in tandem with, in replacement
of, as alternatives to, or as the payment form for, grants or rights under any
other employee or compensation plan of the Company.
6.2 Acquired Company Awards
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other entities ("Acquired Entities") (or
the parent of the Acquired Entity) and the new Award is substituted, or the old
award is assumed, by reason of a merger, consolidation, acquisition of property
or of stock, reorganization or liquidation (the "Acquisition Transaction"). In
the event that a written agreement pursuant to which the Acquisition Transaction
is completed is approved by the Board and said agreement sets forth the terms
and conditions of the substitution for or assumption of outstanding awards of
the Acquired Entity, said terms and conditions shall be deemed to be the action
of the Plan Administrator without any further action by the Plan Administrator,
except as may be required for compliance with Rule 16b-3 under the Exchange Act,
and the persons holding such Awards shall be deemed to be Participants and
Holders.
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SECTION 7. AWARDS OF OPTIONS
7.1 Grant of Options
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 Option Exercise Price
Subject to Section 6.2, the exercise price for shares purchased under an
Option shall be as determined by the Plan Administrator, but shall not be less
than 100% of the Fair Market Value of the Common Stock on the Grant Date with
respect to Incentive Stock Options. With respect to Nonqualified Stock Options,
the exercise price may be based on the lowest price at which shares of Common
Stock are traded (as reported by the Nasdaq National Market) during the Pricing
Period. However, the exercise price for Nonqualified Stock Options shall not in
any event be less than 85% of the Fair Market Value of the Common Stock on the
date on which the Plan Administrator adopted the resolution granting the Option.
7.3 Term of Options
The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be 10 years from the Grant Date.
7.4 Exercise of Options
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall become exercisable, which provisions may be waived or modified by
the Plan Administrator at any time.
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 7.5 of the Plan. In no
case may an Option be exercised as to less than 100 shares at any one time (or
the lesser number of remaining shares covered by the Option).
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash, bank certified or cashier's check or personal check
(unless at the time of exercise the Plan Administrator in a particular case
determines not to accept a personal check) for the Common Stock being purchased.
The Plan Administrator can determine either at the time the Option is
granted or at any time before exercise that additional forms of payment will be
permitted. To the extent permitted
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by applicable laws and regulations (including, but not limited to, federal tax
and securities laws and regulations and state corporate law), and unless the
Plan Administrator determines otherwise, an Option may also be exercised, either
singly or in combination with one or more of the alternative forms of payment
authorized by this Section 7.5, by:
(a) tendering (either actually or by attestation) shares of Common Stock
already owned by the Holder for at least six months (or any shorter period
necessary to avoid a charge to the Company's earnings for financial reporting
purposes) having a Fair Market Value on the day prior to the exercise date equal
to the aggregate Option exercise price; or (b) delivery of a properly executed
exercise notice, together with irrevocable instructions, to (i) a brokerage firm
designated by the Company to deliver promptly to the Company the aggregate
amount of sale or loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise and
(ii) the Company to deliver the certificates for such purchased shares directly
to such brokerage firm, all in accordance with the regulations of the Federal
Reserve Board. To the extent permitted by the Plan Administrator, the exercise
price for shares purchased under an option may also be paid, either singly or in
combination with one or more of the alternative forms of payment authorized by
this Section 7.5, by (y) a promissory note authorized pursuant to Section 13 of
the Plan; or (z) such other consideration as the Plan Administrator may permit.
7.6 Post-Termination Exercises
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Holder ceases to be employed by,
or to provide services to, the Company or its Subsidiaries, which provisions may
be waived or modified by the Plan Administrator at any time. If not so
established in the instrument evidencing the Option, the Option will be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time. If the Holder's relationship
with the Company or its Subsidiaries ceases for any reason, then the portion of
the Holder's option which is not exercisable at the time of such cessation shall
terminate immediately upon such cessation, unless the Plan Administrator
determines otherwise. In case of termination of the Holder's employment or
services other than by reason of death or Cause, the Option shall be
exercisable, to the extent of the number of shares purchasable by the Holder at
the date of such termination, only: (a) within three years if the termination
of the Holder's employment or services are coincident with Retirement, Early
Retirement at the Company's request or Disability or (b) within three months
after the date the Holder ceases to be an employee, consultant or agent of the
Company or a Subsidiary if termination of the Holder's employment or services is
for any reason other than Retirement, Early Retirement at the Company's request
or Disability, but in no event later than the remaining term of the Option. Any
Option exercisable at the time of the Holder's death may be exercised, to the
extent of the number of shares purchasable by the Holder at the date of the
Holder's death, by the personal representative of the Holder's estate entitled
thereto at any time or from time to time within three years after the date of
death, but in no event later than the remaining term of the Option. In case of
termination of the Holder's employment or services for
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Cause, the Option shall automatically terminate upon first notification to the
Holder of such termination, unless the Plan Administrator determines otherwise.
If a Holder's employment or services with the Company are suspended pending
an investigation of whether the Holder shall be terminated for Cause, all of the
Holder's rights under any Option likewise shall be suspended during the period
of investigation. A transfer of employment or services between or among the
Company and its Subsidiaries shall not be considered a termination of employment
or services. Unless the Plan Administrator determines otherwise, a leave of
absence approved in accordance with Company procedures shall not be considered a
termination of employment or services, except that with respect to Incentive
Stock Options such leave of absence shall be subject to any requirements of
Section 422 of the Code.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 Dollar Limitation
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the
event the Participant holds two or more such Options that become exercisable for
the first time in the same calendar year, such limitation shall be applied on
the basis of the order in which such Options are granted.
8.2 10% Shareholders
If a Participant owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years.
8.3 Eligible Employees
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
8.4 Term
The term of an Incentive Stock Option shall not exceed 10 years.
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8.5 Exercisability
An Option designated as an Incentive Stock Option must be exercised within
three months after termination of employment for reasons other than death to
qualify for Incentive Stock Option tax treatment, except that in the case of
termination of employment due to Disability, such Option must be exercised
within one year after such termination.
SECTION 9. STOCK APPRECIATION RIGHTS
9.1 Grant of Stock Appreciation Rights
The Plan Administrator may grant a Stock Appreciation Right separately or
in tandem with a related Option.
9.2 Tandem Stock Appreciation Rights
A Stock Appreciation Right granted in tandem with a related Option will
give the Holder the right to surrender to the Company all or a portion of the
related Option and to receive an appreciation distribution (in shares of Common
Stock or cash or any combination of shares and cash, as the Plan Administrator
shall determine at any time) in an amount equal to the excess of the Fair Market
Value on the date the Stock Appreciation Right is exercised over the exercise
price per share of the right, which shall be the same as the exercise price of
the related Option. A tandem Stock Appreciation Right will have the same other
terms and provisions as the related Option. Upon and to the extent a tandem
Stock Appreciation Right is exercised, the related Option will terminate.
9.3 Stand-Alone Stock Appreciation Rights
A Stock Appreciation Right granted separately and not in tandem with an
Option will give the Holder the right to receive an appreciation distribution in
an amount equal to the excess of the Fair Market Value for the date the Stock
Appreciation Right is exercised over the exercise price per share of the right.
A stand-alone Stock Appreciation Right will have such terms as the Plan
Administrator may determine, except that the exercise price per share of the
right must be at least equal to 85% of the Fair Market Value on the date on
which the Plan Administrator adopted the resolution granting the Stock
Appreciation Right and the term of the right, if not otherwise established by
the Plan Administrator, shall be 10 years from the Grant Date.
9.4 Exercise of Stock Appreciation Rights
Unless otherwise provided by the Plan Administrator in the instrument that
evidences the Stock Appreciation Right, the provisions of Section 7.6 of the
Plan relating to the termination of a Holder's employment or services shall
apply equally, to the extent applicable, to the Holder of a Stock Appreciation
Right.
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SECTION 10. STOCK AWARDS
10.1 Grant of Stock Awards
The Plan Administrator is authorized to make Awards of Common Stock to
Participants on such terms and conditions and subject to such restrictions, if
any (whether based on performance standards, periods of service or otherwise),
as the Plan Administrator shall determine, which terms, conditions and
restrictions shall be set forth in the instrument evidencing the Award. The
terms, conditions and restrictions that the Plan Administrator shall have the
power to determine shall include, without limitation, the manner in which shares
subject to Stock Awards are held during the periods they are subject to
restrictions and the circumstances under which forfeiture of Restricted Stock
shall occur by reason of termination of the Holder's services.
10.2 Issuance of Shares
Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Holder's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall deliver, as soon as practicable, to the Holder
or, in the case of the Holder's death, to the personal representative of the
Holder's estate or as the appropriate court directs, a stock certificate for the
appropriate number of shares of Common Stock.
10.3 Waiver of Restrictions
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Restricted Stock under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
SECTION 11. PERFORMANCE AWARDS
11.1 Plan Administrator Authority
Performance Awards may be denominated in cash, shares of Common Stock or
any combination thereof. The Plan Administrator is authorized to grant
Performance Awards and shall determine the nature, length and starting date of
the performance period for each Performance Award and the performance objectives
to be used in valuing Performance Awards and determining the extent to which
such Performance Awards have been earned. Performance objectives and other
terms may vary from Participant to Participant and between groups of
Participants. Performance objectives shall be based on profits, profit growth,
profit-related return ratios, cash flow or total return to shareholders, whether
applicable to the Company or any relevant Subsidiary or business unit,
comparisons with competitor companies or groups and with stock market indices,
or any combination thereof, as the Plan Administrator shall determine, in its
sole discretion. Additional performance measures may be used to the extent
their use would comply with the exclusion from the limitation on deductibility
of compensation under Section 162(m) of the Code.
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Performance periods may overlap and Participants may participate
simultaneously with respect to Performance Awards that are subject to different
performance periods and different performance factors and criteria. The Plan
Administrator shall determine for each Performance Award the range of dollar
values or number of shares of Common Stock (which may, but need not, be shares
of Restricted Stock pursuant to Section 10 of the Plan), or a combination
thereof, to be received by the Participant at the end of the performance period
if and to the extent that the relevant measures of performance for such
Performance Awards are met. No Performance Awards having an aggregate maximum
dollar value in excess of $300,000 shall be granted to any individual
Participant in any one fiscal year of the Company, such limitations to be
applied in a manner consistent with the requirements of, and to the extent
required for compliance with, the exclusion from the limitation on deductibility
of compensation under Section 162(m) of the Code.
The earned portion of a Performance Award may be paid currently or on a
deferred basis with such interest or earnings equivalent as may be determined by
the Plan Administrator. Payment shall be made in the form of cash, whole shares
of Common Stock (which may, but need not, be shares of Restricted Stock pursuant
to Section 10 of the Plan), Options or any combination thereof, either in a
single payment or in annual installments, all as the Plan Administrator shall
determine.
11.2 Adjustment of Awards
The Plan Administrator may adjust the performance goals and measurements
applicable to Performance Awards to take into account changes in law and
accounting and tax rules and to make such adjustments as the Plan Administrator
deems necessary or appropriate to reflect the inclusion or exclusion of the
impact of extraordinary or unusual items, events or circumstances, except that,
to the extent required for compliance with the exclusion from the limitation on
deductibility of compensation under Section 162(m) of the Code, no adjustment
shall be made that would result in an increase in the compensation of any
Participant whose compensation is subject to the limitation on deductibility
under Section 162(m) of the Code for the applicable year. The Plan
Administrator also may adjust the performance goals and measurements applicable
to Performance Awards and thereby reduce the amount to be received by any
Participant pursuant to such Awards if and to the extent that the Plan
Administrator deems it appropriate.
11.3 Payout Upon Termination
The Plan Administrator shall establish and set forth in each instrument
that evidences a Performance Award whether the Award will be payable, and the
terms and conditions of such payment, if a Holder ceases to be employed by, or
to provide services to, the Company or its Subsidiaries, which provisions may be
waived or modified by the Plan Administrator at any time. If not so established
in the instrument evidencing the Performance Award, the Award will be payable
according to the following terms and conditions, which may be waived or modified
by the Plan Administrator at any time. If during a performance period a
Participant's employment or services with the Company terminate by reason of the
Participant's Retirement, Early Retirement at the Company's request, Disability
or death, such Participant shall be entitled
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to a payment with respect to each outstanding Performance Award at the end of
the applicable performance period (a) based, to the extent relevant under the
terms of the Award, on the Participant's performance for the portion of such
performance period ending on the date of termination and (b) prorated for the
portion of the performance period during which the Participant was employed by
the Company, all as determined by the Plan Administrator. The Plan Administrator
may provide for an earlier payment in settlement of such Performance Award
discounted at a reasonable interest rate and otherwise in such amount and under
such terms and conditions as the Plan Administrator deems appropriate.
Except as otherwise provided in Section 15 of the Plan or in the instrument
evidencing the Performance Award, if during a performance period a Participant's
employment or services with the Company terminate other than by reason of the
Participant's Retirement, Early Retirement at the Company's request, Disability
or death, then such Participant shall not be entitled to any payment with
respect to the Performance Awards relating to such performance period, unless
the Plan Administrator shall otherwise determine. The provisions of Section 7.6
of the Plan regarding leaves of absence and termination for Cause shall apply to
Performance Awards.
SECTION 12. OTHER STOCK-BASED AWARDS
The Plan Administrator may grant other Awards under the Plan pursuant to
which shares of Common Stock (which may, but need not, be shares of Restricted
Stock pursuant to Section 10 of the Plan) are or may in the future be acquired,
or Awards denominated in stock units, including ones valued using measures other
than market value. Such Other Stock-Based Awards may be granted alone or in
addition to or in tandem with any Award of any type granted under the Plan and
must be consistent with the Plan's purpose.
SECTION 13. LOANS, LOAN GUARANTEES AND INSTALLMENT PAYMENTS
To assist a Holder (including a Holder who is an officer or director of the
Company) in acquiring shares of Common Stock pursuant to an Award granted under
the Plan, the Plan Administrator may authorize, either at the Grant Date or at
any time before the acquisition of Common Stock pursuant to the Award, (a) the
extension of a loan to the Holder by the Company, (b) the payment by the Holder
of the purchase price, if any, of the Common Stock in installments, or (c) the
guarantee by the Company of a loan obtained by the grantee from a third party.
The terms of any loans, installment payments or guarantees, including the
interest rate and terms of repayment, will be subject to the Plan
Administrator's discretion. Loans, installment payments and guarantees may be
granted with or without security. The maximum credit available is the purchase
price, if any, of the Common Stock acquired plus the maximum federal and state
income and employment tax liability that may be incurred in connection with the
acquisition.
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SECTION 14. ASSIGNABILITY
No Option, Stock Appreciation Right, Performance Award or Other Stock-
Based Award granted under the Plan may be assigned, pledged or transferred by
the Holder other than by will or by the laws of descent and distribution and,
during the Holder's lifetime, such Awards may be exercised only by the Holder or
a permitted assignee or transferee of the Holder (as provided below).
Notwithstanding the foregoing, and to the extent permitted by Section 422 of the
Code, the Plan Administrator, in its sole discretion, may permit such
assignment, transfer and exercisability and may permit a Holder of such Awards
to designate a beneficiary who may exercise the Award or receive compensation
under the Award after the Holder's death; provided, however, that any such Award
so assigned, pledged or transferred shall be subject to all the same terms and
conditions contained in the instrument evidencing the award.
SECTION 15. ADJUSTMENTS
15.1 Adjustment of Shares
In the event that at any time or from time to time a stock dividend, stock
split, spin-off, combination or exchange of shares, recapitalization, merger,
consolidation, distribution to shareholders other than a normal cash dividend,
or other change in the Company's corporate or capital structure results in (a)
the outstanding shares, or any securities exchanged therefor or received in
their place, being exchanged for a different number or class of securities of
the Company or of any other corporation or (b) new, different or additional
securities of the Company or of any other corporation being received by the
holders of shares of Common Stock of the Company, then the Plan Administrator,
in its sole discretion, shall make such equitable adjustments as it shall deem
appropriate in the circumstances in (i) the maximum number of and class of
securities subject to the Plan as set forth in Section 4.1 of the Plan, (ii) the
maximum number and class of securities that may be made subject to Awards to any
individual Participant as set forth in Section 4.2 of the Plan, and (iii) the
number and class of securities that are subject to any outstanding Award and the
per share price of such securities, without any change in the aggregate price to
be paid therefor. The determination by the Plan Administrator as to the terms
of any of the foregoing adjustments shall be conclusive and binding.
15.2 Corporate Transaction
Except as otherwise provided in the instrument that evidences the Award,
in the event of any Corporate Transaction, each Option, Stock Appreciation Right
or Stock Award that is at the time outstanding shall automatically accelerate so
that each such Award shall, immediately prior to the specified effective date
for the Corporate Transaction, become 100% vested, except that such acceleration
will not occur if, in the opinion of the Company's accountants, it would render
unavailable "pooling of interest" accounting for a Corporate Transaction that
would otherwise qualify for such accounting treatment.
Such Award shall not so accelerate, however, if and to the extent: (a)
such Award is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation or parent thereof (the "Successor
Corporation") or to be replaced with a comparable award for the
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purchase of shares of the capital stock of the Successor Corporation or (b) such
Award is to be replaced with a cash incentive program of the Successor
Corporation that preserves the spread existing at the time of the Corporate
Transaction and provides for subsequent payout in accordance with the same
vesting schedule applicable to such Award. The determination of Award
comparability under clause (a) above shall be made by the Plan Administrator,
and its determination shall be conclusive and binding.
All such Awards shall terminate and cease to remain outstanding
immediately following the consummation of the Corporate Transaction, except to
the extent assumed by the Successor Corporation. Any such Awards that are
assumed or replaced in the Corporate Transaction pursuant to items (a) and (b)
of the preceding paragraph and do not otherwise accelerate at that time shall be
accelerated in the event the Holder's employment or services should subsequently
terminate within two years following such Corporate Transaction, unless such
employment or services are terminated by the Successor Corporation for Cause or
by the Holder voluntarily without Good Reason. Notwithstanding the foregoing, no
Incentive Stock Option shall become exercisable pursuant to this Section 15.2
without the Holder's consent, if the result would be to cause such Option not to
be treated as an Incentive Stock Option (whether by reason of the annual
limitation described in Section 8.1 of the Plan or otherwise).
15.3 Further Adjustment of Awards
Without limiting the preceding Section 15.2 of the Plan, and subject to
the limitations set forth in Section 11 of the Plan, the Plan Administrator
shall have the discretion, exercisable at any time before a sale, merger,
consolidation, reorganization, liquidation or change in control of the Company,
as defined by the Plan Administrator, to take such further action as it
determines to be necessary or advisable, and fair and equitable to Participants,
with respect to Awards. Such authorized action may include (but shall not be
limited to) establishing, amending or waiving the type, terms, conditions or
duration of, or restrictions on, Awards so as to provide for earlier, later,
extended or additional time for exercise, payment or settlement or lifting
restrictions, differing methods for calculating payments or settlements,
alternate forms and amounts of payments and settlements and other modifications,
and the Plan Administrator may take such actions with respect to all
Participants, to certain categories of Participants or only to individual
Participants. The Plan Administrator may take such actions before or after
granting Awards to which the action relates and before or after any public
announcement with respect to such sale, merger, consolidation, reorganization,
liquidation or change in control that is the reason for such action.
15.4 Limitations
The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 16. WITHHOLDING OF TAXES
The Company may require the Holder to pay to the Company the amount of any
withholding taxes that the Company is required to withhold with respect to the
grant, exercise,
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payment or settlement of any Award and may withhold and retain shares of Common
Stock in such amounts as are equivalent in Fair Market Value to the withholding
obligation. Subject to the Plan and applicable law and unless the Plan
Administrator determines otherwise, the Holder may satisfy withholding
obligations, in whole or in part, by paying cash, by electing to have the
Company withhold and retain shares of Common Stock or by transferring shares of
Common Stock to the Company, in such amounts as are equivalent to the Fair
Market Value of the withholding obligation.
SECTION 17. AMENDMENT AND TERMINATION OF PLAN
17.1 Amendment of Plan
The Plan may be amended by the shareholders of the Company. The Board may
also amend the Plan in such respects as it shall deem advisable; however, to the
extent required for compliance with Section 422 of the Code or any applicable
law or regulation, shareholder approval will be required for any amendment that
will (a) increase the total number of shares as to which Options may be granted
or which may be used in payment of Stock Appreciation Rights, Performance Awards
or Other Stock-Based Awards under the Plan or that may be issued as Restricted
Stock, (b) modify the class of persons eligible to receive Options, or (c)
otherwise require shareholder approval under any applicable law or regulation.
17.2 Termination of Plan
The Company's shareholders or the Board may suspend or terminate the Plan
at any time. The Plan will have no fixed expiration date; provided, however,
that no Incentive Stock Options may be granted more than 10 years after the
Plan's effective date.
17.3 Consent of Holder
The amendment or termination of the Plan shall not, without the consent of
the Holder of any Award under the Plan, impair or diminish any rights or
obligations under any Award theretofore granted under the Plan.
SECTION 18. GENERAL
18.1 Notification
The Plan Administrator shall promptly notify a Participant of an Award,
and a written grant shall promptly be executed and delivered by or on behalf of
the Company.
18.2 Continued Employment or Services; Rights in Awards
Neither the Plan, participation in the Plan as a Participant nor any
action of the Plan Administrator taken under the Plan shall be construed as
giving any Participant or employee of the Company any right to be retained in
the employ of the Company or limit the Company's right to terminate the
employment or services of the Participant.
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18.3 Registration; Certificates for Shares
The Company shall be under no obligation to any Participant to register
for offering or resale under the Securities Act of 1933, as amended, or register
or qualify under state securities laws, any shares of Common Stock, security or
interest in a security paid or issued under, or created by, the Plan. The
Company may issue certificates for shares with such legends and subject to such
restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
18.4 No Rights as a Shareholder
No Option, Stock Appreciation Right, Performance Award or Other Stock-
Based Award shall entitle the Holder to any dividend, voting or other right of a
shareholder unless and until the date of issuance under the Plan of the shares
that are the subject of such Awards, free of all applicable restrictions.
18.5 Compliance With Laws and Regulations
Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Participants who are officers or
directors subject to Section 16 of the Exchange Act without so restricting,
limiting or conditioning the Plan with respect to other Participants.
Additionally, in interpreting and applying the provisions of the Plan, any
Option granted as an Incentive Stock Option pursuant to the Plan shall, to the
extent permitted by law, be construed as an "incentive stock option" within the
meaning of Section 422 of the Code.
18.6 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
18.7 Severability
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
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SECTION 19. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption or, if earlier, and to the extent required for
compliance with Rule 16b-3 under the Exchange Act, at the next annual meeting of
the Company's shareholders after adoption of the Plan by the Board.
Adopted by the Board of Directors on May 17, 1995 and approved by the
Company's shareholders on June 20, 1995.
Amended and Restated by the Board of Directors on October 22, 1996.
Amended by the Board of Directors on December 5, 1996, amended and restated
by the Board of Directors on January 22, 1997 and approved by the Company's
shareholders on February 26, 1997.
Stock Subject To Plan as set forth is Section 4 reflects the three-for-two
stock split effective October 17, 1995 and the two-for-one stock split effective
August 8, 1997.
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EXHIBIT 10.3
VISIO CORPORATION
1995 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
As Amended and Restated on October 22, 1996
SECTION 1. PURPOSE
The purposes of the Visio Corporation 1995 Stock Option Plan for
Nonemployee Directors (the "Plan") are to attract and retain the services of
experienced and knowledgeable nonemployee directors of Visio Corporation (the
"Company") and to provide an incentive for such directors to increase their
proprietary interests in the Company's long-term success and progress.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below. All references to "sections" shall be to the sections of the Plan.
2.1 "Annual Grant" means the grant of an Option pursuant to Section 5.3.
2.2 "Annual Meeting of Shareholders" means an annual meeting of the
Company's shareholders at which Directors are elected.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.5 "Common Stock" means the common stock, par value $.01 per share, of
the Company.
2.6 "Corporate Transaction" means any of the following events:
(a) Approval by the holders of the Common Stock of any merger or
consolidation of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Common Stock are
converted into cash, securities or other property, other than a merger of the
Company in which the holders of the Common Stock immediately prior to the merger
have substantially the same proportionate ownership of common stock of the
surviving corporation immediately after the merger;
(b) Approval by the holders of the Common Stock of any sale, lease,
exchange or other transfer in one transaction or a series of related
transactions of all or substantially all of the Company's assets other than a
transfer of the Company's assets to a majority-owned Subsidiary; or
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(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company.
2.7 "Director" means a member of the Board.
2.8 "Disability" means a mental or physical impairment of the
Optionholder that is expected to result in death or that has lasted or is
expected to last for a continuous period of 12 months or more and that causes
the Optionholder to be unable, in the opinion of the Company and two independent
physicians, to perform his or her duties for the Company and to be engaged in
any substantial gainful activity. Disability shall be deemed to have occurred on
the first day after the Company and the two independent physicians have
furnished their opinion of disability to the Plan Administrator.
2.9 "Eligible Director" means a Director who is not an employee of the
Company or any parent or subsidiary corporation.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.11 "Fair Market Value" means the average of the high and low per share
trading prices for the Common Stock as reported by the Nasdaq National Market
for a single trading day.
2.12 "Grant Date" means the last day of the Pricing Period following (a)
the date of an Eligible Director's initial election or appointment to the Board
in the case of an Initial Grant, and (b) the date of the applicable Annual
Meeting of Shareholders in the case of an Annual Grant.
2.13 "Initial Grant" means the grant of an Option pursuant to Section 5.2.
2.14 "Option" means the right to purchase Common Stock granted under
Section 5.
2.15 "Optionholder" means any Eligible Director to whom an Option is
granted under the Plan, or the personal representative of a Optionholder who has
died.
2.16 "Plan Administrator" means the Board or, in the event the Board shall
appoint and/or authorize a committee of persons other than Eligible Directors to
administer this Plan, such committee.
2.17 "Pricing Period" means the period beginning 15 consecutive trading
days preceding and ending 15 consecutive trading days following the grant of an
Option pursuant to Section 5.2 or Section 5.3.
2.18 "Subsidiary" means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Plan Administrator.
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SECTION 3. ADMINISTRATION
Subject to the terms of the Plan, the Plan Administrator shall have the
power to construe the provisions of the Plan, to determine all questions arising
hereunder and to adopt and amend such rules and regulations for the
administration of the Plan as it may deem desirable. No member of the committee
serving as the Plan Administrator shall participate in any vote by the Plan
Administrator on any matter materially affecting the rights of any such member
under the Plan.
SECTION 4. STOCK SUBJECT TO THE PLAN
Subject to adjustment from time to time as provided in Section 8, a maximum
of 240,000* shares of Common Stock shall be available for issuance under the
Plan. Shares issued under the Plan shall be drawn from authorized and unissued
shares or shares now held or subsequently acquired by the Company.
Any shares of Common Stock that have been made subject to an Option that
cease to be subject to the Option because the Option expires or terminates
without being exercised in full shall again be available for issuance in
connection with future grants of Options under the Plan.
SECTION 5. PARTICIPATION IN THE PLAN
5.1 Eligible Directors
Options may be granted under the Plan only to Eligible Directors. No grant
shall be made under this Section 5 if the effect of such grant would be to
obligate the Company to issue more Shares than are reserved under Section 4. If
insufficient shares are reserved under Section 4 to fully fund one or more
grants to be made under this Section 5 on the same Grant Date, then such grant
or grants shall be made as follows: (i) a single Initial Grant shall be made
for the remaining number of shares reserved under Section 4 on that Grant Date;
and (ii) multiple Initial and/or Annual Grants shall be reduced ratably so that
the aggregate number of shares subject to all such grants equals the remaining
number of shares reserved under Section 4 on that Grant Date. All grants made
prior to shareholder approval of the Plan shall be subject to such approval.
5.2 Initial Grants
Immediately following his or her initial election or appointment to the
Board, each Eligible Director shall automatically receive an Option to purchase
36,000* shares of Common Stock as an Initial Grant. Initial Grants shall vest
as follows: Options for 9,000* shares shall be exercisable on and after one
year from Grant Date, and options for an additional 9,000* shares shall be
exercisable on and after each of the three succeeding anniversaries of the Grant
Date.
5.3 Annual Grants
Commencing with the first Annual Meeting of Shareholders after the
effective date of the Plan, each Eligible Director shall automatically receive
an option to purchase 9,000* shares
________________
* After giving effect to a three-for-two stock split effective October 17, 1995
and a two-for-one stock split effective August 8, 1997.
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of Common Stock immediately following each year's Annual Meeting of Shareholders
as an Annual Grant. Annual Grants shall be fully vested on the date of the next
Annual Meeting of Shareholders after the Grant Date.
SECTION 6. OPTION TERMS
6.1 Nonqualified Stock Options; Term of Options
Options granted to an Eligible Director under the Plan shall constitute
nonqualified stock options. The term of each Option shall be 10 years from the
Grant Date.
6.2 Option Exercise Price
The exercise price for shares purchased under an Option shall be based on
the lowest price at which shares of Common Stock are traded (as reported by the
Nasdaq National Market) during the Pricing Period. However, the exercise price
shall not in any event be less than 85% of the Fair Market Value of the Common
Stock on the Grant Date.
6.3 Exercise of Options
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the terms, provisions and conditions of such Option in
accordance with the Plan, and such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Plan Administrator. Each
such instrument shall promptly be executed and delivered by or on behalf of the
Company.
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 6.5. In no case may an
Option be exercised as to less than 100 shares at any one time (or the lesser
number of remaining shares covered by the Option).
6.4 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
may be paid in whole or in part by delivery of (a) cash, (b) Common Stock
already owned by the Optionholder for at least six months (or any shorter period
necessary to avoid a charge to the Company's earnings for financial reporting
purposes) having a Fair Market Value on the day prior to the exercise date equal
to the aggregate Option exercise price, or (c) a properly executed exercise
notice, together with irrevocable instructions, to (i) a brokerage firm
designated by the Company to deliver promptly to the Company the aggregate
amount of sale or loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise and
(ii) the Company to deliver the certificates for such purchased shares directly
to such brokerage firm, all in accordance with the regulations of the Federal
Reserve Board.
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6.5 Holding Period
If an individual subject to Section 16 of the Exchange Act sells shares of
Common Stock obtained upon the exercise of any option granted under this Plan
within six (6) months after the date the option was granted, such sale may
result in short-swing profit recovery under Section 16(b) of the Exchange Act.
6.6 Post-Termination Exercises
If the Optionholder's service as a Director of the Company ceases for any
reason, then the portion of the Optionholder's Option which is not exercisable
at the time of such cessation shall terminate immediately upon such cessation.
In the event that a Optionholder ceases to be a Director for any reason other
than death, the Option shall be exercisable, to the extent of the number of
shares purchasable by the Optionholder at the date of such termination, only (a)
within three years if the termination of the Optionholder's service as a
Director is coincident with Disability or (b) within three months after the date
the Optionholder ceases to be a Director for any reason other than Disability,
but in no event later than the remaining term of the Option. Any Option
exercisable at the time of the Optionholder's death may be exercised, to the
extent of the number of shares purchasable by the Optionholder at the date of
the Optionholder's death, by the personal representative of the Optionholder's
estate entitled thereto at any time or from time to time within three years
after the date of death, but in no event later than the remaining term of the
Option.
SECTION 7. ASSIGNABILITY
During an Optionholder's lifetime, an option may be exercised only by the
Optionholder or a permitted assignee or transferee of the Optionholder (as
provided below). No Options granted under the Plan may be assigned, pledged or
transferred by the Optionholder other than by (a) will or the applicable laws of
descent and distribution, or (b) gift or other transfer to either (i) a spouse,
child or grandchild ("Immediate Family Member") or (ii) any trust, partnership
or other entity in which the Optionholder or such Optionholder's Immediate
Family Members have a substantial beneficial interest; provided, however, that
any Option so assigned or transferred shall be subject to all the same terms and
conditions contained in the instrument evidencing the award. In addition, an
Optionholder may designate in writing during the Optionholder's lifetime a
beneficiary to receive and exercise Options in the event of the Optionholder's
death (as provided in Section 6.6). Any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any Option under the Plan or of any right or
privilege conferred thereby, or to dispose of any Option under the Plan or of
any right or privilege conferred thereby, contrary to the provisions of the Plan
or the sale or levy or any attachment or similar process upon the rights and
privileges conferred hereby, shall be null and void.
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SECTION 8. ADJUSTMENTS
8.1 Adjustment of Shares
In the event that at any time or from time to time a stock dividend, stock
split, spin-off, combination or exchange of shares, recapitalization, merger,
consolidation, distribution to shareholders other than a normal cash dividend,
or other change in the Company's corporate or capital structure results in (a)
the outstanding shares, or any securities exchanged therefor or received in
their place, being exchanged for a different number or class of securities of
the Company or of any other corporation or (b) new, different or additional
securities of the Company or of any other corporation being received by the
holders of shares of Common Stock of the Company, then (i) the maximum number of
and class of securities subject to the Plan as set forth in Section 4 and (ii)
the number and class of securities that are subject to any outstanding Option
and the per share price of such securities, but not the aggregate price to be
paid therefor, shall all be proportionately adjusted. The determination by the
Plan Administrator as to the terms of any of the foregoing adjustments shall be
conclusive and binding.
8.2 Corporate Transaction
Except as otherwise provided in the instrument that evidences the Option,
in the event of any Corporate Transaction, each Option that is at the time
outstanding shall automatically accelerate so that each such Option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become 100% vested, except that such acceleration will not occur if, in the
opinion of the Company's accountants, it would render unavailable "pooling of
interest" accounting for a Corporate Transaction that would otherwise qualify
for such accounting treatment. All such Options shall terminate and cease to
remain outstanding immediately following the consummation of the Corporate
Transaction, except that in the event of a Corporate Transaction in which
shareholders of the Company receive capital stock of another corporation in
exchange for their shares of Common Stock, such unexercised Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation. Any such assumed or equivalent option shall be fully exercisable
with respect to the total number of shares purchasable under such Option.
Notwithstanding the foregoing, upon a merger of the Company in which the
holders of the Company's common stock immediately prior to the merger have the
same proportionate ownership of common stock in the surviving corporation
immediately after the merger, a mere reincorporation or the creation of a
holding company, each Option outstanding under the Plan shall be assumed or an
equivalent option shall be substituted by the successor corporation or a parent
or subsidiary of such corporation, and the vesting schedule set forth in the
instrument evidencing the option shall continue to apply to such assumed or
equivalent Option.
8.3 Limitations
The grant of Options will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
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SECTION 9. COMPLIANCE WITH RULE 16B-3
It is the Company's intention that the Plan comply in all respects with
the requirements for a "formula plan" within the meaning attributed to that term
for purposes of Rule 16b-3 promulgated under Section 16(b) of the Exchange Act.
Therefore, if any Plan provision is later found not to be in compliance with
such requirements, that provision shall be deemed null and void, and in all
events the Plan shall be construed in favor of its meeting such requirements.
SECTION 10. AMENDMENT AND TERMINATION OF PLAN
9.1 Amendment of Plan
The Plan may be amended by the shareholders of the Company. The Board may
also amend the Plan in such respects as it shall deem advisable; however, if
required to qualify the Plan as a formula plan for purposes of Rule 16b-3 under
the Exchange Act, no amendment may be made more than once every six months that
would change the amount, price, timing or vesting of the Options, other than to
comport with changes in the Code, or the rules and regulations promulgated
thereunder. In addition, shareholder approval will be required for any
amendment that will (a) increase the total number of shares as to which Options
may be granted under the Plan or (b) otherwise require shareholder approval
under any applicable law or regulation.
9.2 Termination of Plan
The Company's shareholders or the Board may suspend or terminate the Plan
at any time. The Plan will have no fixed expiration date.
SECTION 11. GENERAL
11.1 Limitation as to Directorship
Neither the Plan, nor the granting of an Option, nor any other action
taken pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that an Optionholder has a right to continue
as a Director for any period of time or at any particular rate of compensation.
11.2 Registration; Certificates for Shares
The Company shall be under no obligation to any Optionholder to register
for offering or resale under the Securities Act of 1933, as amended, or register
or qualify under state securities laws, any shares of Common Stock, security or
interest in a security paid or issued under, or created by, the Plan. The
Company may issue certificates for shares with such legends and subject to such
restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
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11.3 No Rights as a Shareholder
No Option shall entitle the Optionholder to any dividend, voting or other
right of a shareholder unless and until the date of issuance under the Plan of
the shares that are the subject of such Option, free of all applicable
restrictions.
11.4 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
11.5 Severability
If any provision of the Plan or any Option is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Option under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Option, such provision shall be stricken as to such jurisdiction,
person or Option, and the remainder of the Plan and any such Option shall remain
in full force and effect.
11.6 Expenses of the Plan
All costs and expenses of the adoption and administration of the Plan
shall be borne by the Company; none of such expenses shall be charged to any
Eligible Director.
SECTION 11. EFFECTIVE DATE
The Plan's effective date is the date, following adoption by the Board and
approval by the Company's shareholders, that the initial registration of the
Company's equity securities pursuant to Section 12(b) or 12(g) of the Exchange
Act becomes effective.
Adopted by the Board on April 26, 1995 and approved by the Company's
shareholders on June 20, 1995.
Amended and Restated by the Board of Directors on October 22, 1996.
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EXHIBIT 10.21
VISIO CORPORATION
1995 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE
The purposes of the Visio Corporation 1995 Employee Stock Purchase Plan
(the "Plan") are (i) to assist employees of Visio Corporation and its subsidiary
corporations in acquiring a stock ownership interest in the Company pursuant to
a plan that is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended, and (ii) to help
employees provide for their future security and to encourage them to remain in
the employment of the Company and its subsidiary corporations.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee appointed to administer the Plan pursuant
to Section 3.
"Company" means Visio Corporation, a Washington corporation.
"Eligible Compensation" means all regular cash compensation including
overtime, cash bonuses and commissions. Regular cash compensation does not
include severance pay, hiring and relocation bonuses, pay in lieu of vacations,
sick leave or any other special payments.
"Eligible Employee" means any employee who meets the following criteria:
(i) the employee does not, immediately after the option is granted,
own stock (as defined by Code Sections 423(b)(3) and 424(d))
possessing 5% or more of the total combined voting power or value
of all classes of stock of the Company or of a Parent Corporation
or Subsidiary Corporation of the Company;
<PAGE>
(ii) the employee's customary employment is not 20 hours or fewer
per week; and
(iii) the employee's customary employment is for more than five
months in any calendar year.
"ESPP Broker" has the meaning set forth in Section 10.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Offering" has the meaning set forth in Section 5.1.
"Offering Date" means the first day of an Offering.
"Offering Period" means a 24-month period.
"Option" means an option granted under the Plan to an Eligible Employee to
purchase shares of Stock.
"Parent Corporation" means any corporation, other than the Company, in an
unbroken chain of corporations ending with the Company, if, at the time of the
granting of the Option, each of the corporations, other than the Company, owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
"Participant" means any Eligible Employee who has elected to participate in
an Offering.
"Plan" means the Visio Corporation 1995 Employee Stock Purchase Plan.
"Plan Year" means the fiscal year beginning on October 1 and ending on the
Friday closest to September 30.
"Purchase Date" means the last day of each Purchase Period.
"Purchase Period" means each of the four consecutive purchase periods of
six months' duration during each Offering Period.
"Purchase Price" has the meaning set forth in Section 8.
"Stock" means the common stock of the Company.
"Subscription Date" means the last business day prior to an Offering Date.
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"Subsidiary Corporation" means any corporation, other than the Company, in
an unbroken chain of corporations beginning with the Company, if, at the time of
the granting of the Option, each of the corporations, other than the last
corporation in the unbroken chain, owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
SECTION 3. ADMINISTRATION
The Plan shall be administered by the Board or by a committee appointed by,
and consisting of one or more members of, the Board. The Board may delegate the
responsibility for administering the Plan with respect to designated classes of
eligible Participants to different committees, subject to such limitations as
the Board deems appropriate. Committee members shall serve for such terms as
the Board may determine, subject to removal by the Board at any time. Any
subsequent references to the Board shall also mean the Committee if it has been
appointed. All questions of interpretations of the Plan or of any Option shall
be determined by the Board and shall be final and binding upon all persons
having an interest in the Plan. Subject to the provisions of the Plan, the
Board shall determine all the relevant terms and conditions of options granted
pursuant to the Plan; provided, however, that all Participants granted options
pursuant to the Plan shall have the same rights and privileges within the
meaning of Code Section 423(b)(5).
SECTION 4. STOCK SUBJECT TO PLAN
Subject to adjustment from time to time as provided in Section 21, a
maximum of 750,000 shares of Stock shall be available for issuance under the
Plan. Shares issued under the Plan shall be drawn from authorized and unissued
shares or shares now held or subsequently acquired by the Company as treasury
shares.
SECTION 5. OFFERING DATES
5.1 Offering Periods
Except as otherwise set forth below, the Plan shall be implemented by a
series of Offerings. Offerings shall commence on October 1 and April 1 of each
year and end on the second September 30 and March 31, respectively, occurring
thereafter (an "Offering"). Notwithstanding the foregoing, the Board may
establish (a) a different term for one or more Offerings and (b) different
commencing and ending dates for such Offerings. An employee who becomes
eligible to participate in the Plan after an Offering Period has commenced shall
not be eligible to participate in such Offering but may participate in any
subsequent Offering provided such employee is still an
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Eligible Employee as of the commencement of any such subsequent Offering.
Eligible Employees may not participate in more than one Offering at a time. In
the event the first or the last day of an Offering Period is not a business day,
the Company shall specify the business day that will be deemed the first or last
day, as the case may be, of the Offering Period.
5.2 Purchase Periods
Each Offering Period shall consist of four consecutive Purchase Periods.
The last day of each Purchase Period shall be the Purchase Date for such
Purchase Period. A Purchase Period commencing on October 1 shall end on the
next March 31. A Purchase Period commencing on April 1 shall end on the next
September 30. Notwithstanding the foregoing, the Board may establish (a) a
different term for one or more Purchase Periods and (b) different commencing
dates and Purchase Dates for any such Purchase Period. In the event the first
or last day of a Purchase Period is not a business day, the Company shall
specify the business day that will be deemed the first or last day, as the case
may be, of the Purchase Period.
5.3 Governmental Approval; Stockholder Approval
Notwithstanding any other provision of the Plan to the contrary, an Option
granted pursuant to the Plan shall be subject to (i) obtaining all necessary
governmental approvals and qualifications of the Plan and the issuance of
Options and sale of Stock pursuant to the Plan and (ii) obtaining stockholder
approval of the Plan.
SECTION 6. PARTICIPATION IN THE PLAN
6.1 Initial Participation
An Eligible Employee shall become a Participant on the first Offering Date
after satisfying the eligibility requirements and delivering to the Company's
payroll office not later than the last business day before such Offering Date
(the "Subscription Date") a subscription agreement indicating the Eligible
Employee's election to participate in the Plan and authorizing payroll
deductions. An Eligible Employee who does not deliver a subscription agreement
to the Company's payroll office on or before the Subscription Date shall not
participate in the Plan for that Offering Period or for any subsequent Offering
Period unless such Eligible Employee subsequently enrolls in the Plan by filing
a subscription agreement with the Company by the Subscription Date for such
subsequent Offering Period. The Company may, from time to time, change the
Subscription Date as deemed advisable by the Company in its sole discretion for
the proper administration of the Plan.
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6.2 Continued Participation
A Participant shall automatically participate in the next Offering Period
until such time as such Participant withdraws from the Plan pursuant to Section
11.1 or 11.2 or terminates employment as provided in Section 13. If a
Participant is automatically withdrawn from an Offering at the end of a Purchase
Period pursuant to Section 12, then the Participant shall automatically
participate in the Offering Period commencing on the next business day. A
Participant is not required to file any additional subscription agreements for
subsequent Offerings in order to continue participation in the Plan.
SECTION 7. LIMITATIONS ON RIGHT TO PURCHASE SHARES
7.1 10,000 Share Limit
Except as set forth below, during an Offering Period, each Participant
shall have an Option to purchase 10,000 shares of Stock.
7.2 $15,000 Limitation
No Participant shall be entitled to purchase Stock under the Plan (or any
other employee stock purchase plan that is intended to meet the requirements of
Code Section 423 sponsored by the Company, a Parent Corporation or a Subsidiary
Corporation at a rate that exceeds $15,000 in fair market value, determined as
of the Offering Date for each Offering Period (or such other limit as may be
imposed by the Code), for each calendar year in which a Participant participates
in the Plan (or any other employee stock purchase plan described in this Section
7.2).
7.3 Pro Rata Allocation
In the event the number of shares of Stock that might be purchased by all
Participants in the Plan exceeds the number of shares of Stock available in the
Plan, the Company shall make a pro rata allocation of the remaining shares of
Stock in as uniform a manner as shall be practicable and as the Company shall
determine to be equitable.
SECTION 8. PURCHASE PRICE
The purchase price at which Stock may be acquired in an Offering pursuant
to the exercise of all or any portion of an Option granted under the Plan (the
"Offering Exercise Price") shall be set by the Board; provided, however, that
the Purchase Price
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for the first Offering Period shall be the lesser of (a) 100% of the initial
public offering price per share of Stock, before underwriters' discounts or
concessions, set forth in that certain Underwriting Agreement between the
Company and the representatives of the underwriters when executed in connection
with the Company's initial public offering of the Stock and (b) the fair market
value of the Stock on the Purchase Date, and for each subsequent Offering Period
shall be not less than 85% of the lesser of (a) the fair market value of the
Stock on the Offering Date of such Offering or (b) the fair market value of the
Stock on the Purchase Date. The fair market value of the Stock on the Offering
Date or on the Purchase Date shall be the closing price quoted on the Stock on
such date. If the Stock is not listed on a national market system, the Board
shall designate an alternative method of determining the fair market value of
the Stock.
SECTION 9. PAYMENT OF PURCHASE PRICE
9.1 General Rules
Stock which is acquired pursuant to the exercise of all or any portion of
an Option may be paid for only by means of payroll deductions from the
Participant's Eligible Compensation. Except as set forth in this Section 9, the
amount of compensation to be withheld from a Participant's Eligible Compensation
during each pay period shall be determined by the Participant's subscription
agreement.
9.2 Change Notices
During an Offering Period, a Participant may elect to decrease the amount
withheld from his or her compensation by filing an amended subscription
agreement with the Company on or before the change notice date. The change
notice date shall initially be the seventh day prior to the end of the first pay
period for which such election is to be effective; however, the Company may
change such change notice date from time to time.
9.3 Percent Withheld
The amount of payroll withholding with respect to the Plan for any
Participant during any pay period shall be at least 1% but shall not exceed 15%
of the Participant's Eligible Compensation for such pay period. Amounts shall
be withheld in whole percentages only.
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9.4 Payroll Deductions
Payroll deductions shall commence on the first payday following the
Offering Date and shall continue to the end of the Offering Period unless sooner
altered or terminated as provided in the Plan.
9.5 Memorandum Accounts
Individual accounts shall be maintained for each Participant for memorandum
purposes only. All payroll deductions from a Participant's compensation shall
be credited to such account but shall be deposited with the general funds of the
Company. All payroll deductions received or held by the Company may be used by
the Company for any corporate purpose.
9.6 No Interest
Interest shall not be paid on sums withheld from a Participant's
compensation.
9.7 Acquisition of Stock
On each Purchase Date of an Offering Period, each Participant who has not
withdrawn from the Offering or whose participation in the Offering is not
terminated on or before such date shall automatically acquire pursuant to the
exercise of the Participant's Option the number of whole shares of Stock arrived
at by dividing the total amount of the Participant's accumulated payroll
deductions for the Purchase Period by the Purchase Price; provided, however, in
no event shall the number of shares of Stock purchased by the Participant exceed
the number of shares of Stock subject to the Participant's Option.
9.8 Refund of Excess Amounts
Any cash balance remaining in the Participant's account shall be refunded
to the Participant as soon as practical after the Purchase Date. In the event
the cash to be returned to a Participant pursuant to the preceding sentence is
in an amount less than the amount necessary to purchase a whole share of Stock,
the Company may establish procedures whereby such cash is maintained in the
Participant's account and applied to the purchase of Stock in the subsequent
Purchase Period or Offering Period.
9.9 Withholding Obligations
At the time the Option is exercised, in whole or in part, or at the time
some or all of the Stock is disposed of, the Participant shall make adequate
provision for
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federal and state withholding obligations of the Company, if any, that arise
upon exercise of the Option or upon disposition of the Stock. The Company may,
but shall not be obligated to, withhold from the Participant's compensation the
amount necessary to meet such withholding obligations.
9.10 Termination of Participation
No Stock shall be purchased on behalf of a Participant on a Purchase Date
whose participation in the Offering or the Plan has terminated on or before such
Purchase Date.
9.11 Procedural Matters
The Company may, from time to time, establish (i) limitations on the
frequency and/or number of changes in the amount withheld during an Offering,
(ii) an exchange ratio applicable to amounts withheld in a currency other than
U.S. dollars, (iii) payroll withholding in excess of the amount designated by a
Participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, and (iv) such other
limitations or procedures as deemed advisable by the Company in the Company's
sole discretion that are consistent with the Plan and in accordance with the
requirements of Code Section 423.
9.12 Leaves of Absences
During leaves of absence approved by the Company and meeting the
requirements of Treasury Regulation Section 1.421-7(h)(2), a Participant may
continue participation in the Plan by making cash payments to the Company on his
or her normal paydays equal to the amount of his or her payroll deduction under
the Plan had the Participant not taken a leave of absence.
SECTION 10. EVIDENCE OF STOCK OWNERSHIP
Promptly following each Purchase Date, the number of shares of Stock
purchased by each Participant shall be deposited into an account established in
the Participant's name at a stock brokerage or other financial services firm
designated by the Company (the "ESPP Broker"). A Participant shall be free to
undertake a disposition of the shares of Stock in his or her account at any
time, but in the absence of such a disposition, the shares of Stock must remain
in the Participant's account at the ESPP Broker until the holding period set
forth in Code Section 423(a) has been satisfied. With respect to shares of
Stock for which the Code Section 423(a) holding periods have been satisfied, the
Participant may move those shares of Stock to another
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brokerage account of the Participant's choosing or request that a stock
certificate be issued and delivered to him or her. A Participant who is not
subject to payment of U.S. income taxes may move his or her shares of Stock to
another brokerage account of his or her choosing or request that a stock
certificate be delivered to him or her at any time, without regard to the Code
Section 423(a) holding period.
SECTION 11. VOLUNTARY WITHDRAWAL
11.1 Withdrawal From an Offering
A Participant may withdraw from an Offering by signing and delivering to
the Company's payroll office a written notice of withdrawal on a form provided
by the Company for such purpose. Such withdrawal may be elected at any time
prior to the end of an Offering Period, however, if a Participant withdraws
after the Purchase Date for a Purchase Period of an Offering, the withdrawal
shall not affect Stock acquired by the Participant in the earlier Purchase
Periods. Unless otherwise indicated, withdrawal from an Offering shall not
result in a withdrawal from the Plan or any succeeding Offering therein. A
Participant is prohibited from again participating in the same Offering at any
time upon withdrawal from such Offering. The Company may, from time to time,
impose a requirement that the notice of withdrawal be on file with the payroll
office for a reasonable period prior to the effectiveness of the Participant's
withdrawal.
11.2 Withdrawal From the Plan
A Participant may withdraw from the Plan by signing a written notice of
withdrawal on a form provided by the Company for such purpose and delivering
such notice to the Company's payroll office. In the event a Participant
voluntarily elects to withdraw from the Plan, the Participant may not resume
participation in the Plan during the same Offering Period, but may participate
in any subsequent Offering under the Plan by again satisfying the definition of
Eligible Employee. The Company may impose, from time to time, a requirement
that the notice of withdrawal be on file with the payroll office for a
reasonable period prior to the effectiveness of the Participant's withdrawal.
11.3 Return of Payroll Deductions
Upon withdrawal from an Offering pursuant to Section 11.1 or 11.2, the
withdrawing Participant's accumulated payroll deductions that have not been
applied to the purchase of Stock shall be returned as soon as practical after
the withdrawal, without the payment of any interest, to the Participant and the
Participant's interest in
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the Offering shall terminate. Such accumulated payroll deductions may not be
applied to any other Offering under the Plan.
SECTION 12. AUTOMATIC WITHDRAWAL FROM AN OFFERING
If the fair market value of the Stock on a Purchase Date of an Offering
(other than the final Purchase Date of such Offering) is less than the fair
market value of the shares on the Offering Date for such Offering, then every
Participant shall automatically (i) be withdrawn from such Offering at the close
of such purchase date and after the acquisition of Stock for such Purchase
Period (ii) be enrolled in the Offering commencing on the first business day
subsequent to such Purchase Period.
SECTION 13. TERMINATION OF EMPLOYMENT
Termination of a Participant's employment with the Company for any reason,
including retirement, death or the failure of a Participant to remain an
Employee eligible to participate in the Plan, shall terminate the Participant's
participation in the Plan immediately. In such event, the payroll deductions
credited to the Participant's account since the last Purchase Date shall, as
soon as practical, be returned to the Participant or, in the case of a
Participant's death, to the Participant's legal representative, and all of the
Participant's rights under the Plan shall terminate. Interest shall not be paid
on sums returned to a Participant pursuant to this Section 13.
SECTION 14. RESTRICTIONS UPON ASSIGNMENT
An Option granted under the Plan shall not be transferable otherwise than
by will or the laws of descent and distribution, and is exercisable during the
Participant's lifetime only by the Participant. The Company will not recognize
and shall be under no duty to recognize any assignment or purported assignment
by a Participant, other than by will or the laws of descent and distribution, of
the Participant's interest in the Plan, of his or her Option or of any rights
under his or her Option.
SECTION 15. EXCHANGE ACT HOLDING PERIOD
Disposition of the shares of the Stock obtained upon exercise of the Option
by persons required to file Forms 3, 4 and 5 pursuant to Section 16 of the
Exchange Act, within six months of the Purchase Date, will cause the Option
grant to be treated as a purchase under Section 16(b) of the Exchange Act as of
the Purchase Date and could result in short-swing liability under Section 16(b).
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<PAGE>
SECTION 16. NO RIGHTS OF STOCKHOLDER UNTIL CERTIFICATE ISSUED
With respect to shares of the Stock subject to an Option, a Participant
shall not be deemed to be a stockholder of the Company, and he or she shall not
have any of the rights or privileges of a stockholder. A Participant shall have
the rights and privileges of a stockholder of the Company when, but not until, a
certificate, or its equivalent, for shares has been issued to the Participant
following exercise of his or her Option.
SECTION 17. AMENDMENT OF THE PLAN
The Board of Directors may amend, suspend or terminate the Plan at any time
and from time to time; provided that approval by the vote of the holders of more
than 50% of the outstanding shares of the Company's Stock entitled to vote shall
be required to amend the Plan to (i) change the number of shares of the Stock
reserved for the Options under the Plan, (ii) decrease the Purchase Price below
a price computed in the manner stated in Section 8, or (iii) alter the
requirements of eligibility to participate in the Plan.
SECTION 18. NO RIGHTS AS AN EMPLOYEE
Nothing in the Plan shall be construed to give any person (including any
Eligible Employee or Participant) the right to remain in the employ of the
Company or a Parent or Subsidiary of the Company or to affect the right of the
Company and Parents and Subsidiaries of the Company to terminate the employment
of any person (including any Eligible Employee or Participant) at any time with
or without cause.
SECTION 19. TERM
No Option may be granted during any period of suspension or after
termination of the Plan, and in no event may any Option be granted under the
Plan after ten years from commencement of the Plan.
SECTION 20. EFFECT UPON OTHER PLANS
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Parent or Subsidiary of the
Company. Nothing in this Plan shall be construed to limit the right of the
Company, any Parent Corporation or Subsidiary Corporation to (a) establish any
other forms of incentives or compensation for employees of the Company, Parent
Corporation or Subsidiary Corporation or (b) grant or assume options otherwise
than under this Plan in connection with any proper corporate purpose, including,
but not by way of limitation,
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<PAGE>
the grant or assumption of options in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business, stock or
assets of any corporation, firm or association.
SECTION 21. ADJUSTMENTS
21.1 Adjustment of Shares
In the event that at any time or from time to time a stock dividend, stock
split, spin-off, combination or exchange of shares, recapitalization, merger,
consolidation, distribution to stockholders other than a normal cash dividend,
or other change in the Company's corporate or capital structure results in (a)
the outstanding shares, or any securities exchanged therefor or received in
their place, being exchanged for a different number or class of securities of
the Company or of any other corporation or (b) new, different or additional
securities of the Company or of any other corporation being received by the
holders of shares of Common Stock of the Company, then the Committee, in its
sole discretion, shall make such equitable adjustments as it shall deem
appropriate in the circumstances in the maximum number of shares of Stock
subject to the Plan as set forth in Section 4. The determination by the
Committee as to the terms of any of the foregoing adjustments shall be
conclusive and binding.
21.2 Limitations
The grant of Options will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 22. GENERAL
22.1 Registration; Certificates for Shares
The Company shall be under no obligation to any Participant to register
for offering or resale under the Securities Act of 1933, as amended, or register
or qualify under state securities laws, any shares of Stock. The Company may
issue certificates for shares with such legends and subject to such restrictions
on transfer and stop-transfer instructions as counsel for the Company deems
necessary or desirable for compliance by the Company with federal and state
securities laws.
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<PAGE>
22.2 Compliance With Laws and Regulations
It is the Company's intention that, so long as any of the Company's equity
securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, the Plan shall comply in all respects with Rule 16b-3 under the Exchange
Act and, if any Plan provision is later found not to be in compliance with such
Rule, the provision shall be deemed null and void, and in all events the Plan
shall be construed in favor of its meeting the requirements of Rule 16b-3.
Adopted by the Board of Directors on September 12, 1995 and approved by
the Company's shareholders on October 5, 1995.
Amended by the Board of Directors on October 22, 1996 and April 23, 1997.
Stock Subject To Plan as set forth is Section 4 reflects the three-for-two
stock split effective October 17, 1995 and the two-for-one stock split effective
August 8, 1997.
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<PAGE>
AMENDMENT NO. 1
TO THE
VISIO CORPORATION
1995 EMPLOYEE STOCK PURCHASE PLAN
The Visio Corporation 1995 Employee Stock Purchase Plan (the "Plan") is
hereby amended as follows:
1. Section 15 of the Plan shall be deleted.
2. Section 22.2 of the Plan shall be deleted.
The effective date of such amendments shall be October 22, 1996.
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<PAGE>
AMENDMENT NO. 2
TO THE
VISIO CORPORATION
1995 EMPLOYEE STOCK PURCHASE PLAN
The Visio Corporation 1995 Employee Stock Purchase Plan (the "Plan") is
hereby amended as follows:
1. The definition of "Eligible Employee" under Section 2 of the Plan is
hereby amended to read as follows:
"Eligible Employee" means any employee of the Company or its
designated subsidiaries (as specifically designated from time to time
by the Board) who meets the following criteria:
(i) the employee does not, immediately after the option is
granted, own stock (as defined by Code Sections 423(b)(3)
and 424(d)) possessing 5% or more of the total combined
voting power or value of all classes of stock of the
Company or of a Parent Corporation or Subsidiary
Corporation of the Company;
(ii) the employee's customary employment is not 20 hours or fewer
per week; and
(iii) the employee's customary employment is for more than five
months in any calendar year.
2. Section 5.1 of the Plan is hereby amended to read as follows:
5.1 Offering Periods
Except as otherwise set forth below, the Plan shall be implemented
by a series of Offerings. Offerings shall commence on October 1 and
April 1 of each year and end on the second September 30 and March 31,
respectively, occurring thereafter (an "Offering"). Notwithstanding the
foregoing, the Board may establish (a) a different term for one or more
Offerings and (b) different commencing and ending dates for such
Offerings. An employee who becomes eligible to participate in the Plan
after an Offering Period has
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<PAGE>
commenced shall not be eligible to participate in such Offering but may
participate in any subsequent Offering provided such employee is still
an Eligible Employee as of the commencement of any such subsequent
Offering. In the event the first or the last day of an Offering Period
is not a business day, the Company shall specify the business day that
will be deemed the first or last day, as the case may be, of the
Offering Period.
3. Section 7.2 of the Plan is hereby amended to read as follows:
7.2 $25,000 Limitation
No Participant shall be entitled to purchase Stock under the Plan
(or any other employee stock purchase plan that is intended to meet the
requirements of Code Section 423 sponsored by the Company, a Parent
Corporation or a Subsidiary Corporation at a rate that exceeds $25,000
in fair market value, determined as of the Offering Date for each
Offering Period (or such other limit as may be imposed by the Code),
for each calendar year in which a Participant participates in the Plan
(or any other employee stock purchase plan described in this Section
7.2).
The effective date of such amendments shall be April 23, 1997.
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<PAGE>
EXHIBIT 11.1
VISIO CORPORATION
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1996 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Weighted average common shares outstanding 10,766 26,178 27,818
Net effect of dilutive stock options calculated using the
treasury stock method and the average stock price 1,734 2,686 2,454
Net effect of dilutive stock warrants calculated using
the treasury stock method and the average stock price 48 288 140
Weighted average common shares giving effect to the pro
forma conversion of convertible and redeemable preferred 10,118 n/a n/a
stock into common stock
Net effect of preferred stock issued, stock options
exercised and stock options granted during the 12 months
prior to the Company's filing of it's initial public
offering, calculated using the treasury stock method at
the offering price of $16.00 per share.
Preferred stock issued 170 n/a n/a
Stock options exercised 166 n/a n/a
Stock options granted 674 n/a n/a
------- ----------------- -----------------
Total 23,676 29,152 30,412
======= ======= =======
Net Income $ 2,346 $11,091 $15,113
======= ======= =======
Net income per share $0.10 $0.38 $0.50
======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
Visio International Limited (formerly Shapeware International Limited)
Dublin, Ireland
Visio International (UK) Limited (formerly Shapeware (UK) Limited)
London, England
Visio France SARL (formerly Shapeware France SARL)
Paris, France
Visio GmbH (formerly Shapeware GmbH)
Munich, Germany
Visio International Incorporated
Seattle, Washington U.S.A.
Doing business as:
Visio International Incorporated (Asia/Pacific)
Visio International Incorporated (Australia /New Zealand)
Visio International Incorporated (Latin America)
Visio Singapore PTE LTD
Singapore
Visio Japan K.K.
Tokyo, Japan
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-1022) pertaining to the Visio Corporation 1990 Stock Option Plan,
Visio Corporation 1995 Long-term Incentive Compensation Plan, Visio Corporation
1995 Nonemployee Director Stock Option Plan, Visio Corporation 1995 Employee
Stock Purchase Plan, and Visio Corporation (formerly Shapeware Corporation)
Common Stock Purchase Warrant of Visio Corporation of our report dated October
24, 1997, with respect to the financial statements and schedule of Visio
Corporation included in the Annual Report (Form 10-K) for the year ended
September 30, 1997.
/s/ ERNST & YOUNG LLP
Seattle, Washington
December 23, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 79,594
<SECURITIES> 0
<RECEIVABLES> 10,685
<ALLOWANCES> 4,325
<INVENTORY> 1,079
<CURRENT-ASSETS> 98,315
<PP&E> 13,261
<DEPRECIATION> 5,222
<TOTAL-ASSETS> 109,215
<CURRENT-LIABILITIES> 32,387
<BONDS> 0
0
0
<COMMON> 52,258
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 109,215
<SALES> 99,515
<TOTAL-REVENUES> 99,515
<CGS> 10,579
<TOTAL-COSTS> 10,579
<OTHER-EXPENSES> 71,861
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> 20,423
<INCOME-TAX> 5,310
<INCOME-CONTINUING> 15,113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,113
<EPS-PRIMARY> $0.50
<EPS-DILUTED> $0.50
</TABLE>
